Administrator’s Weekly Report Economy — establish Baghdad Stock Exchange; Restructure National Debt — 24 شباط 2004

Administrator’s Weekly Report Economy February 21-27, 2004 HIGHLIGHTS -- As of February 24, 2004, estimated crude oil export revenue reached $2.3 billion for 2004. -- Administrator Bremer signed CPA Order 54 this week, which will impose a 5 percent reconstruction levy beginning April 1, 2004. I. BUILD FINANCIAL MARKET STRUCTURES Modernize the Central Bank; Commercial Banking System; Re-establish Baghdad Stock Exchange; Restructure National Debt CPA and Bearing Point advisors are working with Rafidain Bank’s managers and staff to help them assess a loan to the Hewa Company for $500,000 to re-open the company, and to expand and diversify its operations. This represents the largest loan to be made by the bank since the war, significantly greater than the majority of the bank’s loans of $10,000- 50,000. CPA is using this loan as an example for mentoring the bank’s senior management and staff on how to make a decision to approve loans on the merits of the business, and not just the real estate collateral provided. The Central Bank of Iraq has signed up for the SWIFT payment system. SWIFT is the standard international payment system used by central banks and large commercial banks around the world. Training and set-up will proceed over the next few months, and the system will go live in June. At the New Iraqi Dinar (NID) auction on February 26, the settlement price was 1,425 dinars per dollar, the same as it was the previous day. The value of dollars sold at the auction varied over the week, from $11.1 to $20.7 million. The exchange rate on the Baghdad streets was 1,430 dinars per dollar on February 26, compared with 1,425 from the previous day. During the past week, February 19-26, the NID depreciated 0.7 percent against the U.S. dollar. New Iraqi Dinar monthly fluctuation: November 27 - December 26: NID appreciated 14.7 percent December 27 - January 26: NID appreciated 19.0 percent January 27 - February 26: NID depreciated 5.2 percent Source: CPA Senior Advisor to the Central Bank of Iraq Source: CPA Senior Advisor to the Central Bank of Iraq The annualized weekly volatility of the new Iraqi dinar from February 22-26 was 9 percent. The Iraq Stock Exchange is expected to open the week of March 15-20. II. DEVELOP TRANSPARENT BUDGETING AND ACCOUNTING ARRANGEMENTS Redrafting and Execution of 2004 Budget 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. $3.3 billion dollars are currently committed to Iraq relief and reconstruction efforts, 32 percent of the July 1 goal, and a 5 percent increase from the previous week. Currently, $900 million of funds are obligated with contractors (9 percent of the committed fund’s goal). The following chart shows the money committed for projects by sector as of February 27: Source: CPA Program Management Office A report by the U.S Treasury Department estimates that 1.7 million jobs could be created in Iraq in 2004, assuming that $8.4 billion (45 percent) of the supplemental funding is actually disbursed within the year (not just committed). The lower bound in the study assumes that $3.7 billion (20 percent) of the supplemental will be disbursed within the year, creating 700,000 jobs in this instance. As of February 26, the balance in the Development Fund for Iraq (DFI) was $8.7 billion, comprised of $7.4 billion in the original Federal Reserve Bank of New York (FRBNY) account, and $1.3 billion on deposit in DFI-Baghdad. Of this, $4.8 billion is already committed to projects, and the remaining $3.9 billion is slated for projected 2004 budget items. Since establishment, the DFI investment program at FRBNY earned $14 million in interest. As of February 26, the total payments out of the DFI amounted to $4.4 billion. State Department and U.S. Agency for International Development (USAID) assistance to Iraq disbursed in FY 2003/2004 totals $2.6 billion as of February 27, 2004: USAID/ Asia and Near East (ANE): $1.9 billion USAID/ Office of Foreign Disaster Assistance (OFDA): $87 million USAID/ Food for Peace (FFP): $426 million USAID/ Office of Transition Initiatives (OTI): $104 million State Department/ Bureau of Population, Refugees, and Migration (PRM): $39 million III. 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 The Minister of Trade and a team from CPA just completed a ‘road-show’ throughout Europe promoting foreign investment in Iraq. They held meetings with major business associations and corporations in Hamburg, The Hague, Copenhagen, London, Paris, Warsaw, and Rome from February 20-27. The meetings engendered a high level of interest in each country for investment in Iraq. As of February 20, 2004, USAID has authorized $1.016 billion in project costs and fees to the Bechtel Corporation. Thus far, 205 subcontracts have been committed for a total value (including change orders) of $504 million. Of these subcontracts, 143 have been awarded to 112 different Iraqi companies for a total commitment (inclusive of change orders) of $146 million. This amount of subcontracting to Iraqi firms represents 93 percent of contracts that could possibly be awarded to Iraqi firms. IV. COMMENCE REFORM OF TAX SYSTEM Reform tax rates Administrator Bremer signed CPA Order 54 this week, which will impose a 5 percent reconstruction levy beginning April 1, 2004. The levy will raise approximately 75 percent of the budgeted revenue of Iraq, other than revenue from oil sales and transfers from state-owned enterprises. Food, medicine, clothing, books, and goods imported by the CPA, coalition forces, and for humanitarian purposes are exempt from the levy. The Customs Service will collect the levy at 21 entry points into Iraq. To date, computer equipment has been installed at four out of six primary entry points implementing the reconstruction levy. V. DESIGN OIL TRUST FUND Proposal for Oil Trust Fund As of February 27, 2004, estimated crude oil export revenue reached $2.3 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 As of February 27, the Trade Bank of Iraq issued 138 letters of credit (L/C’s) for nearly every Ministry and several state-owned enterprises worth $515 million, including one L/C for $283 million for a 500 megawatt power plant. The U.S. Export-Import Bank issued one letter of credit, and the Oil for Food Coordination Center has issued 6 L/C’s. VII. PURSUE NATIONAL STRATEGY FOR HUMAN RESOURCES DEVELOPMENT Begin to employ workers in Public Works programs around the country The Ministry of Labor and Social Affairs (MoLSA) opened a new employment center in Fallujah this week, bringing the total to 15 throughout the country. MoLSA is on target to have 28 centers nationwide open by June 30. The National Employment Program and the additional employment program in the northern regions, initiatives that seek to create 155,000 new public works jobs, created 108,433 jobs- nearly 70 percent of the goal. This number remains unchanged since the last report. Combined Joint Task Force 7 (CJTF-7) Civil Affairs units estimate that the CPA has created approximately 437,073 jobs for Iraqi citizens (51 percent of the CPA target of 850,000): Security/National Defense employs 210,726 National Employment Program employs 108,433 CJTF-7 employs 51,673 Civilian contractors working under CPA contracts employ 64,861 Governorate Teams employ 1,380 VIII. INITIATE PUBLIC SECTOR MANAGEMENT REFORM Civil Service Salary Review Sixteen Iraqi Ministries are working to have their Inspectors General offices operating by the end of February, while the remaining 10 Ministries are working to have their Inspectors General offices operating by the end of March. As of February 26, the CPA Administrator approved the appointment of seven Inspectors General, and another nine Ministries have submitted nominations for their respective Inspectors General. PAGE PAGE 2 FOUO Prepared by the Information Management Unit FOUO Prepared by the Information Management Unit