History of the Iraq War, Part XI: Neoliberal Reaganomics and Changing Iraq's Economy

With the 2003 invasion of Iraq came the opportunity for the United States to remake Iraq’s economy in a neoliberal mold. The economic reforms carried out by the United States in Iraq fall under Williamson’s (2000, pp. 252-255) classic ten-point definition of the Washington Consensus framework (Table 1). Soon after the invasion, neoliberal economic policies were implemented by the Coalition Provisional Authority (CPA) within two months, a duty that was shifted to the IMF a year later. Contrasting this approach with other economic wars, Klein argues that “in Iraq, Washington cut out the middlemen: the IMF and the World Bank were relegated to supporting roles, and the U.S. was front and center. Paul Bremer was the government” (Klein, 2007, p. 343). Bremer instituted neoliberal economic reforms by fiat, backed by an army.

Table 1: Agencies Implementing Neoliberalism in Iraq

Reform    Implementing Agency
Fiscal Discipline    CPA, IMF, World Bank
Decrease in Social Spending    CPA, IMF
Flat Tax    CPA
Financial Liberalization    CPA, IMF, World Bank
Floating Exchange Rate    IMF
Trade Liberalization    CPA, IMF, USAID
Unregulated FDI    CPA, USAID
Privatization    CPA, USAID
Deregulation    CPA
Property Rights    CPA

Table 2: Evidence of Implementation of Neoliberalism in Iraq

Reform    Evidence

Fiscal Discipline    Based on an oil price of $100/bbl., Iraq was estimated (United States Government Accountability Office, 2008b) to have an approximately $68 billion surplus by the end of 2008. This represented more than 50% of GDP (CIA World Factbook, 2012).

Decrease in Social Spending    The first two IMF loans (IMF, 2004a; 2005) have included decreasing social spending as conditions while the current one (IMF, 2008) contains three mandates: an overall increase in social spending through hiring more workers; freezing wages; and decreasing all other social spending.

Flat Tax    Under CPA Order 37, NGOs, foreign governments, CPA employees and contractors pay no taxes. Other individuals and corporations pay 15% (Bremer, 2003a). Due to this and lack of even minimal enforcement, the Iraqi government now receives 99% of its revenues from oil rents (Figure 6).

Financial Liberalization    Capital import and export restrictions are placed only on money tied to ‘terrorism’ (CPA Order 46, 2003).

Floating Exchange Rate    The Iraqi currency was pegged to the dollar until the end of 2006. It is now free-floating (IMF, 2005).

Trade Liberalization    This was carried out by the CPA (Bremer, 2003b) and continued by the IMF (2004b; 2005; 2008). Interestingly, UNSC Resolution 1483 “abolish[ed] trade restrictions,” (2003) an unusual and ultimately toothless foray into neoliberal restructuring (Looney, 2003).
Unregulated FDI    Foreign investors are legally considered the same as domestic investors (Bremer, 2003b).

Privatization    The CPA permitted private foreign ownership in all sectors except oil (wholly state owned) and banking (50% foreign ownership limit). The IMF (2005, p. 10) moved to privatize the oil sector and liquidate some national bank holdings (2008).

Deregulation    On September 19, 2003, Bremer abolished all previous economic laws except harsh anti-union laws, which Saddam himself had ordered in 1987 (Chatterjee, 2004, p. 18).

Property Rights    CPA order 4 established a government group reporting to the CPA for people to pursure property claims (2003).

Note: the full text of CPA Orders can be found at http://www.iraqcoalition.org/regulations/ (accessed May 29, 2012).

It is worth quoting at length the summary given by Schwartz (2008, p. 34) of the consequences and rationales behind the neoliberal destruction of the Iraqi economy:

"Besides dismantling both the army and the state apparatus, [Bremer] sought to implement virtually every neoliberal reform that had been adopted piecemeal in other countries during the previous thirty years. These included immediately shuttering all state-run (nonoil [sic]) enterprises (which were viewed as inefficient, unprofitable, and corrupt); selling those that were potentially viable (at distress prices, if necessary); dismantling tariff and tax barriers that prevented the entry of foreign products and companies (which would be expected to introduce superior products, modern technology, and efficient methods into the economy); voiding state regulations and subsidies that protected domestic businesses (which were accused of selling worse goods at higher prices than foreign competitors); weakening some and outlawing other labor unions (because they produced or protected wages and benefits and therefore created an unprofitable business climate); eliminating laws that restricted the use of foreign workers (who were expected to work harder for lower wages);  and removing state subsidies on food and fuel (which gave unemployed workers sufficient resources to demand wages that could undermine profitability)."

Chandrasekaran (2006, p. 110) reports that under Saddam, “nobody paid for electricity, not even the state-owned factories that guzzled hundreds of megawatts. Every family received monthly food rations from the state. Education, even college, was free. So was health care.” Baker, Ismael, & Ismael (2010, p. 225) put it well: in a socialist nation, “the public sector as a whole was now under suspicion.”

This can be contrasted with the American treatment of the Iraqi oil industry, which was left intact and reconfigured piecemeal. Klein contends, with some poetic license, the reasons for this seemingly schizophrenic difference in treatment: “The U.S. government presence in Iraq during the first year of its economic experiment had been a mirage – there had been no government, just a funnel to get U.S. taxpayer and Iraqi oil dollars to foreign corporations, completely outside the law” (Klein, 2007, p. 358). The following sections will discuss how the IMF, USAID, World Bank and WTO implemented neoliberalism in Iraq during the war.


Baker, Raymond, Shereen Ismael and Tareq Ismael (ed.). 2010. Cultural Cleansing in Iraq: Why Museums Were Looted, Libraries Burned and Academics Murdered. Pluto Press.

Bremer, Paul. 2003a. “Coalition Provisional Authority Number 37: Tax Strategy for 2003.”

Bremer, Paul. 2003b. “Coalition Provisional Authority Number 39: Foreign Investment.”

Central Intelligence Agency World Factbook. 2012. https://www.cia.gov/library/publications/the-world-factbook/geos/iz.html.

Chandrasekaran, Rajiv. 2006. Imperial Life in the Emerald City: Inside Iraq’s Green Zone. Knopf.

Chatterjee, Pratap. 2004. Iraq, Inc.: A Profitable Occupation. Seven Stories Press.

International Monetary Fund. October 18, 2004a. “Iraq: Use of Fund Resources – Request for Emergency Post-Conflict Assistance.”

International Monetary Fund. September 29, 2004b. “IMF Executive Board Approves US$436.3 Million in Emergency Post-Conflict Assistance to Iraq.” Press release no. 04/206.

International Monetary Fund. December 5, 2005. “Iraq: Letter of Intent, Memorandum of Economic and Financial Policies and Technical Memorandum of Understanding.”

International Monetary Fund. January 16, 2008. “Iraq: Letter of Intent, Memorandum of Economic and Financial Policies and Technical Memorandum of Understanding.”

Klein, Naomi. 2007. The Shock Doctrine: The Rise of Disaster Capitalism. Metropolitan Books.

Schwartz, Michael. 2008. War without End: The Iraq War in Context. Haymarket Books.

United States Government Accountability Office. January, 2008a. “Better Data Needed to Assess Iraq’s Budget Execution.”

United States Government Accountability Office. 2008b. “Stabilizing and Rebuilding Iraq: Iraqi Revenues, Expenditures, and Surplus.”

Williamson, John. 1990. “What Washington Means by Policy Reform.” In John Williamson, ed., Latin American Adjustment: How Much Has Happened? Washington, DC: Institute for International Economics.

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