ON January 30, a pathbreaking election in Iraq was held under the auspices of the us. But a government is yet to be formed. The violent Iraqi resistance movement shows no sign of waning. A few days ago, an attempt to convene the newly elected Iraqi parliament in order to nominate a speaker and a president ended in chaos and acrimony. This prompted an exasperated Iraqi to observe that in the past a dictator ruled the country, but now "clowns" are ruling it.

As the world watches the tragic-comic spectacle of a democratic transition in Iraq under the watchful gaze of the world's most powerful nation, it is easy to overlook the fact that a similar experiment by the Bush administration was undertaken between 2003 and 2004 in the sphere of economics.

soon after the military invasion of Iraq, an ambitious attempt was made to transform it into a model free market economy. The idea was to painlessly attain a neo-

liberal economist's dream: open borders, a largely privatized economy, minimal taxes and a government wedded to the principles of fiscal and monetary conservatism.

This was based on the so-called "big bang" approach to reform, that is, market-oriented reforms should be rapidly implemented before vested interests can coalesce to block any significant change. This credible commitment to a bold reform agenda would send a clear signal to foreign investors that the country was "open for business." External resources would pour in, sparking an investment-led economic boom. This in turn would erase adjustment problems associated with the transition to a market economy.

When Jay Garner was initially appointed to look after the Iraq project, the ideologues embedded in Washington soon found him unsuitable for their grand plan. He was unceremoniously dumped and replaced by Paul Bremer who was one of the true believers.

A month before the invasion of Iraq, he reportedly said that Iraq would have to be run, at least temporarily, as a "little colony." soon after the fall of Baghdad, he declared that Iraq was "open for business." And he tried gallantly to ensure that Iraq was indeed open for business.

Through a series of decrees that Bremer issued in his capacity as the head of the CPA (Constitutional Provisional Authority), import duties were replaced with a "reconstruction levy" of 5 per cent and both corporate and marginal tax rates were reduced to a flat rate of 15 per cent. To this he added the decree that, with the exception of the oil sector, all parts of the Iraqi economy would

be open to foreign investors who could look forward to the prospect of instantaneous repatriation of profits. An ambitious plan to privatize Iraq's large number of state enterprises was drawn up, but it is at this point that Bremer encountered his first stumbling block. Even the Iraqi accomplices that he assembled in an advisory council balked at the idea, while popular hostility to large-scale and rapid privatization became quite evident. The plan was shelved, at least temporarily.

It is under such contentious circumstances that the Bretton Woods institutions got involved in facilitating Iraq's transition to a market economy. In October

2003, the World Bank, in conjunction with uN agencies, released the results of a "needs assessment" exercise. The revelations were stark.

Decades of misrule, two wars, and a prolonged regime of deadly economic sanctions approved by the uN and led by the us had decimated a country that was once one of the most advanced in the Arab world. The invasion of March 2003 and the chaos that ensued turned out to be the proverbial straw that broke the camel's back.

GDP contracted by more than 30 per cent between 2002 and 2003, rivaling the depth of the Great Depression of the 1930s. unemployment and underemploy-

ment were estimated to be around 50 per cent of the workforce. The World Bank concluded that about $36 billion would be needed for reconstruction and rehabilitation -- a sum that is about 72 per cent of the total annual aid bill for all developing countries.

The Bank called for large-scale job creation programs and social safety nets to cope with the trauma of the transition to a market economy. Yet, in subsequent reports released in 2004, the Bank could not restrain itself from paying homage to the "significant reforms" that were undertaken under Bremer's regime (although his name was not mentioned in the reports).

It was the IMF that, much to

one's pleasant surprise, appeared more circumspect than the Bank. In its 2003 macroeconomic assessment, it noted that the reform agenda was "very ambitious" and drew on the lessons of other transition economies to suggest that the success of the agenda depended on building broad-based political support and institutional capacity for effective implementation. Despite these reservations, the IMF drew up a Letter of Intent on september 24, 2004 with the

interim Iraqi government.

What has happened since then? A report issued by Jim Krane of the Associated Press on March 22 notes that production in the key oil sector was below the 2004 level. But the report drew attention to a "freewheeling consumer economy" and cited an IMF source to suggest that GDP grew by 52 per cent in 2004. unfortunately, Jim Krane seems to have conflated projected with actual GDP figures.

Whether recovery will take place in 2005 and beyond remains to be seen. For the time being at least the much-heralded investment boom that was supposed to be unleashed by the reform agenda has not yet materialized. The best and brightest in corporate America and elsewhere have apparently decided that while Iraq may be open for business, they are not yet ready for doing business in Baghdad.

Meanwhile, Paul Bremer is back in the united states. He was duly awarded the Presidential Medal of Freedom. The Bretton Woods institutions are unlikely to be so lucky. It seems to be their unenviable destiny to play the role of handmaidens to a handful of ideologues embedded in Washington. One suspects that the Bank and the Fund will make a valiant attempt to rescue the remnants of Bremer's reforms.

The author is Professor of International Business, Griffith University, Australia and a founding editor of the Journal of the Asia Pacific Economy.

***Paul Bremer is back in the United States. He was duly awarded the Presidential Medal of Freedom. The Bretton Woods institutions are unlikely to be so lucky. It seems to be their unenviable destiny to play the role of handmaidens to a handful of ideologues embedded in Washington. One suspects that the Bank and the Fund will make a valiant attempt to rescue the remnants of Bremer's reforms.***