PART III POSTCONFLICT ADMINISTRATIONS IN PRACTICE
4. Iraq: Economic Reconstruction and the Laws of
The economic situation in Iraq was as disastrous as in the previous cases, although strict international sanctions had contributed even more to the deterioration of the Iraqi economy. Oil exports under the ‘oil-for-food programme’ had nevertheless created a small economic growth since its inception.627 The UN was responsible for “promoting economic reconstruction and the conditions for sustainable development, including through coordination with national and regional organizations, as appropriate, civil society, donors, and the international financial institutions”.628 Security Council Resolution 1483 equally entrusted the CPA with a limited economic mandate, part of which was the management of the oil-for-food programme which was transferred to the CPA. The CPA nev- ertheless opted for a broad interpretation of its mandate and included several
623 Saikal, A., ‘Afghanistan’s weak state and strong society’, in Chesterman et al., supra note 5, p. 205.
624 Ibid., p. 206 and Kapila, M., ‘The Role of Donors in Afghanistan’, in Azimi, Fuller and Nakayama, supra note 85, p. 205.
625 Ali, N., ‘An Introduction to the Economic Reconstruction of Afghanistan’, Institute for Afghan Studies (May 2003).
626 Dobbins et al., supra note 521, p. 206.
627 Report of the Secretary-General, UN Doc. S/2003/715 (17 July 2003), supra note 160, para. 84.
628 SC Res. 1483, UN Doc. S/RES/1483 (2003), para. 8, e).
highly questionable economic measures in light of the mandate it was endowed with. The CPA based the adoption of regulations on economic issues on a very extensive interpretation of Security Council Resolution 1483, in which the authority was asked to “promote economic reconstruction and the conditions for sustainable development” and on its obligation to “provide for the effective administration”,629 combined with a report of the Secretary-General in which it was stated that “the development of Iraq and the transition from a centrally planned economy to a market economy needs to be undertaken”.630 The report from the Secretary-General cannot however in any case constitute an adequate legal basis for such measures, although one could argue that it represents a reli- able interpretation of relevant Security Council resolutions. Despite the legal controversies on the conformity of this regulation with the international laws of occupation, and relevant Security Council Resolution, it has been claimed that these measures were undoubtedly mandatory to allow economic reconstruction in Iraq.631
With the aim of improving initial economic recovery the CPA took immediate measures, such as the distribution of new banknotes,632 in cooperation with the World Bank and the IMF.633 The Iraqi Central Bank was re-established as an independent authority in July 2003.634 The CPA equally created an ‘Iraqi Trade Bank’ to “facilitate the importation and exportation of goods and services to and from Iraq in order to benefit the economy of Iraq”.635 In accordance with Secu- rity Council Resolution 1483, an Iraqi Development Fund, in essence intended to assemble the revenues from oil export, was set up under the auspices of the
629 Cf. the considerations of, for example, CPA Order 29 on Trade Bank of Iraq: “Recognizing the CPA’s obligation to provide for the effective administration of Iraq, to ensure the well being of the Iraqi people and to enable the social functions and normal transactions of every day life, [. . .] Acting in a manner consistent with the Report of the Secretary General to the Security Council of July 17, 2003, concerning the need for the development of Iraq and its transition from a non-transparent centrally planned economy to a market economy character- ized by sustainable economic growth through the establishment of a dynamic private sector, and the need to enact institutional and legal reforms to give it effect.”
630 Report of the Secretary-General, UN Doc. S/2003/715 (17 July 2003), supra note 160, para. 84.
631 Wolfrum, supra note 159, p. 23. See also Report of the Secretary-General, UN Doc. S/2003/715 (17 July 2003), supra note 160, para. 84.
632 This is generally seen as authorised under the laws of occupation. See Benvenisti, supra note 450, p. 16.
633 Report of the Secretary-General, UN Doc. S/2003/715 (17 July 2003), supra note 160, para. 85.
634 CPA Order Number 18, ‘Measures to Ensure the Independence of the Central Bank of Iraq’, CPA/ORD/07 July 2003/18 (7 July 2003).
635 CPA Order Number 19, ‘Trade Bank of Iraq’, CPA/ORD/17 July 2003/20 (17 July 2003).
Iraqi Central Bank, while the CPA was authorised to make use of its revenues.636 However, it should be stressed that the allocation of the exploitation of and responsibility over natural resources to the CPA is exceptional, as the laws of occupation provide only that the occupier is the administrator and usufructu- ary of public facilities.637 The relevant Security Council resolution nevertheless authorised the use of the Fund only in the interest of the local population.
Perhaps the most controversial CPA measure was Order 39 on ‘Foreign Investment’.638 Whilst replacing all former Iraqi investment laws, the order allowed for the unlimited participation of foreign investors in the Iraqi economy, except in the oil sector. This foreign investment policy was subsequently extended to the banking sector.639 Although the Central Bank of Iraq was to give clearance for a take-over in the banking sector, the CPA regulation limited refusal to only when the acquisition would “substantially lessen competition, jeopardize the financial soundness of the bank or endanger the interests of the bank’s depositors”.640 This resulted in the complete take-over by foreign investors of six Iraqi banks by November 2003, leading to much criticism from Iraqis.641 Although it is evident that the Bush Administration favoured a neo-liberal economic model in Iraq,642 neither the laws of occupation nor Security Council Resolution 1483 provide a clear-cut legal basis for these kinds of intrusive transformation. In addition, the temporary nature of the CPA’s authority should, in light of the ambiguities in the Security Council Resolution, have prevailed.
Although several promising measures were taken upon the CPA’s take-over of the administration, reconstruction of the Iraqi economy can hardly be called a success. The CPA for instance failed to anticipate the effects of local traditions on its policy. The Authority had for example developed a tax system, but it
636 CPA Regulation Number 2, ‘Development Fund for Iraq’, CPA/REG/10 June 2003/02 (10 June 2003).
637 See Langenkamp, R. D. and Zedalis, R. J., ‘What Happens to the Iraqi Oil? Thoughts on Some Significant, Unexamined International Legal Questions Regarding Occupation of Oil Fields’, 14 European Journal of International Law 417 (2003). Contra: Perez, A. F., ‘Legal Frameworks for Economic Transition in Iraq – Occupation under the Law of War vs. Global Governance under the Law of Peace’, 18 The Transnational Lawyer 53 (2004–2005).
638 CPA Order Number 39, ‘Foreign Investment (Amended by Order 46)’, CPA/OR/20Dec 2003/35 (19 December 2003).
639 CPA Order Number 40, ‘Bank Law with Annex A **Rescinded per Order 94 Sec 3**’, CPA/
OR/19 Sep 2003/40 (19 September 2003).
640 Ibid., Art. 22, para. 3.
641 Murphy, M. A., ‘A “World Occupation” of the Iraqi Economy? How Order 39 Will Create a Semi-Sovereign State’, 19 Connecticut Journal of International Law 451 (2003–2004).
642 This had been proposed in a USAID classified document, which was leaked to the press. See King, N. Jr., ‘Bush Officials Draft Broad Plan for Free-Market Economy in Iraq’, The Wall Street Journal (1 May 2003).
completely lacked the capacity to collect tax revenues as the Iraqi economy was strongly cash-based.643 Lack of consultation with Iraqi Interim structures has been a recurrent criticism of the CPA’s work in this field. The adoption of intrusive measures, which go far beyond the promotion of economic reconstruction, was seen by many Iraqi officials as ‘market fundamentalism’.644 In addition to the growing suspicion on the United States’ objectives, the main aim of the highly contested measure – foreign investment – was not achieved at all, except in the banking sector.645 The CPA’s liberal economic agenda was too important to be dealt with by an occupying force, which is limited by the legal framework of the laws of occupation, even with an extended Security Council mandate.