Administrator’s Weekly Report Economy

Administrator’s Weekly Report Economy 24 - 30 January 2004 HIGHLIGHTS -- Over the last week the exchange rate of the new Iraqi dinar (NID) against the U.S. dollar has stabilized in a tight range from 1360-1400 NID per dollar. -- As of January 30, 2004, estimated crude oil export revenue is $1.2 billion since January 1, 2004 (estimated crude oil export revenue is $5.9 billion since Iraqi exports resumed in June 2003). I. BUILD FINANCIAL MARKET STRUCTURES Modernize the Central Bank; Commercial Banking System; Re-establish Baghdad Stock Exchange; Restructure National Debt Four bank supervisors from the U.S. Office of the Comptroller of the Currency arrived in Baghdad and began assessing the current Iraqi bank supervisory structure and developing a training program. Over the next several months, they will put in place the bank supervisory regime to be managed by the Central Bank of Iraq (CBI). The Minister of Finance is expected to make announcements on the liberalization of interest rates and of the finalists in the selection of applicants for foreign bank licenses in the coming days. The foreign currency reserves held in currency notes at the Central Bank of Iraq have risen to $1.5 billion. This figure excludes Development Fund for Iraq (DFI) balances. Over the last week the exchange rate of NID against the U.S. dollar has stabilized in a tight range from 1360-1400 NID per dollar. At the NID auction on January 29, 2004, the settlement price was 1370 dinars per dollar, the same as it was the previous day. On January 29, the NID street market price was also 1370 dinars per dollar, appreciating from 1390 the day before. The bid-offer spread has tightened, which may indicate that foreign exchange dealers are less uncertain about the “correct” value of the dinar. The cumulative net purchase of dollars by the CBI at the foreign exchange auctions reached $1.1 million since October 2003. Source: CPA Senior Advisor to the Central Bank of Iraq (CBI) Source: CPA Senior Advisor to the Central Bank of Iraq CPA contractor MCI continues to install the communications system and hardware for the Iraq Stock Exchange, with an expected completion time of three weeks. CPA Office of the General Counsel (OGC) sent a draft of the securities law to London, Canberra, Washington, the World Bank, and the International Monetary Fund (IMF) for comments. The draft will go to the Iraqi Governing Council, after considering these recommendations, for its confirmation in February, and it will then go to Ambassador Bremer for signature. II. DEVELOP TRANSPARENT BUDGETING AND ACCOUNTING ARRANGEMENTS Redraft and Execution of 2004 Budget As of January 28, the balance in the DFI is $8.63 billion, comprised of $7.73 billion in the original Federal Reserve Bank of New York (FRBNY) account, and $0.9 billion on deposit in DFI-Baghdad. Since the establishment of the DFI investment program at FRBNY, the DFI has earned $8.8 million in interest. 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): $86.9 million USAID/ Food for Peace (FFP): $425.6 million State Department/ Bureau of Population, Refugees, and Migration (PRM): $38.9 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 Develop an Inter-Governmental Policy Framework by Jul 04 in time for the 2005 Budget Develop Public Procurement Framework with Regulatory Oversight CPA is making progress in testing the Financial Management Information System (FMIS) in anticipation of launching the system by March 2004. CPA is working to provide data and answer questions for the International Monetary Fund (IMF) regarding tax administration, customs administration, tax policy, budget process, and preparation and expenditure management. IV. PRIVATE SECTOR INITIATIVES Streamline existing commercial code/regulations; Facilitate lending to private businesses; Create Business Centers; Iraqi Participation in Reconstruction Subcontracts; Business Development CPA held an information session to update 250-300 members of the Iraqi private sector on Iraqi participation in reconstruction subcontracts. Iraqi business people continue to be nervous about the openness of the bid procedures and about their ability to compete. Further CPA outreach is planned to alleviate these concerns. CPA continues to work the financing details for loans to Iraqis who will win Supplemental contracts. Funding from the Overseas Private Investment Corporation (OPIC) and Citibank is slated for loans to Iraqi subcontractors by the second quarter of 2004. This fund will use subcontracts won by Iraqi firms as collateral for loans. Additional facilities are in the works for the broader Iraqi private sector. Through NGO’s, CPA issued over 1000 micro-credit loans, totaling more than $2 million (out of approximately $20 million scheduled), primarily in the South Central Region (Hilla area). Micro-lending will begin in the South and the North in February, and in the Sunni areas at the end of February. V. IMPLEMENT POLICY TOWARDS STATE-OWNED ENTERPRISES (SOEs) Return SOEs to pre-war operating levels, where appropriate; Find sources for financing their short term working capital and investment requirements; Hard Budget CPA is advising the Ministry of Industry and Minerals on their independent power producer contracts. The independent power producer contracts will add 330 MW of power for the Ministry’s SOEs, and the new power could be available as early as this summer. VI. REMOVE SUBSIDIES/DEVELOP SOCIAL SAFETY NET Develop energy subsidy reform plan; Strengthen food security and control of the Primary Distribution System (PDS) until monetization is implemented CPA concluded a contract for the emergency procurement of 50,000 metric tons of wheat flour to fill an urgent need in February. Difficulties in finalizing a letter of credit for a large wheat purchase from Syria created a shortfall of wheat flour, but this contract with a Jordanian vendor will fill that gap. A memorandum of understanding concluded on January 8 between the UN World Food Program, the Ministry of Trade, and CPA will help to build a 2-month buffer stock, ensuring these situations do not arise in the future. VII. DESIGN OIL TRUST FUND Proposal for Oil Trust Fund As of January 30, 2004, estimated crude oil export revenue is $1.2 billion since January 1, 2004 (estimated crude oil export revenue is $5.9 billion since Iraqi exports resumed in June 2003). CPA continues to provide the Minister of Oil with information on potential trust structures for Iraq. VIII. 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 By the end of January, the Operating Consortium of banks, led by JPMorgan, issued over 200 separate letters of credit (L/C’s) worth U.S. $190 million for nearly every Ministry and several SOEs. The World Trade Organization (WTO) formally placed Iraq’s request for observer status on the agenda for the February 11 WTO General Council session. General Electric Company elected to become a sponsor for the Destination Baghdad Expo (DBX) event scheduled for April 5-8 at the International Fairgrounds. IX. 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, an initiative that seeks to create 100,000 new public works jobs, created 76,812 jobs as of January 28, 2004. Coalition Joint Task Force 7 (CJTF-7) Civil Affairs units estimate that the CPA has created approximately 391,018 jobs for Iraqi citizens (46 percent of a target of 850,000): Security/National Defense employs 212,543 National Employment Program employs 76,812 CJTF-7 employs 48,663 Civilian contractors working under CPA contracts employs 53,000 PAGE PAGE 2 FOUO Prepared by the Information Management Unit FOUO Prepared by the Information Management Unit