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Opening Statement

Kamil Gailani, Minister of Finance of Iraq

Press Conference

Boca Raton Resort and Club

February 6, 2004

I very much appreciate the opportunity to be here to attend a special G-7 Finance Ministers session on Iraq and Afghanistan. The keen interest in Iraq by the world’s major economies—and the entire international community—not only gives hope to the people of Iraq, it is central to Iraq’s economic recovery and its ability to take its place as a responsible nation and contributing member of the world community.

I would like to give you an overview today of the efforts we are making to create a new Iraq—one that is making a clean break with its past and is now on the threshold of a promising future. This is an enormous undertaking, but one that Iraqis readily welcome after too many years of living under a criminal regime.

We face great challenges because we are not only reconstructing the country, we are transforming the economy and the very way the Iraqi people see their future. We are moving Iraq from a country with virtually no meaningful private investment to one that encourages private initiative. We are transforming the roles of the nation’s financial institutions from financing the pet projects of the country’s leaders to exercising responsible, transparent, and accountable management of fiscal and monetary policy. We have turned our backs on the Iraq that served the interests of the few to build an Iraq that creates opportunities for the many.

We have taken steps to create an environment that promotes private sector-led growth.

With the help of donors, we are pressing ahead on all fronts with investments to create the infrastructure needed to compete in today’s international marketplace.
Trade of goods can now be financed through the Trade Bank of Iraq, one of the earliest tangible results of our economic reconstruction efforts.

We are also moving ahead with reforms to the financial sector.

The traditional banking sector is being strengthened, and micro-credit institutions are expanding their activities throughout the country, with the goal of creating a world-class financial sector.
We are establishing a legal environment that will make private investment more secure. Foreign investment is now permitted, and should bring with it new technology and modern management techniques as well as fresh capital.

Central to the Finance Ministry’s efforts to promote sustainable growth in Iraq, and to its functions as a ministry, is a commitment to sound fiscal policy. I would like to highlight some of the efforts we have made to put Iraq on a sustainable fiscal path.

We have moved Iraq toward a simple, transparent tax system that will generate increased revenues while stimulating economic growth.
We have put in place a maximum marginal tax rate of 15% on both personal and corporate income and made the system more progressive. A 5% reconstruction levy on all imports except humanitarian goods will replace all previous duties.
We believe oil revenues will be higher than expected this year, and we plan to use the increase to support local elections and fund projects that create jobs.

Appropriate government expenditures can lay the groundwork for robust private sector growth while beginning to address Iraq’s immediate employment needs.

Infrastructure and other investments this year should create a significant number of jobs.
This year, we will make a significant effort to craft economic policies that improve the lives of all Iraqis, especially the neediest. For example, we have increased pensions from levels that were truly inadequate.
Improving Iraq’s ability to police itself, protect its infrastructure, and guard its borders will contribute greatly to national economic growth.

The institutional changes that support our objectives are also important, and I would like to tell you about them briefly.

We are now overhauling the functions and building the institutional capacity of the entire ministry. In this effort, we are guided by the principles of budgetary discipline, sound fiscal management, and transparent and accountable operations.
We are making the Central Bank of Iraq completely independent, and Governor Shabibi is undertaking extensive efforts at reform there. We are now quite separate in our functions and areas of responsibility.

Iraq views the international financial institutions as an important partner in our movement away from the centralized and distorted economy of yesterday and toward the robust market-driven economy of tomorrow. International assistance is critical to meet the immediate needs of Iraqis and allow us to transform the economy, and we are grateful for the support of the international community. Donors pledged generously at the Madrid conference last fall; in particular, the U.S. government has committed $18.6 billion to support vital political and reconstruction goals. I strongly urge other donors to accelerate the disbursement of the funds they have pledged.

Although the challenges in rehabilitating Iraq are formidable, they are manageable and can be overcome. In the short time since the fall of the Saddam Hussein regime, the new Iraq has made significant progress toward securing its freedom, creating new opportunities for its people, re-establishing the rule of law, fostering the growth of democracy, and ultimately, improving the lives of Iraqis.


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