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

Administrator’s Weekly Report Economy February 7 - 13, 2004 HIGHLIGHTS -- Iraq was granted observer status at the World Trade Organization (WTO) on February 11. -- Estimated crude oil export revenue is $1.6 billion since January 1. I. BUILD FINANCIAL MARKET STRUCTURES Modernize the Central Bank; Commercial Banking System; Re-establish Baghdad Stock Exchange; Restructure National Debt The Iraqi dinar depreciated against the dollar this week after trading was suspended for the majority of last week for the Eid al Adha celebrations. At the New Iraqi dinar (NID) auction on February 12, the settlement price was 1450 dinars per dollar, compared to 1440 from the previous day. On February 12, the dinar per dollar price on the Baghdad streets was 1460 dinars per dollar, compared with 1455 from the previous day. During the past week, February 7-13, the NID depreciated 7.4 percent against the U.S. dollar. Source: CPA Senior Advisor to the Central Bank of Iraq (CBI) Source: CPA Senior Advisor to the Central Bank of Iraq The annualized weekly volatility of the new Iraqi dinar from February 8 - 12 was 7.7 percent. New Iraqi dinar monthly fluctuation: November 13 - December 12: NID appreciated 7.3 percent December 13 - January 12: NID appreciated 19.3 percent January 13 - February 12: NID depreciated 2.5 percent CPA sent out a draft of the proposed changes to the Bankruptcy law for interagency coordination in Washington, as well as coordination with London, Canberra, the International Monetary Fund (IMF), and the World Bank. II. DEVELOP TRANSPARENT BUDGETING AND ACCOUNTING ARRANGEMENTS Redraft and Execution of 2004 Budget As of February 12, the balance in the Development Fund for Iraq (DFI) was $8.8 billion, comprised of $8.2 billion in the original Federal Reserve Bank of New York (FRBNY) account, and $600 million on deposit in DFI-Baghdad. Since establishment, the DFI investment program at FRBNY earned $12 million in interest. As of February 12, the total payments out of the DFI amount to $3.2 billion. The Program Management Office intends to commit $10.2 billion (55 percent of the $18.6 billion supplemental) toward contracts by July 1, 2004. $1.6 billion are currently committed to Iraq relief and reconstruction efforts. State Department and U.S. Agency for International Development (USAID) assistance to Iraq disbursed in FY 2003/2004 totals $2.3 billion as of January 27, 2004: USAID/ Asia and Near East (ANE): $1.7 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. 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 Representatives from the Ministry of Finance, Ministry of Planning, Economic Policy Bureau, the Central Statistical Organization, and the two Kurdish finance ministries will attend an IMF training session in Amman February 29 – March 5 in order to improve their economic data collection and management capabilities. IV. COMMENCE REFORM OF TAX SYSTEM Reform tax rates The Finance and Planning Committee of the Iraqi Governing Counsel approved the 2004 tax strategy at a meeting with the CPA Office of General Counsel and advisors to the Ministry of Finance this week. The 2004 Tax Strategy provides for a flat tax of 15 percent on companies and a maximum tax rate of 15 percent on individuals. V. REMOVE SUBSIDIES/DEVELOP SOCIAL SAFETY NET Develop energy subsidy reform plan; Strengthen food security controls on PDS system until monetization is implemented The 2004 budget allots 5.25 trillion Iraqi dinars for the Public Distribution System ($3.5 billion). This will increase to 7.35 trillion Iraqi dinars ($4.9 billion) in 2005. Estimated current costs of the PDS are $280 million per month for approximately 530,000 tons of food. All of the 26.3 million people in Iraq are eligible for rations; estimates are that 90 percent of the population receives rations while 60 percent are dependent on them for survival. VI. DESIGN OIL TRUST FUND Proposal for Oil Trust Fund As of February 11, 2004, estimated crude oil export revenue is $1.6 billion since January 1, 2004 (crude oil export revenue for 2003 [June - December] was $5.1 billion). VII. LAY FOUNDATIONS FOR AN OPEN ECONOMY Provide IG Staff Capability; Trade Bank; WTO Observer Status; Draft Intellectual Property law to GC by April 15, 2004; Develop Framework for Collateralizing Movable and Immovable Property At the General Council meeting of the World Trade Organization on February 11, all 146 members welcomed and accepted Iraq’s request to become an observer and prepare for eventual membership. While only a preparatory step toward WTO membership, observer status sends an important signal to the world that Iraq is rejoining the community of nations and is prepared to follow the principles of the rule of law, transparency, and equal treatment of foreign and domestic products. Observer status allows Iraq to attend all WTO committee meetings and to qualify for special training and assistance. Minister of Trade Ali Allawi accepted the process for issuing licenses to export scrap metals and will publish them by March 1. The fees generated through the license auctions should be substantial and lead to improved market efficiencies and regulatory control over the scrap metal market in Iraq. As of February 13, the Operating Consortium of Banks, led by JPMorgan, issued 218 letters of credit (L/C’s) worth $228 million for nearly every Ministry and several state owned enterprises. VIII. PURSUE NATIONAL STRATEGY FOR HUMAN RESOURCES DEVELOPMENT Begin work to employ 100,000 workers in Public Works programs around the country 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. Coalition Joint Task Force 7 (CJTF-7) Civil Affairs units estimate that the CPA has created approximately 438,495 jobs for Iraqi citizens (52 percent of the CPA target of 850,000): Security/National Defense employs 216,764 National Employment Program employs 108,433 CJTF-7 employs 50,473 Civilian contractors working under CPA contracts employs 61,445 Governorate Teams employ 1,380 PAGE PAGE 2 FOUO Prepared by the Information Management Unit FOUO Prepared by the Information Management Unit