As Iraqi and coalition forces struggle to defeat insurgents, the interim Iraqi government continues to transform a centralized economy to a free-market one. Finance Minister Adel Abdul Mahdi addressed these efforts at an October 6 AEI briefing while traveling to the United States to the annual meetings of the World Bank and International Monetary Fund-the first time Iraq had been represented at either meeting in two decades.

Mahdi announced that Iraq's economic plan had received the IMF's endorsement, which took the form of approved relief funding. This funding comes at a crucial time for Iraq, whose high unemployment rate, large percentage of state-owned enterprises, damaged and terrorist-targeted infrastructure, and massive foreign debt threaten its burgeoning economic recovery.
Hopeful signs have begun to appear, however. A microeconomic framework has been put in place since Saddam's regime fell. As Mahdi explained, the post-Saddam currency collapse, inflation, and economic meltdown many predicted never materialized. Instead, consumer prices and the exchange rate for the new currency have remained stable, resulting in greater consumer confidence and facilitating market activity. Even though the oil sector accounts for 75 percent of Iraq's economic activity, agriculture is once again springing to life, and the newly created Trade Bank of Iraq has issued letters of credit totaling $1 billion, helping Iraq achieve observer status within the World Trade Organization.

The Ministry of Finance has already reformed the tax code and customs policy to encourage trade and business activity, imposing a low 5-percent duty on imports and capping individual and corporate income taxes at 15 percent. Mahdi and his colleagues also work to keep recurrent expenditures as low as possible, increase transparency with regard to economic policy and federal budgets, implement a financial management system, and ensure effective metering of oil production.

Iraq is pushing ahead with structural reforms. For example, the interim government is working to reform energy and food subsidies while still ensuring help for the neediest Iraqis, to reduce subsidies on oil products, and to restructure and streamline state-owned banks.

Minister Mahdi requested greater debt reduction from Iraq's foreign creditors, arguing that "an Iraq that enjoys robust and sustained economic growth, political stability, and greater integration with the international community is in everyone's interest."