[Senate Prints 108-31]
[From the U.S. Government Publishing Office]



108th Congress                                                  S. Prt.
                            COMMITTEE PRINT                     
 1st Session                                                     108-31
_______________________________________________________________________

                                     

 
                      IRAQ: MEETING THE CHALLENGE,

                          SHARING THE BURDEN,

                           STAYING THE COURSE

                               __________

                        A Trip Report to Members

                                 of the

                     COMMITTEE ON FOREIGN RELATIONS

                          UNITED STATES SENATE

                       Richard G. Lugar, Chairman

                                     



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                     COMMITTEE ON FOREIGN RELATIONS

                  RICHARD G. LUGAR, Indiana, Chairman
CHUCK HAGEL, Nebraska                JOSEPH R. BIDEN, Jr., Delaware
LINCOLN CHAFEE, Rhode Island         PAUL S. SARBANES, Maryland
GEORGE ALLEN, Virginia               CHRISTOPHER J. DODD, Connecticut
SAM BROWNBACK, Kansas                JOHN F. KERRY, Massachusetts
MICHAEL B. ENZI, Wyoming             RUSSELL D. FEINGOLD, Wisconsin
GEORGE V. VOINOVICH, Ohio            BARBARA BOXER, California
LAMAR ALEXANDER, Tennessee           BILL NELSON, Florida
NORM COLEMAN, Minnesota              JOHN D. ROCKEFELLER IV, West 
JOHN E. SUNUNU, New Hampshire            Virginia
                                     JON S. CORZINE, New Jersey

                 Kenneth A. Myers, Jr., Staff Director
              Antony J. Blinken, Democratic Staff Director

                                  (ii)


                            C O N T E N T S

                              ----------                              
                                                                   Page

Key Findings.....................................................     1
Priorities and Recommendations...................................     2
Political Attitudes and Expectations.............................     2
Establish Security and Law and Order.............................     3
Deliver Essential Public Services................................     4
Get the Message Out..............................................     5
The Political Transition.........................................     6
    A Vacuum in Authority........................................     6
    The Governing Council........................................     7
    Drafting a New Constitution..................................     8
    Perceptions of Political Parties.............................     9
    De-Ba'athification...........................................     9
    Supporting the Development of a Democratic Culture...........     9
The Iraqi Shi'a..................................................    10
Status of Women..................................................    11
The Economy, Budgets, and Oil....................................    11
    No Oil Bonanza...............................................    12
    A Shoestring Budget in the Red...............................    12
    Donors Conference............................................    13
    Debtor Nation................................................    13
    Developing a Social Safety Net...............................    13
    Generating Employment........................................    14
Internationalize the Transition..................................    15
Iraq in a Wider Context..........................................    15
Conclusion: Staying the Course...................................    16

                                Annexes

Coalition Provisional Authority (CPA) Organizational Chart.......    17
Proposed International Police Task Force Composition.............    19
Members of the Iraqi Governing Council...........................    20
CPA Order on the De-Ba'athification of Iraqi Society.............    21
Interim Budget for Iraq, July-December 2003, Summary.............    22
Text of United Nations Security Council Resolution 1483..........    26
Speech by Ambassador L. Paul Bremer III, National Press Club, 
  July 23, 2003..................................................    34
Further Reading..................................................    44
Map of Iraq......................................................    45


                         LETTER OF TRANSMITTAL

                              ----------                              


                              United States Senate,
                            Committee on Foreign Relations,
                                     Washington, DC, July 30, 2003.

Richard G. Lugar, Chairman
Joseph R. Biden, Jr., Ranking Minority Member

    Dear Senator Lugar and Senator Biden:

    At the request of Senator Biden and Senator Hagel we 
returned to Iraq on June 25, two days after the visit of the 
Committee delegation led by Chairman Lugar to Baghdad. For the 
following nine days, until July 3, we held a series of meetings 
with a wide range of Iraqi professionals, prominent business 
leaders, academics, students, artists, journalists, religious 
leaders, politicians, and other elements of the new Iraqi civil 
society. In addition, we met Coalition Provisional Authority 
(CPA) officials, American military personnel, and United 
Nations officials.
    Prior to leaving Baghdad, we presented some of our 
preliminary findings to Ambassador L. Paul Bremer III, the 
Administrator of the Coalition Provisional Authority, and Mr. 
Sergio Vieira de Mello, the Special Representative of United 
Nations Secretary General Kofi Annan.
    The interviews and meetings were conducted in Baghdad, 
except for one day spent in Najaf. For all but three of our 
meetings with Iraqis, we were not escorted by CPA or coalition 
military personnel and made our own arrangements for 
accommodations and travel.
    The conclusions and recommendations in this report are our 
own, and do not necessarily reflect the views of the Committee 
on Foreign Relations or its Members.

            Sincerely,

Puneet Talwar

Professional Staff Member
Foreign Relations Committee         Andrew Parasiliti

                                    Foreign Policy Advisor
                                    Office of Senator Hagel
  IRAQ: MEETING THE CHALLENGE, SHARING THE BURDEN, STAYING THE COURSE

                              ----------                              


                              KEY FINDINGS

    The United States faces an enormous challenge in managing 
the transition to stability and democracy in Iraq. The next few 
months are critical to our success. Despite a swift and 
effective military campaign, and the impressive performance of 
our armed forces during both the war and the present post-war 
stabilization phase, the American government and people may not 
have been prepared for the costs and commitment of rebuilding 
Iraq.
    The scope of this task cannot be overstated. It will 
require significant resources--human and financial--and 
sustained U.S. involvement over many years. The United States 
cannot and should not bear this burden alone. Instead, we must 
more actively seek international assistance and participation 
from our allies, the United Nations, and NATO in re-building 
Iraq.
    We found a precarious situation on the ground which could, 
if not urgently addressed, pose significant threats for 
American troops, as well as U.S. national security interests in 
the Middle East and beyond. Restoring law and order and rapidly 
improving the delivery of essential public services is 
intimately linked to improving security for US forces and to 
overall U.S. objectives in Iraq and throughout the Middle East.
    The transition to stability, let alone democracy, will be 
difficult and success is not assured. Iraq does not have a 
tradition of democracy. That is not to say that Iraqis are 
neither capable nor worthy of democracy. They are. But history 
counts. Iraq has suffered 35 years of brutal dictatorship, 3 
wars, and over a decade of international sanctions. The 
infrastructure is devastated. Democracy will take time and will 
depend on the long-term development of political institutions 
which did not exist under the Ba'ath regime. The near-term 
prospects for economic growth, a key driver of political 
progress, are not promising. Furthermore, despite Iraq's vast 
oil reserves, it is unlikely that there will be an oil windfall 
in Iraq for several years.
    Creating a stable and representative Iraq, at peace with 
its neighbors, is critical to the success of U.S. policy toward 
Iraq and the Middle East. America must stay the course. At the 
same time, our policies and expectations in Iraq and the region 
should be tempered with a clear-eyed realism about the risks 
and costs associated with this effort.

                     PRIORITIES AND RECOMMENDATIONS

    The U.S. Government should emphasize the following as 
urgent, inter-connected priorities:

   Security: Deploy sufficient forces to subdue Iraqi 
        resistance and continue the hunt for former leaders of 
        the regime, especially Saddam Hussein.
   Law and Order: Must be established in Baghdad and 
        throughout Iraq. The U.S. should intensify its efforts 
        to recruit and retrain Iraqi police officers, and 
        immediately seek international assistance for this 
        process.
   Re-establish Services: In Baghdad and throughout 
        Iraq as soon as possible. Especially electricity and 
        telecommunications.
   Get the Message Out: Through the establishment of 
        world class radio and TV broadcasting, support for 
        independent media, and possibly the opening of local 
        public information centers where Iraqis can more 
        readily access CPA officials.
   Generate Employment: For the estimated 60% of the 
        working age population that is unemployed.
   Share the Burden: By seeking a broader role for the 
        United Nations, the North Atlantic Treaty Organization, 
        and our Arab allies to allow other countries to 
        contribute troops and funds for stabilizing and 
        rebuilding Iraq.

                  POLITICAL ATTITUDES AND EXPECTATIONS

    Most Iraqis we interviewed were thankful to the United 
States for removing Saddam Hussein's regime from power; hopeful 
of a new relationship with the United States; and supportive of 
U.S. troops staying until Iraq is stabilized. Yet Iraqis remain 
a proud people. Gratitude over the removal of Saddam mixes with 
a strong strain of nationalism. Military occupation elicits 
complex reactions, and Iraqis, citing their long history of 
civilization, believe that they are capable of running their 
own affairs.
    The United States is dealing with a huge expectations gap 
in Iraq. Following our rapid military success, Iraqis expected 
that the United States could dramatically improve almost 
overnight living conditions that had declined precipitously for 
more than a decade. Iraqis today are preoccupied with the 
economy, personal security, and the absence of services. Most 
of them told us that current conditions in Baghdad since the 
liberation have made life harder than it was even under the 
regime of Saddam Hussein. They also expressed uncertainty and 
fear that the present situation in Baghdad and throughout Iraq 
would not get better. A failure to improve conditions in Iraq 
would contribute to greater resentment of the CPA, undermine 
the Iraqi Governing Council, and increase risks to coalition 
forces.
    An independent public opinion survey of 1,090 Baghdad 
residents by the Iraq Center for Research and Strategic Studies 
(ICRSS) conducted on June 19, 2003, reinforced many of our own 
observations. According to the poll, while only 17% of those 
surveyed wanted coalition forces to leave immediately, 74% 
described the current security situation as bad; 74% described 
the economy as bad; and 94% said that efforts to rebuild key 
sectors of the economy had so far failed.

                  ESTABLISH SECURITY AND LAW AND ORDER

    Establishing security and law and order are the most 
pressing priorities for the transition in Iraq.
    American and coalition forces have so far done a heroic 
job, and at great risk, to root out the remnants of Saddam's 
regime, guerrillas, and terrorists who have no place in the new 
Iraq. But the United States cannot continue to shoulder most of 
this burden alone. America must reach out for military support 
from our allies, preferably our NATO allies, to grant greater 
legitimacy to our security role in Iraq.



    Re-establishing a police force in Iraq is a separate and 
equally urgent priority. Coalition forces are not trained to 
police Iraq, although they have done precisely that during the 
transition. Policing must be done by Iraqis, but rebuilding 
Iraq's police force is a big job, and here, too, we cannot do 
it alone. The absence of law and order for Iraqis must be 
immediately addressed. Baghdad has experienced an unprecedented 
crime wave since Iraq's liberation--reports of carjackings, 
armed robberies, murders, and rape are rampant. The problem has 
been exacerbated by the widespread availability of arms and the 
mass release of prisoners--including many hardened criminals--
by Saddam Hussein in the run up to the war.
    The CPA's Iraq Police Assessment team would like to 
immediately enlist over 5,000 international police forces to 
train and patrol with Iraqi police,\1\ but as of early July 
commitments from other countries were scant and only a handful 
of personnel had arrived. Fully training a competent and 
professional force of 73,000 Iraqis, which could effectively 
police the entire country, will take more than 5 years, 
according to the CPA's Iraq Police Assessment Team. In the 
interim, law and order can only be restored by a combination of 
international police forces, military police, and coalition 
troops working with a rough-and-ready force of Iraqis even as a 
more professional force is being trained in parallel.
---------------------------------------------------------------------------
    \1\ ``Police Development Plan, Iraq Police Assessment & 
Recommendations,'' Iraq Police Assessment Team, Coalition Provisional 
Authority. (See Annexes, page 19.)
---------------------------------------------------------------------------
    Ambassador Bremer has made providing security his most 
immediate priority for Iraq. By the end of September, the CPA 
and the Iraqi Governing Council plan to recruit and train the 
first battalion of the new Iraqi army, and eight battalions for 
an Iraqi civil defense corps, and open a new police academy.\2\ 
These efforts should be supported with the urgency and 
resources required for the task. They also should be augmented 
by an aggressive diplomatic strategy to recruit international 
police forces, which can assist in this effort.
---------------------------------------------------------------------------
    \2\ Ambassador L. Paul Bremer III, Speech to the National Press 
Club, Washington, DC, 23 July 2003. (See Annexes, pages 34-43.)
---------------------------------------------------------------------------

                   DELIVER ESSENTIAL PUBLIC SERVICES

    As temperatures approach 120 degrees during the summer, 
Baghdad and other areas continue to have inadequate supplies of 
electricity and water. It is critical that the CPA be given the 
necessary resources and the authority to deploy them as it sees 
fit to increase the supply of electricity. Ambassador Bremer 
has estimated that rebuilding Iraq's electricity sector could 
cost as much as $13 billion.\3\ The CPA budget for July-
December 2003 provides only $294 million for ``electrical 
improvements.'' (See Annexes, pages 22-25.)
---------------------------------------------------------------------------
    \3\ Ambassador L. Paul Bremer III, Speech to the National Press 
Club, Washington, DC, 23 July 2003. (See Annexes, pages 34-43.) One CPA 
official said the costs could reach $3.5 billion per year over 6 years, 
or $21 billion. Interview with CPA official, July 2, 2003.
---------------------------------------------------------------------------
    There is a large gap between supply and demand in the Iraqi 
electricity sector, a condition that pre-dates Iraq's 
liberation. Current demand for electricity in Iraq is estimated 
to be approximately 6,000-7,000 megawatts (MW) nationwide and 
approximately 2000-2200 MW for Baghdad.\4\ The pre-war total 
electricity generation for Iraq was estimated at 4000 MW, a 33% 
shortfall in supply. The electricity situation in the months 
following Iraq's liberation was worse than it was prior to the 
war--as of July 14, generation nationwide was 3200 MW for Iraq 
and 1150 MW for Baghdad.\5\ Reaching the pre-war generation 
level of 4000 MW is expected to take until the end of 
September.
---------------------------------------------------------------------------
    \4\ Interview with CPA official, July 2, 2003.
    \5\ Interview with CPA official, July 2, 2003 and a telephone 
follow-up, July 14, 2003.
---------------------------------------------------------------------------
    One CPA official said that contracting delays, sabotage, 
looting, and security risks to key personnel have combined to 
keep electricity supplies insufficient in Baghdad and other 
locations. The destruction of a single transmission tower in 
late June caused electricity generation in Baghdad to fall to 
zero for four days. It took one week of intensive effort to 
restore the previous level of power generation. In the 
meantime, the prolonged absence of power halted water supplies 
and led to a two week disruption in gasoline production.
    The same official cited contracting delays as being 
partially responsible for preventing increases in the supply in 
electricity. He described the difficulty in obtaining $25,000 
for repairs in the first month after the fall of Baghdad. 
According to him, of more than $200 million allocated for 
electricity out of a $680 million contract awarded to the 
Bechtel Corporation, Bechtel had spent only $1 million at the 
time of the interview.\6\ This has forced the CPA to tap into 
Iraqi assets under its control to make essential repairs.
---------------------------------------------------------------------------
    \6\ Interview with CPA official, July 2, 2003 and a telephone 
follow-up, July 14, 2003.
---------------------------------------------------------------------------
    In addition to the costs associated with rebuilding Iraq's 
electricity sector, Ambassador Bremer has cited UN estimates 
that re-establishing a potable water supply and service could 
cost $16 billion over 4 years.

                          GET THE MESSAGE OUT

    There has been a failure to communicate effectively with 
the Iraqi people. Many Iraqis we spoke with mocked the poor 
quality of 4-hour a day television broadcasts from the CPA, 
which, in any case, they could only see during the infrequent 
periods when power was on. Likewise, those Iraqis we 
interviewed did not listen to CPA radio broadcasts.
    The lack of effective communication with the Iraqi people 
has increased their distance from the CPA and has heightened 
the sense of a vacuum in authority. Most of the Iraqis we spoke 
with were unclear about the intentions, programs, and policies 
of the CPA.
    The absence of accurate information also has led to 
widespread rumors and conspiracy theories. Iranian broadcasts--
TV and radio--and Arab satellite television including Al-
Jazeera have filled the void. They were available for more 
hours during the day and their programming was of better 
quality. Neither of these sources is noted for its sympathetic 
portrayal of the United States.
    CPA officials should take four specific steps to address 
the communications gap:
    (1) Immediately make available high-quality broadcasts on 
TV and radio throughout Iraq. Such programming should 
acknowledge the problems Iraqis are facing, indicate what the 
CPA is doing to fix them, and offer a timeline for their 
resolution. The USG should call upon the expertise of private 
broadcasters in the U.S. and the Broadcasting Board of 
Governors for guidance in this process.
    The CPA is taking a number of steps to expand its radio and 
television programming for Iraqis. Because of the problems with 
electricity in Baghdad and throughout Iraq, many Iraqis would 
likely turn to radio, which, unlike television, can be heard in 
cars and powered by batteries. The CPA is planning to re-
transmit Radio Sawa and the Iraqi service of RFE-RL from towers 
inside Iraq, as well as expanding Iraq Media Network (IMN) 
radio coverage inside the country.
    (2) Since the USG is attempting to build democracy in Iraq, 
the CPA should support a C-SPAN type service where public 
interest programming and grassroots political activity, 
including the town and neighborhood council meetings under 
USAID's Iraq Local Government Project, can be transmitted 
throughout Iraq to develop and encourage civic awareness, 
responsibility, and activism.
    (3) Support indigenous, independent Iraqi media--through 
regulatory reform, journalism training, and perhaps making 
available subsidized equipment and financing facilities. The 
growth of a strong, independent media will improve the 
prospects for the eventual development of democracy in Iraq.
    (4) Consider the establishment of public information 
centers in Baghdad and throughout the country where Iraqis can 
more readily access CPA officials, gather information on CPA 
efforts, and identify opportunities for participating in the 
reconstruction of their country.



                        THE POLITICAL TRANSITION

A Vacuum in Authority

    The CPA began its work facing a daunting and unexpected 
reality: there was no functioning national government in Iraq. 
The destruction and looting of most government ministries and 
office buildings in Baghdad, the dissolution of the Iraqi armed 
forces and most of the Iraqi police force, the breakdown in 
security throughout the capital after the liberation, as well 
as the effect of over three decades of dictatorship and over a 
decade of sanctions on Iraqi society, provided a sobering 
starting point for the coalition's efforts to facilitate a 
political transition.
    Baghdad is the key to the success of our efforts. It 
remains the nation's political and cultural capital, and the 
most representative city in terms of Iraq's demographic 
diversity, with roughly 20% of the country's population. It is 
home to the most influential professional, business, and 
opinion leaders. In short, the national political transition 
will depend upon our success in stabilizing Baghdad.
    The transition to stability, let alone democracy, is not 
assured. Iraqis must have a functioning national government and 
a clear constitutional process for democracy to have a chance 
to take root.\7\ The absence of dictatorship does not 
necessarily foreshadow a democratic transition. Building 
democratic institutions will take time, patience, 
determination, and resources.
---------------------------------------------------------------------------
    \7\ Also see Thomas Carothers, ``It's Too Soon For Democracy,'' The 
Washington Post, July 20, 2003.
---------------------------------------------------------------------------

The Governing Council

    The Iraqi Governing Council, appointed by Ambassador L. 
Paul Bremer III, the top American administrator in Iraq, met 
for the first time on July 13, 2003. The Council's 25 members 
include a mix of former exiles, tribal and religious leaders, 
women and representatives from Iraq's main communities--Arab 
Shi'a and Sunni, Kurds, Turkmen, and Christian. (See Annexes, 
page 20.) Although Ambassador Bremer reserves the final call on 
all decisions, the Council will have the authority to appoint 
and supervise ministers, send diplomats abroad, establish a 
process for writing a new Iraqi constitution, and set fiscal 
and budget policy, among other responsibilities.
    The Council's fortunes will be directly correlated with the 
success or failure of the CPA to provide basic government 
services, re-establish security, and develop the economy. The 
Council, on its own, will not ``deflect'' any resentment or 
frustration away from the CPA by Iraqis about their situation 
as some American officials have suggested. If there is 
appreciable improvement in the lives of ordinary Iraqis, the 
Council, and the CPA, will gain legitimacy. If conditions 
stagnate or worsen, the Council will be perceived by Iraqis as 
lackeys of the CPA. Both will bear the brunt of their 
frustration.
    It is critical to communicate to Iraqis that the Governing 
Council is only a ``first step in establishing an interim 
government'' and that it is directly linked to the 
constitutional process, which will lead eventually to national 
elections.\8\ Without effective communication Iraqis may reach 
incorrect conclusions about the authority, independence, and 
tenure of the Governing Council.
---------------------------------------------------------------------------
    \8\ L. Paul Bremer III, ``The Road Ahead in Iraq--and How to 
Navigate it,'' The New York Times, July 13, 2003.
---------------------------------------------------------------------------
    The national political process must also be connected in 
the minds of Iraqis with the important work of the CPA, through 
the USAID Iraq Local Government Project, to establish interim 
city councils and municipal governments with limited powers as 
the ground-up building blocks of democracy in Iraq.\9\
---------------------------------------------------------------------------
    \9\ We attended meetings of the Interim Advisory Council for the 
Al-Rasheed district in Baghdad on June 23, 2003 (with CODEL Lugar-
Biden-Hagel) and for the Ath-Thawrah district on July 2, 2003.



Drafting a New Constitution

    The development of an Iraqi Constitution will contribute to 
the cohesion and legitimacy of a new Iraqi government. It will 
establish the governing principles of Iraq, formalize key 
political compromises among major constituencies, and create 
institutional arrangements that hopefully will govern Iraq for 
years to come. Critical issues will be settled by the 
Constitution--Will the country be a federation? If so, with how 
many constituent parts? What powers will be held by the central 
government? What, if any, checks and balances will be put in 
place between the executive, legislative, and judicial 
functions of government? Will religion play any formal role in 
public life? Will the fundamental rights of all Iraqis be 
protected?
    The Constitutional process should be seen as legitimate by 
Iraqis. Some may seek to question, hinder or obstruct this 
process. The mode of selection for the Constitutional Council 
has already become a point of contention, with Grand Ayatollah 
Ali Sistani--a powerful voice in the Shi'a community--issuing a 
Fatwa calling for Council members to be elected. During the 
Constitutional process the Iraqi Governing Council and the CPA 
must communicate clearly to the Iraqi people the link between 
the development of a Constitution and the process of building 
political institutions and democracy for all Iraqis. \10\
---------------------------------------------------------------------------
    \10\ See L. Paul Bremer III, ``The Road Ahead in Iraq--and How to 
Navigate it,'' The New York Times, July 13, 2003.
---------------------------------------------------------------------------

Perceptions of Political Parties

    The CPA should refrain, for now, from being seen as 
favoring any specific personalities or parties. In her classic 
study of British foreign policy in the Middle East, Elizabeth 
Monroe noted ``the confirmed optimism that caused British 
statesmen to underrate the unpopularity to which they exposed 
rulers whom they supported and advised.'' \11\ The ICRSS survey 
found that only 15.1% of Iraqis polled in Baghdad said that the 
political parties in Iraq represent their interests. 
Approximately 63% of those surveyed preferred a technocratic 
government, rather than one based upon political parties.
---------------------------------------------------------------------------
    \11\ Elizabeth Monroe, Britain's Moment in the Middle East, 1914-
1971 (Baltimore, MD: Johns Hopkins University Press, 1981), p. 21.
---------------------------------------------------------------------------
    Our interviews in the capital confirmed the low regard that 
many had for several of the political parties, including some 
represented in the Governing Council. We found a range of 
opinion on the form of government Iraqis would like to see, 
with some strongly supporting the mixing of religion and 
politics (particularly in the Shi'a community), others favoring 
strict secularism, and some expressing curiosity about the 
establishment of a constitutional monarchy.
    Iraqis we spoke with understood that it will likely take 
time for the development of a democratic political culture. In 
the interim, most want a government of technocrats who can 
restore essential services, security, and a sense of Iraqi 
independence in governance during the transition.

De-Ba'athification

    While most Iraqis we interviewed expressed support for the 
principle of de-Ba'athification of Iraqi society, there was 
confusion and concern that orders by the CPA to remove 
Ba'athists from government would adversely affect relatively 
lower-ranking members of the party who may have joined purely 
for career advancement, not out of ideological conviction. The 
CPA should clearly state to Iraqis the scope and intention of 
its orders in this area. (See Annexes, page 21.)

Supporting the Development of a Democratic Culture

    The forces in Iraq that are the best organized to mobilize 
followers are the Kurdish parties, former Ba'athists, and 
religious groups. The democratic orientation of the latter two 
is highly suspect. What is missing in Iraq is a strong 
democratic, secular center that has a grassroots mobilizing 
capacity. The CPA should intensify its efforts to develop 
mechanisms, direct or indirect, to make democracy training and 
other resources available for the development of democratic 
institutions, including political parties, independent media, 
the rule of law, and, particularly, non-governmental 
organizations.
    A related threat to the development of a democratic ethos 
in Iraq comes from certain religious quarters, where democracy 
and freedom are being equated with ``Western cultural and moral 
decadence.'' It will be critical to get the message across that 
democracy can take many forms, and that the American or Western 
models are not the only ones available. Iraqis must feel that 
their form of democracy is authentic and consistent with their 
traditions.

                            THE IRAQI SHI'A

    The Shi'a of Iraq comprise approximately 60% of the 
population, but have long been denied a commensurate role in 
the political leadership of their country. It would be a 
mistake, however, to see the Shi'a as a monolithic political 
block. Opinions among Iraq's Shi'a population span the breadth 
of the political spectrum.



    Shi'ite religious communities are among the best organized 
in Iraq. Iraq is the home to two of the holiest cities in 
Shi'ism--Najaf and Karbala--and there is a great deal of 
political and social activism associated with Iraqi Shi'a 
religious institutions.
    Within the Shi'a community, there is an intense competition 
underway involving groups such as the Supreme Council for the 
Islamic Revolution in Iraq (SCIRI) which was based in Tehran 
for many years, the Da'wa Party--which appears to have a strong 
grassroots presence, and the followers of Muqtada Sadr--the son 
of a well-known Shi'a figure assassinated by the regime of 
Saddam Hussein. The first two have representation on the 
Governing Council, while the latter has announced plans to 
create a rival council and an ``Islamic Army.'' Attempting to 
stay above the fray, but still highly influential, are senior 
religious figures such as Grand Ayatollahs Ali Sistani and Syed 
al-Hakim.
    The clerics we met in Najaf emphasized to us that their 
allegiance is to Iraq, not Iran. At the same time, Najafi 
clerics appear to support involving religion in public life in 
some way. The parameters of Shi'a politics in Iraq are still 
evolving and it is not clear which, if any, group will emerge 
as the dominant voice and what specific relationship will be 
advocated between religion and government.
    Despite widespread happiness among Iraqi Shi'a over the 
demise of Saddam Hussein's regime, there is little trust of 
American intentions in Iraq. Many Shi'a activists retain bitter 
memories of President George H.W. Bush's encouragement and then 
abandonment of the 1991 intifada in Iraq which resulted in tens 
of thousands of deaths.
    Winning over Iraq's Shi'a, and all Iraqis, will depend upon 
the establishment of an Iraqi government that has legitimacy 
among all its citizens and is capable of providing security and 
services.

                            STATUS OF WOMEN

    Most Iraqi women we encountered indicated that they have 
seen their personal freedom decline in the aftermath of the war 
for two reasons: (1) The collapse of law and order; (2) The 
growing strength and influence of religious groups.
    Many women, including professionals, indicated that they 
have been forced to stay indoors because of the general state 
of lawlessness and rampant reports of abductions and rapes. 
Rape in a traditional society such as Iraq is a taboo subject. 
It often results in adverse consequences for the victim, 
frequently involving her murder by family members to 
``preserve'' the family's honor.
    Many women also related accounts of harassment and 
intimidation over their dress and behavior by newly assertive 
religious groups.
    The CPA should take the following steps:

          (1) Improve law and order--women will be the greatest 
        beneficiaries. Police, including female officers, 
        should be trained to meet the needs of rape victims. 
        Legal reform will be needed to stiffen penalties for 
        harming victims of rape, including ``honor killings.''

          (2) Support non-profit groups assisting victims of 
        rape and other violence against women.

          (3) Publicize efforts to address the issue of rape to 
        help remove the stigma suffered by victims.

          (4) Continue to ensure the participation of women in 
        the political process.

    Vigilance on issues relevant to women will need to be 
heightened to ensure that the liberation of Iraq does not 
paradoxically lead to a decline in the standing of women in 
society.

                     THE ECONOMY, BUDGETS, AND OIL

    The Iraqi economy is but a shadow of its former self. It 
has been ruined from 35 years of mismanagement and corruption 
under the Ba'ath regime; three wars since 1980; 12 years of 
international sanctions; and the looting, vandalism, and 
economic collapse that followed Iraq's liberation on April 9, 
2003. In 2000, the UN estimated that Iraq's gross domestic 
product per capita had fallen to between $500 and $700,\12\ 
which would rank it near countries such as Yemen, Bhutan, and 
Angola.\13\ Since the establishment of the UN oil-for-food 
program in December 1996, 60% of Iraq's population has relied 
upon oil-for-food program to meet its most essential needs. The 
private sector was operating at a fraction of capacity.
---------------------------------------------------------------------------
    \12\ The Reconstruction of Iraq. A Preliminary Background Briefing 
Paper, prepared by the UN Development Group, June 23, 2003.
    \13\ The World Bank, World Development Indicators for 2000 and 
2001.
---------------------------------------------------------------------------

No Oil Bonanza

    Although Iraqi's oil reserves are estimated to be the 
second largest in the world, Iraq's economy and infrastructure 
is in dire straits. There is no oil windfall on the horizon.
    Oil revenues for July-December 2003, based on estimated 
exports of 1.5 million barrels per day by December, are 
expected to be only $3.455 billion. Iraq's oil exports and 
revenues are projected to be only 2 million barrels per day and 
$14 billion, respectively, for 2004.\14\ To achieve those 
results, Iraq's oil infrastructure will require $2.5 billion in 
investment by December 2004.\15\ The July-December 2003 Iraqi 
budget includes $825 million for rebuilding Iraq's oil 
infrastructure through the Restoration of Iraqi Oil Program. 
(See Annexes, pages 22-25.)
---------------------------------------------------------------------------
    \14\ Iraq exported 1.7 mil b/d of oil in 2002. Testimony of Hon. 
Alan P. Larson, Under Secretary of State for Economic, Business and 
Agricultural Affairs, before the Senate Foreign Relations Committee, 
June 4, 2003.
    \15\ Phil Carroll, CPA Senior Adviser to Iraq's Ministry of Oil, 
Baghdad, June 23, 2003.
---------------------------------------------------------------------------
    An expansion of Iraq's oil exports beyond these levels 
cannot be considered in a vacuum. Such a decision would 
probably require an increase in international demand for oil 
and further investments in Iraq's oil infrastructure. Under 
Secretary of State Alan Larson said in testimony before the 
Senate Foreign Relations Committee that, ``Any significant 
expansion of baseline oil product capacity would need to be 
accommodated by increased demand in the international 
marketplace and in my view would most likely be privately 
financed.'' \16\ The Independent Task Force of the Council on 
Foreign Relations on ``Iraq: The Day After'' estimated that 
restoring production to its peak of 3.5 million b/d would 
require an investment of $5-7 billion over 2 years.\17\
---------------------------------------------------------------------------
    \16\ Testimony of Hon. Alan P. Larson, Under Secretary of State for 
Economic, Business and Agricultural Affairs, before the Senate Foreign 
Relations Committee, June 4, 2003.
    \17\ Iraq: The Day After, Report of an Independent Task Force 
Sponsored by the Council on Foreign Relations, 2003, p. 35.
---------------------------------------------------------------------------

A Shoestring Budget in the Red

    The interim budget for Iraq for July-December 2003 prepared 
by the CPA and Iraq's Ministries of Finance and Planning 
projects a total expenditure of close to $6.1 billion and a 
deficit of $2.2 billion. (See Annexes, pages 22-25.) The 
deficit will be funded from ``committed financial assets, 
without the need for borrowing.'' The budget, while 
appropriately conservative in some respects, does not make the 
dramatic investments that may be urgently needed to bring about 
immediate improvement in the lives of ordinary Iraqis. 
Ambassador Bremer has so far predicted a deficit of almost $4 
billion for FY 2004.\18\
---------------------------------------------------------------------------
    \18\ Ambassador Paul L. Bremer III, National Press Club, 
Washington, DC, 23 July 2003. (See Annexes, pages 34-43.)
---------------------------------------------------------------------------

Donors Conference

    At present, a donors conference under the auspices of the 
United Nations is planned for Fall 2003. Critical to the 
success of this conference will be an assessment to be 
completed by the World Bank and International Monetary Fund. An 
initial study prepared by the United Nations for a preliminary 
donors meeting in June supports our conclusion that the need 
for assistance in a range of sectors will be extraordinary.\19\ 
Given the need to immediately improve conditions on the ground, 
the United States will not have the luxury of waiting to 
increase spending until after the donors conference and the 
inevitable delays in actual delivery of pledges.
---------------------------------------------------------------------------
    \19\ The Reconstruction of Iraq. A Preliminary Background Briefing 
Paper, prepared by the UN Development Group, June 23, 2003.
---------------------------------------------------------------------------

Debtor Nation

    Iraq's economy could be handicapped by substantial 
international debt and compensation claims. Iraq's 
international debt is estimated at between $80-120 billion, and 
unpaid claims against Iraq through the UN Compensation 
Commission total $116.4 billion. Past and present Iraqi 
creditors face the prospect of dealing with a heavily indebted 
country. Iraq's economic prospects will dim even further if 
Iraq is forced to meet its present obligations without 
substantial relief. To have any chance of success in reviving 
the Iraqi economy, America must work with Iraqi creditors--
through the UN, the Paris Club, the World Bank, the IMF, and 
other relevant international financial institutions--to relieve 
Iraq of most of this potentially huge financial burden.

Developing a Social Safety Net

    Iraq will require a major overhaul and restructuring of its 
social services. For example, under the Ba'ath regime the 
Ministry of Labor and Social Affairs was the primary provider 
of social services and benefits to pensioners, women, children 
and refugees. The Ministry, with 3800 employees throughout Iraq 
(1300 in Baghdad) previously served approximately 100,000 Iraqi 
citizens in a country where the World Food Program estimates 
that 4.6 million (or one in every five people) in the center 
and south of the country live in chronic poverty, defined as 
the frequent inability to meet basic needs.\20\
---------------------------------------------------------------------------
    \20\ The Reconstruction of Iraq. A Preliminary Background Briefing 
Paper, The UN Development Group, June 23, 2003.
---------------------------------------------------------------------------
    In other words, an effective social safety net will have to 
be built almost from scratch to reach all Iraqis in need as 
well as to provide assistance to those who will be displaced 
from their jobs in a difficult transition. This will require an 
enormous increase in funding and place huge demands on the 
Ministry. Yet the Ministry's total projected expenditures for 
the July-December 2003 budget are only $6.4 million. In 
addition, its buildings and grounds in Baghdad remain in a 
generally unusable condition for the foreseeable months because 
of extensive damage from the war and subsequent vandalism.



Generating Employment

    Unemployment in Iraq is estimated to be over 60 percent. 
Business leaders and independent economists assert that the 
employment situation has deteriorated considerably in the 
aftermath of the war. The unwieldy public sector, including 
state-owned enterprises, provided some social stability through 
employment, but contributed little to the overall productivity 
of the economy.
    The decision by the CPA to abolish the Iraqi army added to 
an already acute unemployment situation. Many Iraqis we 
interviewed expressed bitterness and confusion over what they 
perceived as the singling out of the Iraqi Army, noting that 
for the most part the Army did not fight advancing American 
forces. An additional disenfranchised, unemployed 300,000 
former soldiers may not only contribute to the country's 
political, economic, and social difficulties, but also pose a 
security risk for U.S. troops. The CPA should be commended for 
deciding to pay stipends to nearly all former members of the 
Iraqi military, but this has not addressed the issue of their 
employment.
    Many Iraqis, including a field commander with the United 
States military, spoke to us of the critical need for 
employment generation through a massive program of public works 
akin to the efforts of the U.S. government during the Great 
Depression.
    The CPA should invest in labor intensive construction 
projects that would have the dual benefit of creating jobs and 
boosting the private sector. As a related matter, commanders in 
the field should be provided with additional resources to use 
at their discretion for short-term projects that increase 
employment in specific locations.
    The question of restructuring the public sector and 
dismantling state-owned enterprises will have to be addressed 
in due course. Given the deteriorating conditions on the 
ground, this issue should not be solely analyzed in economic 
terms. The social, political and, ultimately, security 
consequences of exacerbating the unemployment problem should be 
considered as well.
    Finally, we recommend that Iraq be considered for 
preferential, if not duty-free, access to Western markets, 
including the U.S. and EU, to generate economic activity and 
employment.

                    INTERNATIONALIZE THE TRANSITION

    The United States needs its allies, as well as the UN and 
NATO, to spread the military and financial burden of 
stabilizing and rebuilding Iraq and to help legitimize the 
transition to representative government.
    The Bush Administration should seek a broader role for the 
UN, including an additional Security Council resolution if 
necessary, to facilitate the engagement of its agencies and its 
member states.
    The UN has special expertise that can help facilitate 
Iraq's reconstruction. It can help conduct a census, which will 
provide critical information that is currently lacking. It is 
willing to offer support to an Iraqi body that will draft a new 
Constitution. It can help prepare the groundwork for elections 
by registering voters and presenting alternatives to Iraqis in 
choosing an electoral system. Furthermore, it can help to grant 
legitimacy in the area of transitional justice and the 
monitoring of human rights. In the critical area of rebuilding 
Iraq's economy, the UN can facilitate the work of the IMF and 
World Bank and offer an avenue for donors to channel 
assistance.
    Iraqis have mixed views of the UN largely because of the 
devastating effect of sanctions imposed by the UN Security 
Council for over 12 years. Nevertheless, the UN is seen by some 
powerful individuals and groups in Iraq as a neutral 
organization that can help to legitimize the political 
transition. For instance, Grand Ayatollah Ali Sistani, among 
the most influential voices within the Shi'a community, has 
kept his distance from CPA officials, but he has met with 
Secretary General Annan's Special Representative Sergio Vieira 
de Mello.
    The U.S. should also intensify discussions with NATO allies 
about what role the organization can play in helping to 
stabilize the security situation in Iraq and relieve the burden 
on U.S. and coalition forces.

                        IRAQ IN A WIDER CONTEXT

    America's policies toward Iraq should be placed in a wider 
regional context. They cannot be considered in isolation of the 
Israeli-Palestinian conflict; Turkey's concerns and interests 
about northern Iraq; disputes regarding the Iraq-Kuwait border; 
and Iran's relations with both Iraq and the United States. 
While Southern Iraq will likely not become a satrapy of Iran, 
Washington and Tehran would be well-served by arriving at an 
understanding over their respective interests in Iraq to reduce 
the risk of unintended friction.
    The United States, working with the United Nations and its 
regional allies, must seize the opportunity for a comprehensive 
approach to regional security in the Middle East. Given the 
number of ongoing and potential conflicts, the countries of the 
Middle East should be encouraged to follow the example of other 
regions that have established formal security mechanisms--
whether it is the Organization for Security and Cooperation in 
Europe or the ASEAN Regional Forum in the Asia-Pacific region. 
Such models offer guidance on modes of reducing tension and 
increasing transparency, predictability, and confidence. The 
United States has a direct interest in encouraging the 
development of such a regional security mechanism in the Middle 
East as part of a long-term strategy to preserve our victory in 
Iraq and to transform the entire region from what it is today 
into a peaceful, prosperous, and eventually democratic expanse.

                     CONCLUSION: STAYING THE COURSE

    The end of Saddam Hussein's regime represents a new 
beginning, and an historic opportunity, for Iraqis, Americans, 
the Middle East, and the world. A stable and democratic Iraq 
could be a model for democratic change in the Middle East. The 
opportunities are enormous, but so are the risks. The United 
States must be prepared for a sustained commitment that could 
take many years. The CPA must be given sufficient resources, 
mandate, and assistance to get the job done.
    The United States cannot and should not take on this 
challenge alone. We also cannot defer the tough decisions. Time 
is not our friend. The stakes are too high. The only viable 
``exit strategy'' is American and international success in 
working with Iraqis to support a process that leads to a 
stable, and over the longer-term, democratic transition for 
Iraq. But it won't come easy, it won't come fast, and it won't 
come cheap.
                                ANNEXES







                Members of the Iraqi Governing Council*


Ahmed Shya'a al-Barak, Coordinator for Human Rights Association 
        of Babel

Naseer al-Chaderchi, National Democratic Party

Abdel-Aziz al-Hakim, a leader of the Supreme Council for the 
        Islamic Revolution in Iraq

Aquila al-Hashimi, diplomat and foreign affairs advisor

Raja Habib al-Khuzaai, maternity hospital director in Diwaniyah

Iyad Allawi, leader of the Iraqi National Accord

Abdel-Karim Mahoud al-Mohammedawi, member of Iraqi political 
        group Hezbollah in Amara

Mouwafak al-Rabii, Medical doctor and human rights activist

Mohammed Bahr al-Uloum, Ayatollah from Najaf

Ghazi Mashal Ajil al-Yawer, northern tribal chief

Dara Noor Alzin, formerly imprisoned judge

Salaheddine Bahaaeddin, Secretary General of the Kurdistan 
        Islamic Union

Massoud Barzani, leader of the Kurdistan Democratic Party

Sondul Chapouk, Leader of Iraqi Women's Association from Kirkuk

Ahmad Chalabi, founder of the Iraqi National Congress

Mohsen Abdel Hamid, Secretary General of the Iraqi Islamic 
        Party

Ibrahim al-Jaafari, Spokesperson for Dawa Islamic Party

Younadem Kana, Secretary General of the Democratic Assyrian 
        Movement

Wael Abdul Latif, Governor of Basra

Samir Shakir Mahmoud, Writer from Haditha

Hamid Majid Moussa, Secretary of the Iraqi Communist Party

Abdel-Zahraa Othman, Leader of the Islamic Dawa Movement in 
        Basra

Mahmoud Othman, Independent

Adnan Pachachi, former foreign minister, 1965-1967

Jalal Talabani, head of the Patriotic Union of Kurdistan

*Source: Associated Press, 7/13/03.
   Order of the Administrator of the Coalition Provisional Authority


            DE-BAATHIFICATION OF IRAQI SOCIETY--MAY 16, 2003

    On April 16, 2003 the Coalition Provisional Authority 
disestablished the Baath Party of Iraq. This order implements 
that declaration by eliminating the party's structures and 
removing its leadership from positions of authority and 
responsibility in Iraqi society. By this means, the Coalition 
Provisional Authority will ensure that representative 
government in Iraq is not threatened by Baathist elements 
returning to power and that those in positions of authority in 
the future are acceptable to the people of Iraq.
    Full members of the Baath Party holding the ranks of `Udw 
Qutriyya (Regional Command Member), `Udw Far` (Branch Member), 
`Udw Shu'bah (Section Member), and `Udw Firqah (Group Member) 
(together, ``Senior Party Members'') are hereby removed from 
their positions and banned from future employment in the public 
sector. These Senior Party Members shall be evaluated for 
criminal conduct or threat to the security of the Coalition. 
Those suspected of criminal conduct shall be investigated and, 
if deemed a threat to security or a flight risk, detained or 
placed under house arrest.
    Individuals holding positions in the top three layers of 
management in every national government ministry, affiliated 
corporations and other government institutions (e.g., 
universities and hospitals) shall be interviewed for possible 
affiliation with the Baath Party, and subject to investigation 
for criminal conduct and risk to security. Any such persons 
determined to be full members of the Baath Party shall be 
removed from their employment. This includes those holding the 
more junior ranks of `Udw (Member) and `Udw `Amil (Active 
Member), as well as those determined to be Senior Party 
Members.
    Displays in government buildings or public spaces of the 
image or likeness of Saddam Hussein or other readily 
identifiable members of the former regime or of symbols of the 
Baath Party or the former regime are hereby prohibited.
    Rewards shall be made available for information leading to 
the capture of senior members of the Baath party and 
individuals complicit in the crimes of the former regime.
    The Administrator of the Coalition Provisional Authority or 
his designees may grant exceptions to the above guidance on a 
case-by-case basis.
            By order of:
                                L. Paul Bremer, III
                     Administrator, Coalition Provisional Authority

                                ------                                


                           REPUBLIC OF IRAQ 


            BUDGET REVENUES AND EXPENSES--JULY-DECEMBER 2003

                             Budget Summary


   Ministry of Finance, Ministry of Planning, Coalition Provisional 
                               Authority

          Interim Budget for the period July to December 2003

    This interim budget provides authority for the commitment 
and expenditure of money by the Interim Government of Iraq for 
the period July to December 2003. It sets the groundwork for 
the preparation and authorization of the budget for 2004.
    It was prepared using the existing systems, forms and 
formats that have traditionally been used in Iraqi budgets. 
Each Iraqi Ministry and Kurd region prepared a budget with 
their Coalition Senior Advisor. That budget was discussed with 
the Coalition Finance Advisor. The proposed Budget was then 
reviewed by appropriate officials from the Iraqi Finance and 
Planning Ministries, briefed to AID and UN representatives and 
approved by the CPA Program Review Board.
    The Budget balance for July to December 2003 shows a 
deficit of around $US2.2 billion. This will be funded from 
committed financial assets, without the need for borrowing.


                             Budget Summary
------------------------------------------------------------------------
                                                                ($USm)
------------------------------------------------------------------------
Expenditures
  Operating                                                      2,002.1
  Capital                                                          352.7
  Reconstruction                                                   256.8
  Other Expenditures                                             3,488.0
  Total                                                          6,099.6

Revenues
  Oil revenues                                                   3,455.0
  Fees, charges and taxes                                           59.1
  Returns from State Owned Enterprises                             373.6
  Total                                                          3,887.7
                                                            ------------
Budget Balance (Deficit)                                        -2,211.9
------------------------------------------------------------------------


    The Budget ensures fiscal discipline in the use of 
budgetary resources in order to rebuild the confidence 
necessary for the international donor and investment community 
to support the country's efforts.
    Oil revenues totaling around $3.4 billion are fully 
committed to programs that benefit the Iraqi people.
    Major priorities addressed include the reconstruction and 
restoration of essential facilities and services such as water, 
electricity, education and health care to meet the basic needs 
of the Iraqi people; restoring and revitalizing the banking 
system, productive enterprises, agriculture and trade to 
reintegrate Iraq into the world economy.


                 Key Initiatives of This Budget Include
------------------------------------------------------------------------
                                                                  ($US
                                                               millions)
------------------------------------------------------------------------
 ``Special programs'' and ``transfers'' redirected to       $900
 Iraqi people
 Electrical improvements                                    $294
 Subsidies to state owned enterprises reduced by:           $269
 Reconstruction                                             $257
 Security and Justice improvements                          $233
 Defense funding                                            $225
 Public Health improvements                                 $211
 Communications improvements                                $150
 Water and Sewerage improvements                             $73
------------------------------------------------------------------------



                      Table 1: Net Budget Position
------------------------------------------------------------------------
                                                                ($USm)
------------------------------------------------------------------------
Revenues                                                         3,887.7
Expenditures                                                     6,099.6
                                                            ------------
Budget Balance (Deficit)                                        -2,211.9
------------------------------------------------------------------------



                        Table 2: Budget Financing
------------------------------------------------------------------------
                                                                ($USm)
------------------------------------------------------------------------
Vested Assets                                                    1,700.0
Seized Assets                                                      795.0
Development Fund for Iraq                                        1,192.0
Iraq Relief (appropriated)                                       2,475.0
Natural Resource Risk Remediation Fund                             489.0
less spending before 1 July 200                                 31,248.0
                                                            ------------
Net Positionas at 1 July 2003                                    5,403.0

less:
Budget Deficit                                                   2,211.9
Central bank currency support                                    2,100.0
                                                            ------------
Net Position as at 31 December 2003                              1,091.1
------------------------------------------------------------------------



                  Table 3: Expenditures by Organization
------------------------------------------------------------------------
                                   Operational     Capital
           Organization            Expenditure  Expenditure     Total
                                      ($USm)       ($USm)       ($USm)
------------------------------------------------------------------------
Ministry of Agriculture                    9.4         10.0         19.4
Baghdad Mayoralty                         12.1          4.3         16.4
Board of Supreme Audit                     0.4          0.0          0.4
Central Organization of Standards          0.0          0.0          0.0
Ministry of Culture                        1.2         61.6         62.8
Ministry of Defense                       45.0        120.0        165.0
Ministry of Education                      9.7          0.0          9.7
Electricity Commission                    24.0         77.6        101.6
Ministry of Foreign Affairs               23.5          0.0         23.5
Ministry of Finance                      199.4          1.2        200.6
Ministry of Health                       210.6          1.0        211.6
Ministry of Higher Education and          32.8          4.0         36.8
 Scientific Research
Ministry of Housing &                      6.0         32.6         38.6
 Construction
Ministry of Industry & Minerals          209.1          0.3        209.4
Ministry of the Interior                   2.4         20.5         22.9
Ministry of Irrigation                     2.7         30.5         33.2
Ministry of Labor and Social               6.4          0.0          6.4
 Affairs
Ministry of Justice (excluding             5.8         25.7         31.5
 Prisons)
Ministry of Justice (Prisons)              6.3         21.9         28.1
Ministry of Oil                            0.0          0.0          0.0
Ministry of Planning                       4.6          0.0          4.6
Ministry of Municipalities and            20.8         52.0         72.8
 Local Authorities
Ministry of Religious Affairs              0.7          3.2          3.9
Iraq Science and Technology               11.8          1.6         13.4
 Commission
Ministry of Trade                          4.0          0.0          4.0
Ministry of Transportation and            10.8        138.7        149.6
 Communication
Youth Commission                           2.6          2.8          5.4
                                  --------------------------------------
Total Organization Expenditures          862.1        609.5      1,471.6
 (excl salaries)

Total Salaries and Pensions                                      1,140.0
                                                            ------------
Total Organization Expenditures                                  2,611.6
------------------------------------------------------------------------



                  Table 4: Operating Expenses by Input
------------------------------------------------------------------------
                                                                ($USm)
------------------------------------------------------------------------
Service Requirements                                               133.9
Goods Requirements                                                 221.9
Assets Maintenance                                                  46.5
Operating capital                                                   48.2
Transferred Expenditures (plus SOE support)                        234.5
Foreign Obligations (Kuwait war reparations)                       177.0
Special Programs                                                     0.1
                                                            ------------
Total Operating Expenses by Input                                  862.1
------------------------------------------------------------------------



               Table 5: Significant Proposed Expenditures
------------------------------------------------------------------------
                                                                ($USm)
------------------------------------------------------------------------
Food social safety net                                           1,350.0
Restoration of Iraqi Oil (RIO) Program                             825.0
Net Kurd Budget Support                                            300.0
Electricity restructuring                                          192.0
Police                                                             150.0
LPG and Gas                                                        135.0
Currency Reprinting                                                100.0
Construction Fund                                                  100.0
Military De-Mobilization                                            60.0
Regional Commanders                                                  6.0
U.S. Government Department and Agency Support                       35.0
Program Review Board                                                35.0
``Oil for food'' program                                          -200.0

USAID programs
  Bechtel                                                          400.0
                                                            ------------
Total Additional Expenditures                                    3,488.0
                                                            ------------
Total Expenditures                                               6,099.6
------------------------------------------------------------------------



                            Table 6: Revenues
------------------------------------------------------------------------
                                                                ($USm)
------------------------------------------------------------------------
Oil revenues                                                     3,455.0
Transfers from State Enterprises                                   373.6
Taxes, Fees and Charges                                             59.1
                                                            ------------
Total Revenues                                                   3,887.7
------------------------------------------------------------------------

         United Nations Security Council Resolution 1483 (2003)


 ADOPTED BY THE SECURITY COUNCIL AT ITS 4761ST MEETING, ON 22 MAY 2003

    The Security Council,

    Recalling all its previous relevant resolutions,

    Reaffirming the sovereignty and territorial integrity of 
Iraq,

    Reaffirming also the importance of the disarmament of Iraqi 
weapons of mass destruction and of eventual confirmation of the 
disarmament of Iraq,Stressing the right of the Iraqi people 
freely to determine their own political future and control 
their own natural resources, welcoming the commitment of all 
parties concerned to support the creation of an environment in 
which they may do so as soon as possible, and expressing 
resolve that the day when Iraqis govern themselves must come 
quickly,

    Encouraging efforts by the people of Iraq to form a 
representative government based on the rule of law that affords 
equal rights and justice to all Iraqi citizens without regard 
to ethnicity, religion, or gender, and, in this connection, 
recalls resolution 1325 (2000) of 31 October 2000,

    Welcoming the first steps of the Iraqi people in this 
regard, and noting in this connection the 15 April 2003 
Nasiriyah statement and the 28 April 2003 Baghdad statement,

    Resolved that the United Nations should play a vital role 
in humanitarian relief, the reconstruction of Iraq, and the 
restoration and establishment of national and local 
institutions for representative governance,

    Noting the statement of 12 April 2003 by the Ministers of 
Finance and Central Bank Governors of the Group of Seven 
Industrialized Nations in which the members recognized the need 
for a multilateral effort to help rebuild and develop Iraq and 
for the need for assistance from the International Monetary 
Fund and the World Bank in these efforts,

    Welcoming also the resumption of humanitarian assistance 
and the continuing efforts of the Secretary-General and the 
specialized agencies to provide food and medicine to the people 
of Iraq,

    Welcoming the appointment by the Secretary-General of his 
Special Adviser on Iraq,

    Affirming the need for accountability for crimes and 
atrocities committed by the previous Iraqi regime,

    Stressing the need for respect for the archaeological, 
historical, cultural, and religious heritage of Iraq, and for 
the continued protection of archaeological, historical, 
cultural, and religious sites, museums, libraries, and 
monuments,

    Noting the letter of 8 May 2003 from the Permanent 
Representatives of the United States of America and the United 
Kingdom of Great Britain and Northern Ireland to the President 
of the Security Council (S/2003/538) and recognizing the 
specific authorities, responsibilities, and obligations under 
applicable international law of these states as occupying 
powers under unified command (the ``Authority''),

    Noting further that other States that are not occupying 
powers are working now or in the future may work under the 
Authority,

    Welcoming further the willingness of Member States to 
contribute to stability and security in Iraq by contributing 
personnel, equipment, and other resources under the Authority,

    Concerned that many Kuwaitis and Third-State Nationals 
still are not accounted for since 2 August 1990,

    Determining that the situation in Iraq, although improved, 
continues to constitute a threat to international peace and 
security,

    Acting under Chapter VII of the Charter of the United 
Nations,


    1. Appeals to Member States and concerned organizations to 
assist the people of Iraq in their efforts to reform their 
institutions and rebuild their country, and to contribute to 
conditions of stability and security in Iraq in accordance with 
this resolution;

    2. Calls upon all Member States in a position to do so to 
respond immediately to the humanitarian appeals of the United 
Nations and other international organizations for Iraq and to 
help meet the humanitarian and other needs of the Iraqi people 
by providing food, medical supplies, and resources necessary 
for reconstruction and rehabilitation of Iraq's economic 
infrastructure;

    3. Appeals to Member States to deny safe haven to those 
members of the previous Iraqi regime who are alleged to be 
responsible for crimes and atrocities and to support actions to 
bring them to justice;

    4. Calls upon the Authority, consistent with the Charter of 
the United Nations and other relevant international law, to 
promote the welfare of the Iraqi people through the effective 
administration of the territory, including in particular 
working towards the restoration of conditions of security and 
stability and the creation of conditions in which the Iraqi 
people can freely determine their own political future;

    5. Calls upon all concerned to comply fully with their 
obligations under international law including in particular the 
Geneva Conventions of 1949 and the Hague Regulations of 1907;

    6. Calls upon the Authority and relevant organizations and 
individuals to continue efforts to locate, identify, and 
repatriate all Kuwaiti and Third-State Nationals or the remains 
of those present in Iraq on or after 2 August 1990, as well as 
the Kuwaiti archives, that the previous Iraqi regime failed to 
undertake, and, in this regard, directs the High-Level 
Coordinator, in consultation with the International Committee 
of the Red Cross and the Tripartite Commission and with the 
appropriate support of the people of Iraq and in coordination 
with the Authority, to take steps to fulfil his mandate with 
respect to the fate of Kuwaiti and Third-State National missing 
persons and property;

    7. Decides that all Member States shall take appropriate 
steps to facilitate the safe return to Iraqi institutions of 
Iraqi cultural property and other items of archaeological, 
historical, cultural, rare scientific, and religious importance 
illegally removed from the Iraq National Museum, the National 
Library, and other locations in Iraq since the adoption of 
resolution 661 (1990) of 6 August 1990, including by 
establishing a prohibition on trade in or transfer of such 
items and items with respect to which reasonable suspicion 
exists that they have been illegally removed, and calls upon 
the United Nations Educational, Scientific, and Cultural 
Organization, Interpol, and other international organizations, 
as appropriate, to assist in the implementation of this 
paragraph;

    8. Requests the Secretary-General to appoint a Special 
Representative for Iraq whose independent responsibilities 
shall involve reporting regularly to the Council on his 
activities under this resolution, coordinating activities of 
the United Nations in post-conflict processes in Iraq, 
coordinating among United Nations and international agencies 
engaged in humanitarian assistance and reconstruction 
activities in Iraq, and, in coordination with the Authority, 
assisting the people of Iraq through:

          (a) coordinating humanitarian and reconstruction 
        assistance by United Nations agencies and between 
        United Nations agencies and non-governmental 
        organizations;

          (b) promoting the safe, orderly, and voluntary return 
        of refugees and displaced persons;

          (c) working intensively with the Authority, the 
        people of Iraq, and others concerned to advance efforts 
        to restore and establish national and local 
        institutions for representative governance, including 
        by working together to facilitate a process leading to 
        an internationally recognized, representative 
        government of Iraq;

          (d) facilitating the reconstruction of key 
        infrastructure, in cooperation with other international 
        organizations;

          (e) promoting economic reconstruction and the 
        conditions for sustainable development, including 
        through coordination with national and regional 
        organizations, as appropriate, civil society, donors, 
        and the international financial institutions;

          (f) encouraging international efforts to contribute 
        to basic civilianadministration functions;

          (g) promoting the protection of human rights;

          (h) encouraging international efforts to rebuild the 
        capacity of the Iraqi civilian police force; and

          (i) encouraging international efforts to promote 
        legal and judicial reform;

    9. Supports the formation, by the people of Iraq with the 
help of the Authority and working with the Special 
Representative, of an Iraqi interim administration as a 
transitional administration run by Iraqis, until an 
internationally recognized, representative government is 
established by the people of Iraq and assumes the 
responsibilities of the Authority;

    10. Decides that, with the exception of prohibitions 
related to the sale or supply to Iraq of arms and related 
materiel other than those arms and related materiel required by 
the Authority to serve the purposes of this and other related 
resolutions, all prohibitions related to trade with Iraq and 
the provision of financial or economic resources to Iraq 
established by resolution 661 (1990) and subsequent relevant 
resolutions, including resolution 778 (1992) of 2 October 1992, 
shall no longer apply;

    11. Reaffirms that Iraq must meet its disarmament 
obligations, encourages the United Kingdom of Great Britain and 
Northern Ireland and the United States of America to keep the 
Council informed of their activities in this regard, and 
underlines the intention of the Council to revisit the mandates 
of the United Nations Monitoring, Verification, and Inspection 
Commission and the International Atomic Energy Agency as set 
forth in resolutions 687 (1991) of 3 April 1991, 1284 (1999) of 
17 December 1999, and 1441 (2002) of 8 November 2002;

    12. Notes the establishment of a Development Fund for Iraq 
to be held by the Central Bank of Iraq and to be audited by 
independent public accountants approved by the International 
Advisory and Monitoring Board of the Development Fund for Iraq 
and looks forward to the early meeting of that International 
Advisory and Monitoring Board, whose members shall include duly 
qualified representatives of the Secretary-General, of the 
Managing Director of the International Monetary Fund, of the 
Director-General of the Arab Fund for Social and Economic 
Development, and of the President of the World Bank;

    13. Notes further that the funds in the Development Fund 
for Iraq shall be disbursed at the direction of the Authority, 
in consultation with the Iraqi interim administration, for the 
purposes set out in paragraph 14 below;

    14. Underlines that the Development Fund for Iraq shall be 
used in a transparent manner to meet the humanitarian needs of 
the Iraqi people, for the economic reconstruction and repair of 
Iraq's infrastructure, for the continued disarmament of Iraq, 
and for the costs of Iraqi civilian administration, and for 
other purposes benefiting the people of Iraq;

    15. Calls upon the international financial institutions to 
assist the people of Iraq in the reconstruction and development 
of their economy and to facilitate assistance by the broader 
donor community, and welcomes the readiness of creditors, 
including those of the Paris Club, to seek a solution to Iraq's 
sovereign debt problems;

    16. Requests also that the Secretary-General, in 
coordination with the Authority, continue the exercise of his 
responsibilities under Security Council resolution 1472 (2003) 
of 28 March 2003 and 1476 (2003) of 24 April 2003, for a period 
of six months following the adoption of this resolution, and 
terminate within this time period, in the most cost effective 
manner, the ongoing operations of the ``Oil-for-Food'' 
Programme (the ``Programme''), both at headquarters level and 
in the field, transferring responsibility for the 
administration of any remaining activity under the Programme to 
the Authority, including by taking the following necessary 
measures:

          (a) to facilitate as soon as possible the shipment 
        and authenticated delivery of priority civilian goods 
        as identified by the Secretary-General and 
        representatives designated by him, in coordination with 
        the Authority and the Iraqi interim administration, 
        under approved and funded contracts previously 
        concluded by the previous Government of Iraq, for the 
        humanitarian relief of the people of Iraq, including, 
        as necessary, negotiating adjustments in the terms or 
        conditions of these contracts and respective letters of 
        credit as set forth in paragraph 4 (d) of resolution 
        1472 (2003);

          (b) to review, in light of changed circumstances, in 
        coordination with the Authority and the Iraqi interim 
        administration, the relative utility of each approved 
        and funded contract with a view to determining whether 
        such contracts contain items required to meet the needs 
        of the people of Iraq both now and during 
        reconstruction, and to postpone action on those 
        contracts determined to be of questionable utility and 
        the respective letters of credit until an 
        internationally recognized, representative government 
        of Iraq is in a position to make its own determination 
        as to whether such contracts shall be fulfilled;

          (c) to provide the Security Council within 21 days 
        following the adoption of this resolution, for the 
        Security Council's review and consideration, an 
        estimated operating budget based on funds already set 
        aside in the account established pursuant to paragraph 
        8 (d) of resolution 986 (1995) of 14 April 1995, 
        identifying:

                  (i) all known and projected costs to the 
                United Nations required to ensure the continued 
                functioning of the activities associated with 
                implementation of the present resolution, 
                including operating and administrative expenses 
                associated with the relevant United Nations 
                agencies and programmes responsible for the 
                implementation of the Programme both at 
                Headquarters and in the field;

                  (ii) all known and projected costs associated 
                with termination of the Programme;

                  (iii) all known and projected costs 
                associated with restoring Government of Iraq 
                funds that were provided by Member States to 
                the Secretary-General as requested in paragraph 
                1 of resolution 778 (1992); and

                  (iv) all known and projected costs associated 
                with the Special Representative and the 
                qualified representative of the Secretary-
                General identified to serve on the 
                International Advisory and Monitoring Board, 
                for the six month time period defined above, 
                following which these costs shall be borne by 
                the United Nations;

          (d) to consolidate into a single fund the accounts 
        established pursuant to paragraphs 8 (a) and 8 (b) of 
        resolution 986 (1995);

          (e) to fulfil all remaining obligations related to 
        the termination of the Programme, including 
        negotiating, in the most cost effective manner, any 
        necessary settlement payments, which shall be made from 
        the escrow accounts established pursuant to paragraphs 
        8 (a) and 8 (b) of resolution 986 (1995), with those 
        parties that previously have entered into contractual 
        obligations with the Secretary-General under the 
        Programme, and to determine, in coordination with the 
        Authority and the Iraqi interim administration, the 
        future status of contracts undertaken by the United 
        Nations and related United Nations agencies under the 
        accounts established pursuant to paragraphs 8 (b) and 8 
        (d) of resolution 986 (1995);

          (f) to provide the Security Council, 30 days prior to 
        the termination of the Programme, with a comprehensive 
        strategy developed in close coordination with the 
        Authority and the Iraqi interim administration that 
        would lead to the delivery of all relevant 
        documentation and the transfer of all operational 
        responsibility of the Programme to the Authority;

    17. Requests further that the Secretary-General transfer as 
soon as possible to the Development Fund for Iraq 1 billion 
United States dollars from unencumbered funds in the accounts 
established pursuant to paragraphs 8 (a) and 8 (b) of 
resolution 986 (1995), restore Government of Iraq funds that 
were provided by Member States to the Secretary-General as 
requested in paragraph 1 of resolution 778 (1992), and decides 
that, after deducting all relevant United Nations expenses 
associated with the shipment of authorized contracts and costs 
to the Programme outlined in paragraph 16 (c) above, including 
residual obligations, all surplus funds in the escrow accounts 
established pursuant to paragraphs 8 (a), 8 (b), 8 (d), and 8 
(f) of resolution 986 (1995) shall be transferred at the 
earliest possible time to the Development Fund for Iraq;

    18. Decides to terminate effective on the adoption of this 
resolution the functions related to the observation and 
monitoring activities undertaken by the Secretary-General under 
the Programme, including the monitoring of the export of 
petroleum and petroleum products from Iraq;

    19. Decides to terminate the Committee established pursuant 
to paragraph 6 of resolution 661 (1990) at the conclusion of 
the six month period called for in paragraph 16 above and 
further decides that the Committee shall identify individuals 
and entities referred to in paragraph 23 below;

    20. Decides that all export sales of petroleum, petroleum 
products, and natural gas from Iraq following the date of the 
adoption of this resolution shall be made consistent with 
prevailing international market best practices, to be audited 
by independent public accountants reporting to the 
International Advisory and Monitoring Board referred to in 
paragraph 12 above in order to ensure transparency, and decides 
further that, except as provided in paragraph 21 below, all 
proceeds from such sales shall be deposited into the 
Development Fund for Iraq until such time as an internationally 
recognized, representative government of Iraq is properly 
constituted;

    21. Decides further that 5 per cent of the proceeds 
referred to in paragraph 20 above shall be deposited into the 
Compensation Fund established in accordance with resolution 687 
(1991) and subsequent relevant resolutions and that, unless an 
internationally recognized, representative government of Iraq 
and the Governing Council of the United Nations Compensation 
Commission, in the exercise of its authority over methods of 
ensuring that payments are made into the Compensation Fund, 
decide otherwise, this requirement shall be binding on a 
properly constituted, internationally recognized, 
representative government of Iraq and any successor thereto;

    22. Noting the relevance of the establishment of an 
internationally recognized, representative government of Iraq 
and the desirability of prompt completion of the restructuring 
of Iraq's debt as referred to in paragraph 15 above, further 
decides that, until December 31, 2007, unless the Council 
decides otherwise, petroleum, petroleum products, and natural 
gas originating in Iraq shall be immune, until title passes to 
the initial purchaser from legal proceedings against them and 
not be subject to any form of attachment, garnishment, or 
execution, and that all States shall take any steps that may be 
necessary under their respective domestic legal systems to 
assure this protection, and that proceeds and obligations 
arising from sales thereof, as well as the Development Fund for 
Iraq, shall enjoy privileges and immunities equivalent to those 
enjoyed by the United Nations except that the above-mentioned 
privileges and immunities will not apply with respect to any 
legal proceeding in which recourse to such proceeds or 
obligations is necessary to satisfy liability for damages 
assessed in connection with an ecological accident, including 
an oil spill, that occurs after the date of adoption of this 
resolution;

    23. Decides that all Member States in which there are:

          (a) funds or other financial assets or economic 
        resources of the previous Government of Iraq or its 
        state bodies, corporations, or agencies, located 
        outside Iraq as of the date of this resolution, or

          (b) funds or other financial assets or economic 
        resources that have been removed from Iraq, or 
        acquired, by Saddam Hussein or other senior officials 
        of the former Iraqi regime and their immediate family 
        members, including entities owned or controlled, 
        directly or indirectly, by them or by persons acting on 
        their behalf or at their direction,

shall freeze without delay those funds or other financial 
assets or economic resources and, unless these funds or other 
financial assets or economic resources are themselves the 
subject of a prior judicial, administrative, or arbitral lien 
or judgement, immediately shall cause their transfer to the 
Development Fund for Iraq, it being understood that, unless 
otherwise addressed, claims made by private individuals or non-
government entities on those transferred funds or other 
financial assets may be presented to the internationally 
recognized, representative government of Iraq; and decides 
further that all such funds or other financial assets or 
economic resources shall enjoy the same privileges, immunities, 
and protections as provided under paragraph 22;

    24. Requests the Secretary-General to report to the Council 
at regular intervals on the work of the Special Representative 
with respect to the implementation of this resolution and on 
the work of the International Advisory and Monitoring Board and 
encourages the United Kingdom of Great Britain and Northern 
Ireland and the United States of America to inform the Council 
at regular intervals of their efforts under this resolution;

    25. Decides to review the implementation of this resolution 
within twelve months of adoption and to consider further steps 
that might be necessary;

    26. Calls upon Member States and international and regional 
organizations to contribute to the implementation of this 
resolution;

    27. Decides to remain seized of this matter.
[Administrator L. Paul Bremer Delivers Remarks at National Press Club--
                     Washington, DC--July 23, 2003]


       AMBASSADOR L. PAUL BREMER, COALITION PROVISIONAL AUTHORITY


    Thank you very much, Tammy, and thank you for inviting me 
back to this forum. I addressed it before when I was last in 
government as ambassador at large for counterterrorism.
    I had my staff working very hard working on my speech, and 
I was told that the speech is actually an hour long but I'm 
only allowed to speak for half an hour. So I'm going to read 
every other page, and I'll let you guys fill in the blanks.
    These have been a great couple of weeks for the people of 
Iraq, for the coalition's reconstruction efforts and for the 
American armed forces. Let me give you a snapshot of the last 
couple of weeks.
    This month, students across Iraq are taking their final 
exams, with all of the country's universities now reopened. 
Over 90 percent of Iraq's public schools have reopened too.
    Right now, all of Iraq's hospitals and 95 percent of its 
health clinics are open and providing services to Iraqi 
citizens.
    Ten days ago, Iraq's governing council was formed, 
launching the country on a path to democracy.
    This followed the formation of the Baghdad city council, 
which I was pleased to participate in, which adds Baghdad to 
the list of all major Iraqi cities now that have city councils.
    And by the way, over 85 percent of the towns in Iraq now 
have town councils. From north to south in Iraq, democracy is 
on the march.
    And just yesterday, celebratory gunfire lit up Baghdad as 
Iraqis rejoiced at the news of the deaths of Uday and Qusay 
Hussein.
    Yesterday's success, like so many of our successes during 
this reconstruction, is yet another sterling example of 
American Armed Forces at their finest. They are on the front 
lines of securing freedom for the Iraqi people, and ensuring 
that Iraq no longer poses a threat to the world or to America.
    Let me say that I've noticed that in press coverage here in 
the United States in recent weeks has tended to portray our 
soldiers in Iraq as victims, rather than as the heroes they 
are.
    I have visited virtually all of the American units in the 
entire country of Iraq, and I want to tell you I am a first-
hand witness to the professionalism, dedication and courage 
that these young men and women are showing every day in Iraq. 
And let me be clear, they are truly heroes, and we owe them an 
enormous debt of gratitude.
    Yesterday's mission was also a statement and a restatement 
of the partnership that has emerged between the Iraqi people 
and the coalition.
    As in so many other areas of our reconstruction effort, 
this success can be attributed to an Iraqi citizen stepping 
forward. This is consistent with the trend we started noticing 
several weeks ago, of Iraqis coming forward to our police, or 
to their police, or to our tactical units and giving us 
information about Baathists and other evil-doers.
    Iraqis all across the country are taking their future into 
their own hands, and this, too, is worthy of celebration.
    Today, we have three challenges in Iraq: securing the 
country, setting the economy on a path to prosperity and 
building the foundations of a sovereign democratic government.
    And in all three areas--security, the economy and 
governance--we have a plan. It is a plan with clear benchmarks 
for the next 60 and 120 days. It is a plan that will guide our 
work and our mission in Iraq. And I have discussed this plan 
with the president and the National Security Council, and I 
presented it in my meetings with Congress yesterday.
    In developing the plan, we considered the historic context 
in order truly to understand the challenges that lie ahead for 
us.
    Much has been written about the liberation of Iraq, and 
that is certainly proper. It is a remarkable event in the 
history of human freedom. Never before in warfare have so many 
people been freed with so few casualties in such a short time 
with so little damage done to the country or to its people. 
Unfortunately the damage to the Iraq people had already been 
done before we got there.
    The Saddam regime did untold damage to country's citizens, 
to its economy, to its infrastructure and to its relations with 
the rest of the world. And that affected every single Iraqi, 
not just the thousands or perhaps millions who have been killed 
and tortured under Saddam. The scars in Iraq run very deep.
    The secret police, the thugs, the informers, the torture 
chambers--they may have gone. But the people of Iraq will be 
coping with the horrors of the mass graves and the individual 
and family tragedies for years to come. Since I've arrived in 
Iraq, I have met literally thousands of Iraqis. And I can tell 
you that every single one of them has had his or her family 
affected one way or the other by Saddam's cruelty.
    Repairing the damage inflicted by Saddam--a material, human 
and psychological damage--is a huge task, a task which we will 
only succeed at if we have a real partnership between the 
coalition, the international community and the Iraqi people.
    Our challenge is even greater, for it was not just the 
Iraqi army that disappeared in the face of a dancing coalition 
forces, the entire Iraqi government and all of its agencies and 
all of its reach into Iraqi society also collapsed. The Iraqi 
people went from a life in a police state with a controlled, 
highly structured society to no social or political structure 
at all in only three weeks.
    Make some historic comparisons. The citizens of the Soviet 
Union had a decade or more to adjust to a new reality. And 
while the evil empire that collapsed in 1989 was evil till its 
last days, the difference between the country that Stalin ruled 
and the country that Gorbachev ruled was vast. Under Gorbachev 
alone, through perestroika and glasnost, citizens of the former 
Soviet Union had the opportunity to begin to think about and to 
experiment with limited openness.
    There was no comparable period of transition in Iraq. The 
Iraqi people went from the dark night of tyranny to the 
daylight of freedom in a historic blink of the eye.
    And for most Iraqis, there is no memory of a liberalized 
economy or even limited freedoms to call back upon. Compare 
that to the experience in Germany in 1945. Hitler of course was 
a monster, and his reign was a dreadful and tragic period in 
German history. But let's remember that Hitler was in power 
only one-third as long as Saddam Hussein. And the fact is that 
when the Third Reich was wiped out and the German people began 
to pick up the pieces to rebuild, they retained a living memory 
of a period in which Germany had a functioning democracy. There 
is not such legacy for Iraqis.
    So the challenge in rebuilding Iraq is unique and very 
difficult and unlike anything we've seen in the last century.
    We have a three-stage strategy to deal with this challenge, 
and I want to talk about each of those three.
    The most immediate priority is providing security.
    We have already made considerable progress. When I first 
arrived in Baghdad in early May, it was a city on fire, 
literally. There was no traffic in the streets except for 
military vehicles of the coalition. There were no shops open. I 
slept at night in those days with ear plugs in my ears, because 
otherwise I was kept awake by the gunfire that went on 
constantly every night. Looting was a real problem and ongoing.
    That has all changed. The streets in Baghdad, in Basra, in 
Mosul, in Tikrit, in Kirkuk, in An Nasiriyah, in Diwaniyah, in 
Al Kut, in Ar Ramadi and Al-Fallujah, the streets are bustling 
with business, traffic, commerce. From the vegetable markets to 
the satellite dish shops, stores are open and merchants are no 
longer in fear of widespread looting.
    The endless nighttime gunfire is virtually non-existent 
except, of course, last night when it was a sign of joy.
    The north of Iraq is peaceful. The Shia heartland running 
from just south of Baghdad down to the Kuwaiti border is quiet. 
This is not a country in chaos, as it is sometimes portrayed.
    Today in Iraq our forces face no strategic threat. The 
attacks against our brave uniformed men and women are 
concentrated in a small geographic triangle north and west of 
Baghdad where our troops never fought. In this area, we never 
fought and defeated the two Republican Guard divisions that 
were there. They simply faded away.
    And it's no coincidence that this area of greatest activity 
against our forces was a traditional center of political 
support by Saddam. It's also where he put many elements of the 
military industrial complex with their Baathist civil servants.
    Eighty-one percent of the attacks since June 1st have been 
in this small area. Here we face a stubborn resistance made up 
of former regime loyalists, criminals and some non-Iraqi 
terrorists.
    Operations by our military forces currently underway in 
this so- called Sunni Triangle are making headway in reducing 
these threats, and I'm confident we will impose our will here 
as we have elsewhere in Iraq.
    We typically follow up these military operations with 
quick-action development projects such as rebuilding schools, 
repairing hospitals or restoring waste sewage.
    To date we have implemented several thousand such projects 
all across Iraq. We recognize the importance of having both a 
carrot and a stick.
    Additional steps that will be taken over the next 60 days 
to improve security include, first, recruiting and training the 
first battalion of the new Iraqi army. Recruitment commenced 
this weekend. And I'm told in conversations with Baghdad this 
morning that there were mobs of people volunteering to join the 
new Iraqi army. It will be a volunteer force, not a conscripted 
force.
    Secondly, we will raise eight battalions of the new Iraqi 
civil defense corps in the next 60 days. We will open the new 
police academy, which is even now recruiting for police. We 
will re-establish the border guard. We will start trials before 
the central criminal court, which I established a month ago, 
and we will start judge-training seminars.
    But we need to be realistic. There will be bumps in the 
road. Total security is not possible. Continued success on our 
overall reconstruction plan will probably be met by bitter-
enders who target our successes.
    If you look at some of the most disruptive and symbolic 
attacks in recent weeks, it turns out that what they do is 
attack our success stories. I'll give you three examples.
    On July 6, in the early afternoon, a young infantry man 
providing security to our people at the Baghdad University was 
mortally wounded in an assassination. This tragic event, 
however, could not obscure the reality that all 22 universities 
in Baghdad have been open since late May. The universities have 
begun reconstruction with the assistance of coalition forces 
and our authority. The vast majority of undergraduates 
throughout Iraq, something like 90 percent, are now completing 
their final exams, and therefore bringing to conclusion--to a 
successful conclusion--the school year.
    On July 5, a bomb exploded killing several Iraqis at a 
ceremony marking their graduation from a police training course 
in Al-Fallujah. This, too, was an attack on our success, 
demonstrating the attackers opposition to the efforts of Iraqis 
to bring safety and security to their own streets, and showing 
the same disdain for their own people that Saddam showed for 35 
years.
    Just this past weekend there was a fatal attack on a U.S. 
soldier guarding a bank. Today, over 72 percent of the banks in 
Iraq are open. In Baghdad all customers and depositors are 
being served. If their branch is closed, another branch is 
covering for them. Banks have been a success for the coalition 
and the Iraqi people, and that's why this young infantry man 
was targeted.
    And as we have more successes across the board, we should 
be prepared for more desperate attacks against our forces and 
the Iraqi people, but we will not be deterred.
    The second element of our strategy is working with Iraqis 
to put their country on the right economic path.
    The immediate situation is daunting, but it could have been 
much worse. And it's important to remember what did not happen. 
We did not have a humanitarian crisis. There was no refugee 
crisis. Early operations by the coalition prevented attacks or 
destruction of the oil infrastructure and production has 
already resumed. In fact, we are exporting oil.
    There was no great collateral damage.
    Still, much work remains to be done, including the 
restoration of basic services, without which no economic plan 
can succeed. Our focus is now on providing those basic 
essential services to the Iraqi people: power, water, health 
care.
    One of the first obstacles the coalition encountered in 
restoring basic services was a dilapidated infrastructure. It 
would be very hard to overstate a chronic under-investment in 
Iraq's infrastructure over the past 30 years. In almost every 
sector, from oil to electricity to sewage, the technology and 
machinery date back to the 1950s and the 1960s while the Saddam 
regime diverted billions into militarization and its own 
pockets.
    The Iraqi engineers were somehow able to keep these systems 
going, a fine tribute to their extraordinary skill and 
ingenuity. But there is a limit. In the area of electrical 
power, for example, shows the challenges we face across the 
country.
    The current demand in Iraq for electric power is about 
6,000 megawatts. The total available power in Iraq before the 
war is 4,000 megawatts. So even when we have restored the full 
availability of power as it was before the war--something we 
intend to do in the next 60 days--there will be a shortfall of 
roughly one-third in terms of power availability.
    This has always been the case, for example, throughout the 
country.
    And in Baghdad, Saddam basically protected the Baghdad 
power by shipping power in from other parts of the country and 
starving other cities. For example, Baghdad got about 18 hours 
of power before the war, but Basra in the south, part of the 
Shia heartland and as part of Saddam's effort at repression, 
they got 10 to 12 hours a day.
    Saddam withheld electricity and other essential services as 
part of his political oppression and manipulation.
    The chronic under-investment in infrastructure means that 
our infrastructure is fragile, brittle and lacks redundancy. So 
it is extremely susceptible to the kinds of attacks of 
political sabotage we've seen against the power industry and 
against the oil infrastructure in the past month.
    Our engineers estimate that it will take as much as $13 
billion to rebuild and meet foreseeable power demands. The 
United Nations estimates that we will have to spend $16 billion 
over the next four years just on water, in getting decent water 
to the population. These numbers are indicative of the kinds of 
money that is going to have to be spent just to get Iraq to 
normal standards in this economy.
    Another example is health care. In the 1990s, Saddam 
Hussein cut health care by 90 percent, 90 percent. Last year, 
in the entire year of 2002, Iraq spent $13 million on health 
care for a population of 25 million, about 50 cents per person. 
The budget that I just approved three weeks ago will increase 
that to $211 million in this six months alone, an increase in 
health care spending of 3,500 percent over what Saddam spent 
last year.
    Now we in this area, as in security, have a plan for what 
to do in the next 60 days. I'll just cite a few examples.
    First, we're going to get power back to prewar levels.
    Second, we're going to rehabilitate over 1,000 schools 
throughout the country, and I might add, provide 1.3 million 
children with starter kits through an aid program.
    We will restore health care to 95 to 100 percent of prewar 
levels--and of course, that won't be enough, we're going to 
have to do much more in the years ahead. And we are going to 
distribute revised textbooks throughout, which remove the 
Baathist's ideology that has been woven throughout the 
textbooks and curricula over the last 30 years.
    But simply rebuilding government buildings or repairing 
power lines will not be enough to bring about sustainable 
growth. That growth will require a fundamental transformation 
from three decades of economic mismanagement and neglect and a 
Stalinist-industrial structure.
    Even before the war joblessness was high and public 
infrastructure was in a shambles. Instead of serving as the 
front-line source of credit for would-be entrepreneurs, the 
banking system acted primarily as a fiscal agent for an all-
powerful state. The central bank, for example, nearly rubber-
stamped a policy of printing money to finance deficits with the 
predictable inflationary results. For the last year for which 
statistics are available, the Iraqi government figures show 
that in 2001 inflation was--get this--115,000 percent.
    State-owned enterprises lived off of government subsidies 
that allowed them to destroy value rather than create it. The 
coalition's task in this economic field is therefore two-fold. 
First, we have had to stabilize the current economic situation 
by continuing the payment of public-sector salaries and by 
launching a range of construction in infrastructure projects to 
create jobs. The payment of salaries helped avoid the 
humanitarian and refugee crisis that many had predicted, and 
construction and infrastructure proposals will be important in 
supporting the economy in the coming months.
    But no one believes that sustained economic growth can come 
from individual construction projects or job-creating programs. 
Yet the creation of jobs remains a continuing concern of 
economic policy. Unemployment, according to the Iraqi 
government figures, was more than 50 percent before the war. 
And unemployment may rise even higher in the months ahead as 
other economic reforms are implemented.
    We are injecting almost $200 million a month into the 
economy through the payment of salaries, pensions and emergency 
payments. But with our development projects, we will also 
provide thousands, tens of thousands, of jobs in the next 60 
days ahead.
    The longer-term component of our economic program is 
crafting policies that will lead to long-term growth. During 
the past month and over the next 60 days, many policies for 
growth have been or will be established.
    One of the most important concerns: Iraqi's currency.
    Iraq lacks what many economies and countries take for 
granted, which is a usable currency with enough denominations 
to facilitate trade.
    In central and southern parts of Iraq there is circulating 
only one denomination, the so-called Saddam dinar, which is in 
only two notes. A 250 dinar note which is worth about 17 cents. 
And a second denomination which has a face value of 10,000 
dinar, but which trades in the market for much less because of 
fear that this note may have been stolen or counterfeited.
    Meanwhile in the north in the autonomous Kurdish region, 
Iraqis have been forced to use the pre-Gulf War dinars that are 
now wearing out literally, physically wearing out after more 
than a decade of use.
    On July 7, we announced that all of Iraq's bank notes would 
be exchanged for new bank notes beginning on October 15. Iraq, 
for the first time in a decade, will have a unified currency of 
which the entire nation can be proud. And over the next 60 
days, we will work hard to prepare the Iraqi economy for the 
October 15 launch of the new bank notes.
    The coalition is also helping re-open banks that have been 
closed during the war or by subsequent looting. By next week 
all of Baghdad's customers at the two large state banks will be 
able to conduct bank businesses either at their own branch or 
at a nearby branch. At most of those branches, customers will 
be able to cash checks drawn on that branch. Doesn't sound like 
much in America, but in Iraq it's an important step to 
returning to a payment system and moving the country away from 
a purely cash economy.
    Eventually, foreign bank know-how will be needed for Iraq 
to prosper, and this can be achieved by giving management 
contracts to foreign banks for these two large state banks. 
This is an issue we will address also in the next 60 days.
    Obviously at the heart of any country's banking system is 
the central bank. On July 7, along with the announcement about 
the bank note conversion, the coalition announced that the 
Central Bank of Iraq, henceforth will be made independent of 
the Ministry of Finance. In the next several weeks we'll work 
with the governing council to put in place a full bank 
operation and regulatory law. Making the Central Bank 
independent will prevent future governments from ordering the 
Central Bank to print money to cover deficits.
    An important step in building monetary credibility is also 
to impose fiscal discipline.
    We recently completed an emergency budget for the second 
half of 2003 that incorporates transparency and discipline, two 
things that have never been available to previous Iraqi 
budgets. In the coming months, we will execute this budget, 
putting procedures and safeguards in place to ensure that the 
money is spent where it is intended.
    Because of Iraq's tremendous needs for infrastructure and 
other expenses related to the transition, the budget calls for 
spending that is higher than our revenues. But the deficit will 
not be covered by printing new money, as it would have been 
under the old regime. The deficit will be filled this time by 
allocating money from seized and vested Iraqi assets. These 
assets belong to the Iraqi people, and I am required and will 
spend them in ways that are beneficial to the Iraqi people.
    It is going to take time and a great deal of outside 
assistance to transform and bring steady growth to the economy 
of Iraq. The legacy of Saddam hangs like a black cloud over 
every aspect of the lives of the Iraqi people. And that black 
cloud extends also over the economic future.
    Because of the criminal misuse of the wealth that belongs 
to the Iraqi and the decades long neglect that he imposed on 
the economy, Iraq is not the rich country it should be today. 
Indeed, it will be a poor country for some years to come.
    In addition to finalizing the 2003 budget, we have just 
completed initial budget projections for 2004. Our initial 
assessment is that we will run a deficit next year of almost $4 
billion. As oil production returns to pre-war levels, we expect 
the budget to escape from deficits after 2004. But even so, 
Iraq's near-term needs will require considerable assistance 
from the United States, its coalition partners and the 
international community.
    We will need additional help from the international 
community, specifically in the early debt renegotiation, 
resulting in a substantial reduction in the real value of 
Iraq's debt.
    On that note, I've heard in recent days about, quote, ``the 
possibility,'' unquote, of internationalization of our 
reconstruction effort.
    We could of course and would welcome additional support. 
But it is already the case that there is an international 
effort in reconstruction.
    The steps we are taking in the financial and budgetary 
fronts over the next 60 to 120 days and beyond are intended to 
help Iraq complete the transition that many other countries 
around the world attempted in the last decade, moving from a 
centrally-planned economy, dominated by value-destroying, 
state-owned enterprises to a free market. As in many socialist 
economies, Iraq's state-owned enterprises hobbled economic 
growth. And because they didn't face the discipline of the 
market, they destroyed value rather than creating it.
    We have imposed hard budget constraints on these SOEs now, 
and we are evaluating all of the state-owned enterprises to see 
which ones should be closed immediately. The adjustments to 
state-owned enterprises cannot be done in isolation. There 
needs to be a well-financed, well-functioning safety net in 
place so that workers who lose their jobs will not be left 
behind. So we will continue providing food to all of Iraq's 
people and have greatly increased spending on health care as I 
mentioned.
    A central lesson from the past transitions is that 
employment growth is most likely to come from new and small-
sized enterprises. All of our policies are cast with the idea 
of growing those firms in mind.
    For example, we are now reviewing business regulations and 
licensing rules to ensure a streamlined process for creating 
new businesses. We are making sure that Iraq has a functioning 
commercial code and honest judges to enforce it. We want to 
have a well-functioning property rights regime which have been 
seen all across the world to be important and fundamental 
building blocks to economic growth. And opening Iraq to the 
rest of the world promises to pay big dividends to the Iraqi 
people.
    Finally, we have a strategy for dealing with political 
development. History teaches us that economic freedom and 
political freedom go hand-in-hand.
    One cannot survive, let alone flourish, without the other. 
Our plan is predicated on the fact that the coalition's job 
will not be complete until there is a sovereign democratic 
government in Iraq.
    Saddam Hussein's Iraq was a totalitarian state in the 
truest sense of the word. I can't emphasize that enough. 
Saddam, his sons, and other henchmen, and his Baathist 
ideology, subjected every element of society, top to bottom, to 
total control.
    It was truly a totalitarian system. It permeated every 
sphere of everyday life for every Iraqi, including women's 
associations, professional guilds, and other associations.
    Uday, for example, was particularly active in abusing 
officials throughout the sports world, down even to the 
municipal sports federations and National Olympic Committee.
    This makes our goal all the more challenging. When I 
arrived in Iraq in May, I said that by mid-July we would meet 
our first critical milestone, the formation of a broadly 
representative interim council with real powers and 
responsibilities.
    Well, last week, on July 13th, which is pretty much the 
middle of July, we executed according to plan with the 
formation of the Iraqi governing council.
    That governing council, for the first time in Iraq's 
history, brings together a balanced, representative group of 
political leaders from across the country.
    It represents the diversity of Iraq, whether they are Shia 
or Sunni, Arab or Kurd, Baghdadi or Basrawi, man or woman, all 
Iraqis will see themselves represented in this council.
    And the council will be involved in all significant 
decisions in the months ahead. It will name the new ministers 
to lead Iraq's ministries, and its members will be able to 
represent Iraq internationally.
    Just yesterday, a delegation from this group presented 
itself to the United Nations Security Council. The governing 
council will determine the budget for next year, and another 
one of its first jobs will be to launch the constitutional 
process.
    The governing council is the first of three steps toward a 
sovereign, democratic Iraqi government. Now that it is 
established, we can look for the second step, which is the 
convening of a constitutional conference and the adoption of a 
new Iraqi constitution, written by the Iraqis and for the 
Iraqis, not by any foreigners, and certainly not by any 
American.
    Once the new constitution has been adopted by the Iraqi 
people, and that'll be the second stage of our political plan, 
we can move to the third stage, the election of a free and 
democratic Iraqi government. That will be an accomplishment of 
which all Americans can be proud.
    Over the next 60 days, we'll focus intensely on support for 
a constitutional conference, support for new interim ministers 
in the ministries, and the establishment of a regulatory and 
licensing framework in which an independent media can flourish. 
These are only the latest signs of progress to Iraqi democracy.
    Two weeks ago, the 37 members of the Baghdad City Council 
met to mark the transition of the capital to democratic rule. 
Today, for the first time in history, all major cities and 85 
percent of the towns have municipal councils. Iraqis are more 
and more now taking responsibility for the management of their 
own affairs through local councils. More than 150 new 
newspapers have been started since liberation. Iraqis are 
speaking out and demonstrating with a vigor borne of 35 years 
of imposed silence. This is not yet full democracy, but freedom 
is on the march north and south.
    Finally, our planning is maturing rapidly. With the 
agreement and help of our uniformed colleagues, we are now 
preparing the first combined civil-military plan for Iraq. The 
plan begins with the president's vision for Iraq, and it's a 
good place to wind up this speech.
    The president's vision for Iraq is to build a sovereign, 
free, unified and democratic Iraq at peace with its neighbors 
and with the world. We have made a lot of progress moving 
toward that vision, and we have a plan for the next 60, 120 
days and beyond that makes further progress toward those goals. 
In all our primary areas, security, economy, governance, we 
will continue to work closely with the Iraqi people.
    As President Bush said this morning in the White House Rose 
Garden, ``They are our greatest allies, the Iraqi people.'' 
They have been a great source of inspiration to me. They have 
an unflappable sense of optimism and professionalism. Their 
dignity, their work ethic and national pride combine with 
President Bush's vision for Iraq has convinced me that the 
Iraqi people's best days are yet truly to come.
    Thank you very much.
                            Further Reading

                              ----------                              


    1. ``Baghdad: A Race Against the Clock,'' International 
Crisis Group, June 11, 2003.

    2. ``Iraq's Post-Conflict Reconstruction: A Field Review 
and Recommendations,'' by the Iraq Reconstruction Assessment 
Mission of the Center for Strategic and International Studies, 
July 17, 2003.

    3. ``A New Voice in the Middle East: A Provisional Needs 
Assessment for the Iraqi Media,'' Baltic Media Center, Index on 
Censorship, Institute for War & Peace Reporting, International 
Media Support, May-June 2003.

    4. ``Climate of Fear: Sexual Violence and Abduction of 
Women and Girls in Baghdad'' Human Rights Watch, July 2003.

    5. ``NDI Assessment Mission to Iraq,'' National Democratic 
Institute for International Affairs, June 23 to July 6, 2003.

    6. ``Preparing for War, Stumbling to Peace,'' Mark Fineman, 
Robin Wright, and Doyle McManus, Los Angeles Times, July 18, 
2003.

    7. ``U.S. Lacked Plan B in Iraq,'' Jonathan Landay and 
Warren Strobel, Philadelphia Inquirer, July 13, 2003.



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