Iraq Stock Exchange

Ambassador Khalilzad - Rebuild Iraq

It is a pleasure to be here today and to have the opportunity to discuss the challenges and opportunities facing Iraq from a business perspective.

I would like to begin by recognizing one business organization in particular, as it embodies the new engagement of Iraq's private sector with U.S. and other foreign firms. Although the American Chamber of Commerce of Iraq is less than one year old, it has already accomplished a great deal on an issue of vital importance to U.S. national security, and I encourage everyone to visit their booth at the Rebuild Iraq show, to see about joining them and supporting their important efforts.

Business is about investing current resources in ways calculated to produce future returns. From this point of view, my message to you is simple: Although they are going through difficult times right now, Iraqis are on a path to stabilizing their country - and the United States remains firmly committed to Iraq's success. Yet for those who can envision the possibilities for the future, one does not have to wait for Iraq to complete its transition in order to find great economic opportunities.

I want to speak to you candidly today about both the progress and the problems of Iraq as I see them.

On the positive side of the ledger, there are the obvious facts that Iraq has enormous natural resources, including not only the world's second largest proven reserves of hydrocarbon resources according to some estimates, but also rich soil and abundant water that serve as the foundation of a potentially rich agricultural sector.
Iraqui Dinar
While many know that Iraq has one of the most educated and skilled populations in the region, few are aware that Iraqis have shown great economic dynamism since they have begun removing the crippling statist regulation of the former regime. Iraq is making progress toward getting its financial and fiscal affairs in order and toward regaining its proper place in the global financial and business community.

According to the International Monetary Fund, Iraq's gross domestic product grew last year by about 2.6 percent. More encouragingly, they project about 10 percent growth this year.

Naturally, much of that growth will be fueled by an energy sector benefiting from extraordinarily high prices. But any observer of the Iraqi street can see that real and positive change is underway.

Construction sites and cranes are common sights. This is especially true in areas where security is assured - but I wish to stress that this includes most of Iraq's governorates.

Automobile ownership is spiking upward.

The purchase of appliances is extremely heavy.
Iraqi Dinar
Internet connectivity is rapidly increasing, and cell phone subscriptions are up phenomenally - increasing from virtually none in private hands under the former regime to more than 6 million sets in use today.

Iraq is already enjoying the benefits of the new banking laws that were enacted two years ago. Six foreign banks are now licensed to operate in Iraq - most in partnership with Iraqi private banks. They are bringing a full range of banking products and services and are aggressively modernizing the banking sector.

The core of a new electronic payments system has been installed at the Central Bank of Iraq, and we anticipate by next fall that all of the banks in Iraq will be connected.

The Iraqi Dinar is strong and stable. It is backed by ample foreign exchange reserves, and there are no restrictions on capital or profits moving into or out of Iraq, except for pro forma notification requirements in line with prudent anti-money laundering policies.

In an innovative 'debt for debt swap' late last year, Iraq gave its commercial creditors marketable securities that now trade on global debt markets.

These are all indications that Iraq is laying a solid foundation for welcoming business into the country and is willing to cooperate with business leaders such as you in building a vibrant and prosperous private sector.
Iraq Stock Exchange
The efforts of the US government in its assistance to Iraq have been broad based. While we have keyed in on rebuilding the necessary infrastructure and essential services that are so important to a growing business economy, we have also supported numerous programs that will assist business development throughout the country.

For example, over $54 million in micro-loans have been disbursed, resulting in 26,700 loans in twelve cities, and the program is set to expand to even more areas. Also, a Loan Guarantee Corporation is currently being established to encourage private banks to make loans to small businesses.

We are helping Iraq develop the Iraq Stock Exchange, which now has 96 listed companies. It will be an automated and transparent and competitive marketplace accessible from remote locations, similar to the NASDAQ in the United States.

All of this is very positive news for the business community, but there is a negative side of the balance sheet as well. There is the continuing violence orchestrated by insurgents and terrorists, sectarian tensions, the existence of unauthorized armed formations including militias, corruption, and the insufficient capacity of the Iraqi government to establish the rule of law and regulatory frameworks, or to deliver needed services.

Neither I nor, I believe, Iraq's new leaders would diminish the significance of these challenges. Some are legacies of the former regime. Others are the product of Iraq's difficult transition. None, however, need be permanent.

During the last ten months as U.S. Ambassador, I have often noted that Iraq has all of the elements needed for economic success - great resources, an educated population, a strategic location. The key ingredient that is missing is a political agreement among Iraq's major political forces that produces the stability and effective governance that are needed to enable an economic take off. It is on that objective that the United States and, I believe, the elected leaders of Iraq are now focused.
Iraq Currency and Security
We are supporting the Iraqi effort to complete the formation of a government of national unity, a government that will include representatives of all major political forces and communities. The agreement on the selections for the presidency, leading parliamentary positions, and the prime minister - an agreement endorsed by leaders of all major political communities - is a major positive development. The remainder of the government will be selected soon. Prime Minister-designate Maliki has committed to selecting strong and effective ministers who will be able to win the confidence of the people. I am confident that he will follow through on this commitment not only on the choices for the key security ministries, but for the economic ministries as well.

The formation of a government of national unity will set the stage for efforts to diminish the violence and improve security in Iraq. Prime Minister-designate Maliki has broadly committed to a four-pillared initiative.

The first pillar is to promote reconciliation: There can be no legitimate armed opposition once a permanent government in which Sunni Arab leaders have a vital role is in place. President Talabani has stated he recently met with representatives of several insurgent groups and that he is confident that an agreement can be reached for them to lay down their arms and reintegrate themselves in Iraqi society and Iraq's new democratic process. While terrorist groups such as Zarqawi's will never accept a democratic Iraq and must be defeated militarily, it is an encouraging development that insurgents are discussing with Iraqi leaders the need to defuse the violence and look to the future.

The second pillar is to secure key cities: Iraqi security forces, with Coalition support, will work to secure Baghdad, as well as to plan and initiate similar efforts in nine other key cities such as Ramadi and Basra.

The third pillar is to create confidence in security institutions. The new Iraqi government will work to create security institutions, from competent ministers to neighborhood patrolmen, who have the confidence of the Iraqi people. In support of this effort, the Coalition has made 2006 the 'Year of the Police,' dedicating additional effort and focus to vetting police personnel and embedding trainers with Iraqi police units.

The fourth pillar is to reign in unauthorized military formations: Iraqi leaders, including Prime Minister-designate Maliki and Grand Ayatollah Sistani, have stressed the need for dealing with the problem of unauthorized military formations. Some individuals from these formations will be brought into the Iraqi security forces. Others will have to be demobilized, decommissioned, and reintegrated (DDR) into society at large. A key element to the DDR program will be creating jobs for former militia members.
Iraq Economic Activity
Beyond these efforts to improve security institutions, we will also seek to boost the institutional capacity of the Iraqi government. We are doing so at the national level through the creation of Ministerial Assistance Teams - advisory teams that will help Iraqi institutions accelerate their internal development. At the local level, we are deploying Provincial Reconstruction Teams, or PRTs.

One of the features of the new Iraqi constitution is that it delegates responsibility to provincial and regional government. Local governments in Iraq vary in their capacity to meet the needs of their citizens. The PRTs will work with local governments to increase their capacity to deliver on these responsibilities. Last November, the first PRTs were successfully launched in the provinces of Ninawa, Babil, and Ta'mim. In March we inaugurated the Baghdad PRT. Soon, the United Kingdom will launch a PRT in Basrah, and the Italians will be standing one up in Dhi Qar province. We will continue to expand this program to more provinces in the next year.

From the business perspective, the question is when and how to become involved in Iraq. While acting now undeniably involves risks, waiting might entail the risk of missing fleeting opportunities as Iraq's energy industry, agricultural sector, and tourism industry take shape.

For those understandably concerned about security, I remind you that fourteen of Iraq's eighteen provinces have little or no insurgent or terrorist violence. Two days ago, I was in the north at Erbil for the inauguration of the Kurdish Regional Government. On the short drive from the airport to the assembly hall, I saw a dozen construction cranes, symbols of the economic boom in northern Iraq. In the south, there is a great deal of construction to take advantage of business opportunities to serve religious pilgrims. Iraqis are not waiting for security problems to be resolved to start their businesses and to create possibilities for joint ventures or other investments.

At the same time, we are working to expand economic opportunity in the more violent areas of Iraq. Later this month, we will be inaugurating a PRT in Anbar Province. We are working with Sunni Arab leaders to reduce the violence in Anbar and other provinces in central and western Iraq.

As part of this effort, we need to find creative ways to increase economic activity - to create jobs and hope for the people of this region. We are eager to hear your ideas about how we can work together even now to increase business activity to help stabilize troubled areas.
Iraq Dinar - the Future
Iraqis are turning against the terrorists in places like Anbar because they realize that extremism causes professionals to flee, educational opportunity to suffer, and drives commerce and jobs away to other regions.

Iraq has the potential to spur economic growth throughout the region. Therefore, investing in Iraq will not only affect your bottom line, but will help to determine the future of the region that will shape the global political, security, and economic climate for the next century.

Thank you, and may God bless the people of Iraq.

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From the Embassy of the United States - Baghdad-IRAQ