Raafat Al-Baldawi: Researcher Specialist in Economic Affairs, Master of Finance Studies – University of Baghdad.
In Iraq, all those who are decision-makers, active politicians, and specialists in various economic fields speak of economic reform as one of the lifeguards of the economy. In fact, none of the successive Governments that managed the country were able to do much in this area, so that the efforts of active international and local organizations did not yield results for more than a modest few; Here, we must acknowledge one important thing: the plans and strategies put in place, as well as the advice, were not inadequate, but rather diagnosed many of the imbalances that could be addressed, but lacked one thing – and we do not know whether it was deliberate or not – that of not analyzing the impact of these reforms on economic, social, political and humanitarian aspects; Therefore, they are always faced with shocks, and popular reactions, forcing them to retreat, where Governments are trying to maintain their political assets, as well as trying not to withstand the consequences of crises caused by the mismanagement of previous Governments.
For example, there is always a file that everyone sees as important: the salaries of public sector employees, who are always overburdened by the state budget. Politicians, as well as some government officials, are racing with each crisis by putting forward a reduction in the salaries of employees[i], as one of the most important solutions to overcoming crises. In fact, this part needs to be explained to the reader. The salary of a public sector employee consists of two parts. The first is the nominal salary awarded in accordance with the State and Public Sector Employees Salaries Act No. 22 of 2008, as well as the so-called Fixed Allocations, and the other part, allocations made under different titles, under special laws, and decisions of the Council of Ministers. Paradoxically, is that the total allocation paid to employees is approximately $23 billion. While nominal salaries weighed only $12 billion [ii]. At first sight, these figures seem striking, call for urgent measures, and that they need rapid reform, but the impact calculations make us wonder, are nominal salaries without additional allocations sufficient to sustain low-income families? If we know that the nominal salary may not be enough to rent a house on a monthly basis, especially with rising annual inflation rates, normal and abnormal rates, this question raises other sub-questions: For example, what salary rate could support a family? Another question: If the new salary does not match the family income to be saved, can a public employee find another job, with a higher income, or at least another part-time job? Or will some families move into poverty and subsistence?
Another example of the now ill-prepared economic reforms that many are calling for these days is the devaluation of the Iraqi dinar against the United States dollar[iii], in order to cope with the crisis of declining government revenues caused by falling world oil prices, but a simple look at the trade balance that shows the country’s imports and exports is catastrophic. (In 2018, Iraq imported the US $45.7 billion of goods, while only US $101 million of goods (just oil) were exported). [iv] The disaster is that the country imports almost everything, exports only oil, and other simple goods, which means that reducing the price of dinar by 30% results in a decline in per capita income by about the same percentage, and advocates of this proposal always base themselves on the fact that the private sector will respond quickly to this rise in the price of imported goods, and the country may start to self-produce, but at the same time, no one has thought about the duration of this response! What if the private sector does not respond, to the extent that the citizens exceed their crisis by reducing 3% of their purchasing power? This measure carries with it a lot of financial selfishness, through which the Government seeks to solve a problem it faces in public finances so that it can continue to pay its employees without borrowing, indifferent to some 3 million private-sector workers who may be directly affected by this decision.
Also, among the weak attempts at reform, we have a very clear example. At the beginning of its lifespan, the current government led by Al- Kadhimi announced a series of reforms in the salaries of employees and retirees, the first of which began in the history of 10/6/2020, doing as little as can be said (risky). The government has cut the salaries of mainly low retirees by 10% [v], and this reduction has provoked outrage on social media, with clear sympathy for the affected segment, even by those not affected by this measure, this failed model of reform, prompting Al- Kadhimi to cancel his decision, and return the deductions the day after the cuts!
These reforms give us a clear picture of how the affairs of the country are managed, without significant economic, social, and humanitarian considerations, and that these events must lead active decision-makers and politicians to understand the environment in which they operate, which is important for two reasons: One: Ensuring success. Two political gain and preserving the public.
Speaking of the success of economic reform, as a successful practical example, the Government of former Prime Minister Haider al-Abadi (2014-2018) cut the salaries of senior officials and very high private grades[vi], and this type of reform was widely welcomed; Despite their political weight, the beneficiaries were forced to accept this reduction with bitterness. This procedure had two main elements that prompted it to succeed: One: Popular support for the resolution, the second: The reduction was based on an overpaid salary.
After these examples of lost effort, do we give up? Or should we go ahead and use other strategies? One of the strategies to be pursued is to maneuver reform, which is done by initiating reforms with positive effects first. Here, the Government has to work to convince people that these reform efforts are basically in its favor, and that cannot be done by talking to people face-to-face, but by restoring trust, by building successful models of reform, with vast popular returns. For example, the launching of anti-corruption reforms, the results of which would lead to the return of part of Iraq’s looted funds, another example, the beginning of the reform of the institutional structure, the abolition of many surplus institutions and positions, as well as the automation of certain revenue-collection institutions such as the Customs and Taxes.
After initiating this type of reform, the Government must maneuver again, but this time it must begin with the least impact, but only after measuring the impact of the reform and looking at the affected segment with insight, and measuring the duration of the impact on the affected segments, the impact must be short-lived; so that they can start with other new reforms, without affecting large segments of society; This makes the reforms ultimately in the face of widespread popular rejection, forcing them to return to the starting point.
To measure the reactions that can happen, the government has to use more sober models, right now the government is pulling the pulse of the street and the people, by spreading some news about events that are really unbearable, through sites and pages of social media that are semi-official, or non-official, in the hope that they have popular support, that they can implement some decisions, we can’t deny that it’s an effective way sometimes, but they lose us an important aspect of decision-making. And it’s the “analysis”, the reactions on social media that give us clear reactions, but they’re general and they don’t help make a decision, they kind of discourage the will to change. The government has to use the polls to measure these reactions, so that it can analyze the data, and turn it into important information, that would give a clear picture of what people really want, and detail what the intellectual class wants, against the wishes of the populist class, which is often dominated by social media.
Finally, decision-makers, people, and everyone with responsibility and concern must know that the economy has to drive politics, and if the opposite happens and politics in some way drives the economy; This means that there is corruption, which cannot be justified, and what the country is going through is the best evidence.
[i].
Muhammad Al-Waeli, AN OVERVIEW OF IRAQ’S FINANCES, 1001 Iraqi Thoughts, https://1001iraqithoughts.com/2020/06/11/an-overview-of-iraqs-finances/
[ii].
Ali Al-Mawlawi, Economic Reform in Iraq: The Need for Focus and Persistence, Italian Institute For International Political studies, https://www.ispionline.it/en/pubblicazione/economic-reform-iraq-need-focus-and-persistence-27273
[iii].
Muhammad Al-Waeli, Is Devaluing The Dinar The Answer To Iraq’s Financial Crisis?, 1001 Iraqi Thoughts, https://1001iraqithoughts.com/2020/06/02/is-devaluing-the-dinar-the-answer-to-iraqs-financial-crisis/
[iv].
Central Bank of Iraq, Statistics & Research Department, Annual Statistical Bulletin, 2018, p 94.
[v].
The outputs of the Seven Emergency Cell for Financial Reform, which was formed by the decision of the Council of Ministers in its second session on 12/5/2020.
[vi].
Council of Ministers Decisions, No. 292 of 2015, http://www.cabinet.iq/ArticleShow.aspx?ID=6380
