Iraq Table of Contents

The pattern of Iraqi foreign trade in the 1980s was shaped primarily by the Iran-Iraq War, its resulting deficit and debt problems, and developments in the petroleum sector. Iranian attacks on petroleum industry infrastructure reduced oil exports sharply and Iraq incurred a trade deficit of more than US$10 billion in 1981. The pattern continued in 1982 as the value of Iraqi imports peaked at approximately US$23.5 billion, while exports reached a nadir of US$11.6 billion, leading to a record trade deficit. In 1983, however, imports were cut roughly by half. Figures for Iraq's imports and exports from 1984 onward vary widely and cannot be considered authoritative. Despite the partial recovery of Iraqi oil exports in 1986, exports were valued at only about US$7.5 billion because of the plunge in world oil prices. In 1987 imports were expected to rise to about US$10 billion. Export revenues were also expected to rise, as Iraq compensated for low oil prices with a higher volume of oil exports (ssee; table 8, Appendix).

Iraq had counted heavily on solving its twin debt and deficit problems by reestablishing and eventually by augmenting its oil export capacity. But increases in volume were insufficient to offset lower prices, and because demand remained low, expanded oil exports served only to glut the market and further drive down the price of oil. The depressed price of oil and the low prices of other raw materials that Iraq exported, coupled with higher prices for the goods it imported, trapped the nation in the classic dilemma of declining terms of trade. Although Iraq was cutting the volume of its imports and was increasing the volume of its exports, the relative values of imports and exports had shifted fundamentally. More than 95 percent of Iraq's exports were raw materials, primarily petroleum. Food stuffs accounted for most additional exports. Conversely, nearly half of Iraq's imports were capital goods and consumer durables. According to Iraqi statistics, 34.4 percent of 1984 imports were capital goods, 30 percent were raw materials, 22.4 percent were foodstuffs, and 12.5 percent were consumer items.

Iraq's declining imports resulted not so much from belt- tightening or from import substitution, as from the increasing reluctance of trading partners to extend credit. Despite its socialist orientation, Iraq had long traded most heavily with Western Europe. Initially, Iraq's debt accumulation worked in its favor by creating a hostage effect. Western creditors, both governments and private companies, continued to supply Iraq in an effort to sustain the country until it could repay them. Additionally, the debt helped to secure outlets for Iraqi petroleum in a tight international market through barter agreements in which oil was exchanged for a reduction in debt. In 1987 however, as some West European companies prepared to cut their losses and to withdraw from the Iraqi market, and as others curtailed sales by limiting credits, other countries were poised to fill the vacuum by offering goods and services on concessional terms. Companies from Brazil, South Korea, India, Yugoslavia, and Turkey, backed by their governments' export credit guarantees, were winning an increasing share of the Iraqi market. In 1987 the Soviet Union and East European nations were also offering goods and services on highly concessional terms. Eventually, Iraq's exports might also be diverted from the West toward its new trading partners.

Iraq continued to seek Western imports when it could afford them. In 1987 Iraq was forced to ration imports for which payment was due in cash, although nonessential imports were purchased if the seller offered credit. Imports contributing to the war effort had top priority. Imports of spare parts and of management services for the maintenance of large industrial projects were also deemed vital, as Iraq sought to stave off the extremely high costs it would incur if facilities were shut down, mothballed, and then reopened in the future. Consumer goods were given lowest priority.

In 1985 Iraq purchased 14.4 percent of its total imports from Japan. Iraq bought an array of Japanese products, ranging from transport equipment, machinery, and electrical appliances to basic materials such as iron and steel, textiles, and rubber goods. In 1987, as Iraqi debt to Japan mounted to US$3 billion, the government of Japan curtailed the export insurance it had offered Japanese companies doing business with Iraq; nevertheless, Japanese companies continued to trade with Iraq. Iraq bought 9.2 percent of its imports from West Germany. Neighboring Turkey provided the third largest source of Iraqi imports, accounting for 8.2 percent of the total. Italy and France each accounted for about 7.5 percent, followed by Brazil with 7 percent and Britain with 6.3 percent. Kuwait was Iraq's most important Arab trading partner, contributing 4.2 percent of Iraq's imports (see table 9, Appendix).

In 1985 Brazil was the main destination of Iraqi exports, accounting for 17.7 percent of the total. France was second with 13 percent, followed by Italy with 11 percent, Spain with 10.7 percent, Turkey and Yugoslavia with about 8 percent each, Japan with about 6 percent, and the United States with 4.7 percent.

In April 1987, the government attempted to streamline the trade bureaucracy by eliminating five state trading companies that dealt in various commodities. Although the state trading companies had been established in the 1970s to foster increased domestic production, they had evolved into importing organizations. In view of this orientation, their operations were incorporated into the Ministry of Trade. Three Ministry of Trade departments, which had administered trade with socialist, with African, and with Arab nations, were abolished. The responsibilities of these disbanded organizations were centralized in a new Ministry of Trade department named the General Establishment for Import and Export.

The Ministry of Trade implemented a national import policy by allocating portions of a total budget among imports according to priority. The import budget varied from year to year, depending on export earnings and on the amount in loans that had been secured from foreign creditors. The government's underlying intention was gradually to replace imported manufactured products with domestic manufactured products and then to increase export sales. In the mid-1980s, however, the government recognized that increased domestic production required the import of intermediate goods. In 1987 state companies were permitted for the first time to use private agents or middlemen to facilitate limited imports of necessary goods.

The private sector, which had long been accorded a quota of total imports, was also deregulated to a limited extent. In 1985 the quota was increased to 7.5 percent of total imports, and the government gave consideration to increasing that percentage further. All imports by the private sector had previously been subject to government licensing. In 1985, Law No. 60 for Major Development Projects exempted the private sector from the obligation to obtain licenses to import basic construction materials that would be used in major development projects. In an attempt to increase remittances from Iraqis abroad, the government also gave special import licenses to nonresident Iraqis, if the value of the imports was invested in Iraq and was not transferred outside the country.

In 1987 the rules concerning private sector imports were liberalized further when private sector manufacturers were granted special licenses that permitted them to import raw materials, spare parts, packaging, machinery, and equipment necessary for plant modernization and for expansion. In some cases no ceiling was placed on such imports, while in other cases imports were limited to 50 percent of the value of the export earnings that the manufacturer generated. Such imports were not subject to quotas or to foreign exchange restrictions. Moreover, the government announced that it would make no inquiry into the companies' sources of financing. In a remarkably candid statement in a June 1987 speech, Saddam Husayn promised that citizens would not be asked where they had acquired their money, and he admitted that the private sector had not imported any goods because of its fear of prosecution by the security services for foreign exchange violations.

While the government permitted more imports by the private sector, it nevertheless continued to promote exports at the same time. Starting in 1969 it maintained an Export Subsidy Fund, which underwrote the cost of eligible nonpetroleum exports by up to 25 percent. The Export Subsidy Fund was financed with a tax of .5 percent levied on imports of capital goods and .75 percent levied on imports of consumer goods. Most imports were also charged both duty and a customs surcharge that varied from item to item. Export licenses were granted freely both to public and to private sector firms with only a few exceptions. The Board of Regulation of Trade had the authority to prohibit the export of any commodity when domestic supplies fell short of demand, and the control over export of certain items was reserved for the General Organization of Exports. The degree to which government economic policies would be liberalized in the late 1980s remained to be seen. The government had taken several steps in that direction but state controls continued to play a major role in the economy in 1988.

Both primary and secondary source information on the Iraqi economy tends to be both scant and dated. The government of Iraq has regarded data on national economic performance as a state secret, particularly since the start of the Iran-Iraq War in 1980. The government does not publish a budget, although it releases a yearbook, the Annual Abstract of Statistics, which contains some economic figures. The Iran-Iraq War has also diverted scholarly attention from economic issues. One exception is Phebe Marr's The Modern History of Iraq, which contains a chapter titled "Economic and Social Changes under the Revolutionary Regime." The most detailed and authoritative periodic reports on the Iraqi economy are produced by the Wharton Econometric Forecasting Associates in their semiannual Middle East Economic Outlook. The Economist Intelligence Unit's Country Report: Iraq, a quarterly, contains much useful information and analysis. Another good source of up-to-date information is the Middle East Economic Digest.

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Source: U.S. Library of Congress