Administrator’s Weekly Report Economy

Administrator’s Weekly Report Economy March 27-April 3, 2004 HIGHLIGHTS As of March 28, 2004, estimated crude oil export revenue reached $3.7 billion for 2004 (crude oil export revenue for 2003 [June - December] was $5.1 billion). North Bank, the first new private bank chartered since the liberation, held its grand opening at its new headquarters in Baghdad. It plans to open four branches in Kirkuk, Irbil, Suli, and Dahouk in the very near future. I. BUILD FINANCIAL MARKET STRUCTURES Modernize the Central Bank; Commercial Banking System; Re-establish Baghdad Stock Exchange; Restructure National Debt Twelve of the eligible private banks signed up for the Visa payment system. An announcement event is scheduled for April 13 at the Central Bank of Iraq. North Bank, the first new private bank chartered since the liberation, held its grand opening at its new headquarters in Baghdad. The bank plans to open four branches in Kirkuk, Irbil, Suli, and Dahouk in the very near future. Planning has begun for a Private Bankers Association to be established by mid April. The association will be limited to private banks and act as a compliment to the Iraqi Bankers Association. The New Iraq Dinar (NID) has been stable for the past two months. At the NID auction held on April 1, the settlement price was 1,425 Iraqi Dinars to the dollar, unchanged over the past five days. The value of dollars sold at the auction varied over the week from $10.9 to $16.4 million. The exchange rate on the Baghdad streets was 1,427 Iraqi Dinars per dollars, on April 1, unchanged over the previous four days. During the past week, the NID appreciated 0.21 percent against the dollar. New Iraqi Dinar monthly fluctuations: December 31 – January 31: NID appreciated 20.7 percent February 1 – March 1 NID depreciated 4.8 percent March 2 – April 2 NID depreciated 1.4 percent Source: CPA Senior Advisor to the Central Bank of Iraq Source: CPA Senior Advisor to the Central Bank of Iraq II. DEVELOP TRANSPARENT BUDGETING AND ACCOUNTING ARRANGEMENTS Redrafting and Execution of 2004 Budget As of April 2, the balance in the Development Fund for Iraq (DFI) was $9.3 billion, comprised of $8.4 billion in the original Federal Reserve Bank of New York (FRBNY) account, and $0.9 billion on deposit in DFI-Baghdad. Of this, $2.7 billion is already committed to projects, and the remaining $6.6 billion is slated for projected 2004 budget items. Since establishment, the DFI investment program at FRBNY earned $17.4 million in interest. As of March 25, the total payments out of the DFI amounted to $7.6 billion. In the finalized 2004 budget, salaries account for 12.7 percent of the budget, the Facilities Protection Service receives 0.3 percent, capital costs are 12.7 percent, and ministerial operating costs (not including salaries) represent 10.0% percent of the budget. The remainder of the budget is for expenditures such as local/regional governance grant, fuel importation, public distribution system, and other national programs. State Department and U.S. Agency for International Development (USAID) assistance to Iraq disbursed in FY 2003/2004 totals $3.7 billion as of March 30, 2004: USAID/ Asia and Near East (ANE): $2.6 billion USAID/ Office of Foreign Disaster Assistance (OFDA): $101 million USAID/ Food for Peace (FFP): $426 million USAID/ Office of Transition Initiatives (OTI): $161 million State Department/ Bureau of Population, Refugees, and Migration (PRM): $39 million The Program Management Office (PMO) intends to commit $10.4 billion (56 percent of the $18.4 billion supplemental) toward contracts by July 1, 2004. As of last week, $4.3 billion are currently committed to Iraq relief and reconstruction efforts, 41 percent of the July 1 goal. As of last week, $2.3 billion of funds are obligated with contractors (22 percent of the committed fund’s goal). The following chart shows the money committed by sector against the July 1 target as of March 26. Source: Program Management Office Section 2207 of the Emergency Supplemental Appropriations Act for Defense and for the Reconstruction of Iraq and Afghanistan, FY 2004 (Public Law 108-106) enumerates the allotments granted to CPA for each sector and levies a quarterly reporting requirement to Congress detailing PMO’s spending. III. DEVELOP FRAMEWORK FOR SOUND PUBLIC SECTOR FINANCES AND RESOURCE ALLOCATION Increase Capacity of Ministries of Finance and Planning to Manage Public Resources Increase International Coordination to Manage Foreign Assistance Develop an Inter-Governmental Policy Framework by July 04 in time for the 2005 Budget Develop Public Procurement Framework with Regulatory Oversight CPA Order 54 introduced a 5 percent reconstruction levy on most goods imported into Iraq. Implementation of that order was deferred from April 1 until April 15. Revenue generated by the levy will be deposited in the general fund to be used for the betterment of the Iraqi people. Certain goods, including food, medicines, medical equipment, books, clothing, and goods imported for humanitarian assistance are exempt, as are public and private organizations involved in the reconstruction of Iraq. People entering the country with goods valued under 500,000 Iraqi Dinars (intended for personal use and not for sale), are also be exempt. IV. PRIVATE SECTOR INITIATIVES Streamline existing commercial code/regulations; Facilitate lending to private businesses; Technical Assistance for Small and Medium Enterprises (SMEs); Iraqi Participation in Reconstruction Subcontracts; Business Development A Nationwide Credit Demand Survey was recently completed under the Economic Recovery, Reform, and Sustained Growth Project by BearingPoint. The results will enable partner microfinance institutions to better target potential clients for the development of new financial services and products. In total, 2,352 small to medium-sized enterprises were surveyed. Findings included: In each governorate there is little experience with loans from formal entities With the exception of Dahuk and, to a lesser extent, Qadisiyah and Maysan, micro-entrepreneurs do not have other sources of income. In each governorate, access to loans from moneylenders is virtually non-existent. On the other hand, access to loans from informal sources—friends, relatives, and neighbors—seems to be widespread except in Sulaymaniyah, Basrah, and Muthanna. Willingness to borrow is significantly higher in Maysan, Qadisiyah, Wasit, and, to a lesser extent, Muthanna and Babil. Micro-entrepreneurs in all governorates expect sales to pick up next year. V. DESIGN OIL TRUST FUND Proposal for Oil Trust Fund As of March 28, 2004, estimated crude oil export revenue reached $3.7 billion for 2004 (crude oil export revenue for 2003 [June - December] was $5.1 billion). VI. LAY FOUNDATIONS FOR AN OPEN ECONOMY Provide IG Staff Capability; Trade Bank; WTO Observer Status; Draft Intellectual Property law to IGC by April 15, 2004; Develop Framework for Collateralizing Movable and Immovable Property Since opening in December, the Trade Bank of Iraq has issued 132 letters of credit totaling $519.2 million, covering imports from twenty four countries. In addition, nine letters of credit totaling $82.6 million are pending issuance. There is also one letter of credit guaranteed by Export-Import Bank pending issuance and 20 letters of credit under the Oil for Food Program are being processed for issuance. VII. PURSUE NATIONAL STRATEGY FOR HUMAN RESOURCES DEVELOPMENT Begin to employ workers in Public Works programs around the country Combined Joint Task Force 7 (CJTF-7) Civil Affairs units estimate that the CPA has created 399,736 jobs for Iraqi citizens (46 percent of the CJTF-7 target of 850,000): Security/National Defense employs: 232,119 Regional Jobs Programs: 43,721 CJTF-7 employs: 54,738 Civilian contractors working under CPA contracts: 67,608 Governorate Teams: 1,550 VIII. INITIATE PUBLIC SECTOR MANAGEMENT REFORM Civil Service Salary Review As of April 3, the CPA Administrator had appointed Inspectors General (IG) in 23 of 26 Ministries. The Ministry of Defense and the Amanat (Baghdad City Hall) continue to work towards appointments by the middle of April. A number of IGs attended two, one-day workshops on Delivering Good Government arranged by the U.K. Department for International Development, involving about 70 Directors General across the ministries. 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