Friday, October 03, 2003

Shock Therapy for Iraq?

Jeff Madrick writes in today's New York Times that Iraqi leaders are implementing an economic plan that resembles the controversial "shock therapy" policies adopted in many East bloc countries after the fall of communism.

Describing the plan as "extreme," Madrick writes: "It would immediately make Iraq's economy one of the most open to trade and capital flows in the world, and put it among the lowest taxed in the world, rich or poor."

More specifically: "The new plan reduces the top personal income and corporate tax rate to only 15 percent. It reduces tariffs on imports to 5 percent. And it abolishes almost all restrictions on foreign investment. It would allow a handful of foreign banks to take over the domestic banking system."

Madrick questions whether such a low tax rate will be able to support the obviously necessary social programs in Iraq, noting that even in Poland, "where advocates of shock therapy claim success . . . there was substantial social spending."

Fadhil Madhi, the regional program manager for the United Nations Development Program in Beirut, speaking to Madrick in an unofficial capacity, estimates the unemployment rate in Iraq at 50 to 60 percent, and recommends a public works program to establish jobs. But it seems clear there will be no funding for such a program under the economic plan announced last week.

After all that has happened in Iraq in recent months, I hope it is unnecessary to point out the threat that sustained high unemployment would represent to "stability," as policy wonks and bureaucrats like to say.

Anyway, you can go and read the article and judge for yourself. The one criticism I have of Madrick's piece is that nowhere does he say who actually authored the plan. He says it was announced by the Iraqi finance minister and approved by Paul Bremer. But what I want to know is who wrote the thing?