History of the Iraq War, Part XII: The International Monetary Fund Reforms Iraq's Economy

The CPA dissolved in 2004 but the implementation of its laws continued through the actions of the IMF and the nascent, puppet Iraqi government. The IMF is the primary agency that orchestrates Washington Consensus reforms globally through structural adjustment programs. These programs are usually foisted on countries as conditions to secure loans from the IMF (Peet, 2009, pp. 136-137).

During its tenure in Iraq, the IMF has advocated moving towards implementation of neoliberal economic reforms. Early IMF actions were limited to changing the picture on the Iraqi currency from Saddam Hussein to Iraqi monuments (CPA Order 43, 2003). In 2004, however, the IMF resumed its traditional role as purveyor of structural adjustments. In its first contract with the Iraqi government, the IMF (2004b) stated its goals were to:

"Stabilize the economy, lay the groundwork for the development of a reform program that could be undertaken in years to come, and to begin the process of restoring Iraq's external debt sustainability. The authorities' program is to be underpinned by a prudent fiscal policy that aims to limit spending to available government revenues and external resources, the use of the exchange rate to anchor inflationary expectations, and the implementation of key structural reforms to transform Iraq into a market economy."

This loan was labeled as “Emergency Post-Conflict Assistance” because the IMF’s mission allows it to dictate the disbursement of funds to other countries if they are “unable to implement and prepare a comprehensive economic program” for themselves. When Iraq received this loan of approximately $440 million from the IMF, both parties agreed to continue the reforms that the CPA began (Boon, 2006, pp. 525-526).

The second contract, which was signed on December 23, 2005, garnered Iraq a loan of roughly $730 million. As with the first IMF action, for the second the Iraqi government promised to continue the reforms that the CPA initiated. An important additional reform was the promise to move towards “putting oil sector enterprises on a full commercial basis” (IMF 2005, p. 10), a key step towards gaining foreign control over Iraq’s oil revenues. Iraq paid back its first two loans one week ahead of schedule, on December 12, 2007 – and then almost immediately took another one. Iraq had a surplus of tens of billions of dollars at the time (United States Government Accountability Office, 2008a) and had no legitimate reason for a multi-year loan of less than $1 billion. The conditions were the contract.

IMF austerity measures are often justified by the alleged need to control inflation (Peet, 2009, p. 67). In the case of Iraq, the IMF itself caused the high inflation, then took punitive mitigation measures. Based on the advice of the IMF, the Iraqi currency was taken off of a fixed exchange rate at the end of 2006. Inflation quickly jumped to sixty-five percent. Fiscal and monetary austerity measures were subsequently used to cut down inflation (Vrijer et al., 2008). In light of evidence to be discussed later (“Who Pays the Costs?”) it is particularly outrageous that international development experts could justify behavior that destroyed millions of lives.

The third IMF loan followed the trend of furthering Washington Consensus reforms. Iraq agreed to a loan of approximately $740 million from the IMF on January 16, 2008 despite having a projected budget surplus of $50 to $60 billion (Sassoon, 2009, p. 133), a number that ballooned with oil prices that summer to nearly $80 billion. About $10 billion of that was deposited with U.S. banks (Glanz, 2008) while social services continued to decline. The London-based branch of one of the last two remaining state banks was liquidated in order to pay off foreign debt, principally owed as reparations to Kuwait for the Gulf War. The IMF loan (2008) also came with conditions that cuts would be made in social services. While overall social spending was increased by hiring slightly more workers, the government froze wages while decreasing social spending elsewhere. The agreement continued policies to decrease the number of items offered to the Iraqi people in a ration basket by “limit[ing] the number and rations of goods in the basket, increas[ing] the price of a ration card, and further restrict[ing] eligibility to well-off families” (2008, pp. 45-50). In 2006, a Government Accountability Office stated that “it is unclear how US efforts are helping Iraq obtain clean water, reliable electricity, or competent health care” (Chwastiak, 2011). But the IMF succeeded in deepening the involvement of Iraq in neoliberal economic policies.


Boon, Kristin E. 2006. ““Open for Business”: International Financial Institutions, Post-Conflict Economic Reform, and the Rule of Law.” New York University Journal of International Law and Politics 39, pp. 514-580.

Chwastiak M. 2011. “Profiting from Destruction: The Iraq Reconstruction, Auditing and the Management of Fraud.” Critical Perspectives on Accounting. In press.

Coalition Provisional Authority Orders, full text. http://www.iraqcoalition.org/regulations/.

Glanz, James. August 5, 2008. “High Oil Prices Giving Iraq up to $79 Billion in Surplus Cash.” International Herald-Tribune. 

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.”

Peet, Richard. 2009. Unholy Trinity: The IMF, World Bank and WTO. 2nd ed. Zed Books.

Sassoon, Joseph. 2009. The Iraqi Refugees: The New Crisis in the Middle East. International Library of Migration Studies. IB Tauris.

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.”

Vrijer, Erik, Udo Kock, and David Grigorian. February 13, 2008. IMF Survey.

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