BAGHDAD -- While the capture of Saddam Hussein has been greeted with overwhelming joy and relief by Iraq's people, living conditions for average Iraqis are still difficult. They want to see urgent improvements in their lives. Iraq is a potentially rich country which has been driven into extreme poverty by Saddam and his regime. The Baathists destroyed the economy through an appalling combination of centralized control, mismanagement, corruption, cronyism, war, and a massive debt burden. Since 1989 our GDP has declined by almost two-thirds and the corresponding decline in living standards has brought suffering to almost every family. The best way to improve the lives of the Iraqi people is to unleash the potential of the Iraqis.
Together with colleagues in the Governing Council and ministries, we have developed a program of far-reaching economic and financial reforms that will provide the foundations for a revitalized economy. The new Iraq will have an open and free market economy characterized by good governance, equality of opportunity, transparency, accountability and the rule of law. We want to accelerate Iraq's re-entry into the global economy while building domestic institutions that are based on international standards and best practices.
The first phase of our new economic program includes several key planks: establishing a friendly climate for foreign investment, strengthening the financial sector, and setting low taxes and tariffs. Iraq will now allow foreign investors ownership in any sector. The only two exceptions are the extraction of natural resources and real estate, which international investors can lease for up to 40 years. Foreign companies are permitted to have direct ownership, joint ventures, or branches as they see fit. We will guarantee equality of legal standing for all foreign firms as well as full and immediate remittance of profits, dividends, interest, and royalties. The investment process will be quick and clear with no bureaucratic hurdles to get in the way.
We are working to strengthen and deregulate Iraq's financial sector. The two main Iraqi financial institutions, the Rafidain Bank and Rasheed Bank, will be modernized and made internationally competitive. Smaller private banks will be required to strengthen balance sheets or find partners. Regulatory criteria for the financial sector are being brought up to international standards. The Central Bank of Iraq has for the first time become a truly independent institution and a new Trade Bank of Iraq, which will be managed by an international consortium of banks led by JP Morgan Chase, will finance imports and exports. Foreign banks are now welcome to enter Iraq and the first two licenses will be issued early in 2004.
Corporate and personal taxes will start at 3% and rise in a progressive scale to a maximum of 15% and tariffs will be capped at 5% across the board except for food, medicine, clothing and books, which will be exempt.
Some Iraqis have expressed fears that they will find themselves at a competitive disadvantage in a newly opened marketplace. It will not be easy to escape the ill effects of four decades of socialist misrule and Baathist corruption and 13 years of sanctions; however, we intend to help Iraqis compete on an equal basis. The biggest impediments that Iraqi businesses currently face are lack of capital, international contacts, and expertise. We are putting in place remedies in all these areas. We also plan to help the Iraqi people weather the adjustment through programs of employment generation, retraining, and a social safety net for the most vulnerable. We will not let Iraqis suffer at the expense of an idealized free market. The very purpose of opening our economy is to let Iraqis prosper by their own hard work and talents.
Iraq is opening to the world for business but at the same time we caution foreign investors and exporters not see Iraq merely as a new bonanza. The firms that will prosper are not those with a gold-rush mentality but rather those who come to build long-term relationships. We do not welcome those who plan to put 30 Iraqi firms out of business by setting up here, as one potential investor recently said. We welcome partners who can show that they will contribute to our national priorities of productive investment, job creation, technology and knowledge transfer, and strengthening the non-oil sectors.
There are doubtless still problems for international investors in areas like security, services and communications, but the situation is improving weekly. Iraq is emerging from its long nightmare and the Iraqi people are ready to do business.
Mr. Al-Gailani is Iraq's minister of finance.