From the Business & Economics Desk Published 5/6/2003 11:11 AM

SAN FRANCISCO, May 5 (<a href=www.upi.com>UPI) -- Iraq's next government will face a daunting economic challenge from past debt and the anticipated cost of rebuilding despite its wealth of oil reserves, the Federal Reserve Bank has said.

Oil will no doubt continue to be the keystone of Iraq's fledging economy once a new regime takes over in Baghdad, however an analysis Monday from the Federal Reserve's San Francisco bank warned that Iraq will return to the oil market saddled with heavy debt and a vulnerability to rampant inflation with even a possibility of total economic collapse down the road.

"The post-war Iraqi situation appears to be one of a heavily indebted oil-exporting country, more similar to Venezuela than to Saudi Arabia or Kuwait," the report from Fed analyst Mark M. Spiegel concluded. "Moreover, the cost of rebuilding Iraq after the war is likely to place further burdens on its public finance."

A decade of war and economic sanctions took a crushing toll on Iraq's infrastructure while at the same time Saddam's Hussein government ran up international debt that the Fed said, citing numerous economists, has been calculated as high as $300 billion.

Although Iraq has the world's second-largest proven crude reserves, the outstanding debt alone could take 35 years to pay off even if half of Iraq's oil revenues were dedicated to the arrears.

The Fed noted that the 50-percent figure would be three times the rate of export income that Germany was obligated to pay in reparations during the disastrous post-World War I period that ended with Adolf Hitler's ascension to power.

"While there has been discussion of possibly reducing this debt burden through moratoria and outright forgiveness, servicing its outstanding debt burden is likely to be a major feature of Iraqi public finance going forward," Spiegel said in his report.

The stage appears set for Iraq's new leadership to be faced with managing a shaky economy over an extended period while at the same time being pressured by the ups and downs of the oil market in a potentially volatile political atmosphere. Many economists see such situations as a recipe for disaster if politics begin to interfere with sound monetary policy.

"The fear that a nation's central bank will give in to pressure and devalue its currency can lead to a loss of confidence...and an increase in a nation's cost of borrowing," the report warned. "This can further exacerbate the government's budgetary problems and lead to an inflationary spiral ending in a collapse of the exchange rate peg."

Iraq's exchange rate indeed will likely be pegged to the dollar, the Euro or a combination of the two, the Fed predicted. The dollar is the currency used in the vast majority of international oil transactions; however, it would also expose Iraq to the perils of currency speculation and a spike in Baghdad's cost of borrowing.

"At worst, the peg could collapse dramatically, leading to financial turmoil," the report said. "Because of the exposure to these difficulties, it would be imperative that a managed exchange rate peg regime be tailored to limit concerns about Iraqi monetary policy."

The United States has developed a comprehensive economic plan for Iraq that includes an unspecified overhaul of Iraq's central bank and stock market. Thus far, the plan appears primarily focused on creating a market-based economy that opens the door to direct foreign investment and the privatization of Iraq state-run industries.

Spiegel said all was not lost in Iraq since the incoming Iraqi government would basically be able to start from scratch and build a monetary system that will best suit Iraq's specific economic needs and keep inflation in check rather than having to adapt an existing system that is no longer effective.

"A critical issue is the determination and management of the country's outstanding liabilities and the costs of financing the rebuilding of the nation," Spiegel said in his report. "No less important is the need to institute a monetary regime that promotes price stability, and the most positive environment in which to meet these other challenges."

(Reported by Hil Anderson in Los Angeles)

thenewamerican.com Vol. 19, No. 10 - May 19, 2003 by William Norman Grigg

The war was short and our losses — though tragic — were relatively light. But what did "Operation Iraqi Freedom" actually accomplish?

It was a perfect tableau of liberation. To the cheers of jubilant Iraqis, a U.S. Marine climbed the immense statue of Saddam Hussein in downtown Baghdad and triumphantly draped the Stars & Stripes over Saddam’s heathen-idol visage. Shortly thereafter the signal was given, and the obscene statue was ripped out by its roots. In a culture-specific gesture of contempt, Iraqis removed their shoes and used them to pound the face of the fallen idol. Americans watching the event on television were gratified to learn that the particular flag used on this occasion had flown over the World Trade Center on the morning of 9-11.

On seeing this rewarding spectacle, more than a few Americans undoubtedly said to themselves: "This was what we were fighting for." But they were wrong. Desirable as it was to liberate Iraq from Saddam’s cruel reign, this military objective was not at the top of the White House’s agenda until shortly before the war began. Moreover, if liberating oppressed people from the grip of a cruel tyrant were the objective, it’s curious that the Bush administration would focus its efforts on far-away Iraq, rather than on the even more vicious Communist regimes in nearby Cuba and Venezuela.

The advertised rationale for war in Iraq, recall, was not to liberate Iraqis from Saddam, but to protect Americans from the threat he supposedly presented to our nation. As late as March 17th — two days before the missile strikes on Baghdad that provided the war’s overture — President Bush insisted that Saddam’s arsenal posed a global menace: "The security of the world requires disarming Saddam Hussein now." In a March 6th press conference the president described Saddam’s regime as threatening America’s very survival: "I will not leave the American people at the mercy of the Iraqi dictator and his weapons."

As it turned out, the much-discussed Iraqi "weapons of mass destruction" have thus far failed to materialize. Such weapons, or components of the same, could possibly still be found. But given Iraq’s pathetic battlefield performance, it’s impossible to credit the president’s apocalyptic claims about an Iraqi threat to our homeland.

Gratifying as it is that U.S. and allied troops were never attacked by chemical or biological weapons, it seems odd that Saddam’s regime refused to use them to stop the relentless allied drive to Baghdad. With Saddam gone and most of Iraq securely in allied hands, military teams hunting for WMDs failed to find solid evidence of their existence. Citing U.S. officials as its source, an April 22nd New York Times story from Baghdad reported that a key Iraqi scientist "has told an American military team that Iraq destroyed chemical weapons and biological warfare equipment only days before the war began...."

While this might account for the curious absence of the weapons, it would hardly be rational behavior by a ruthless regime facing immediate extinction. Why would Baghdad have chosen to deprive itself of its most formidable weapons on the eve of war — if, that is, it actually had those weapons?

The U.S. flag draped over Saddam’s statue, and earlier flown over the World Trade Center, symbolized the second rationale for war given by the Bush administration: payback for Black Tuesday; disruption of Baghdad-based terrorist groups; and deterrence of future terrorist attacks on our home soil. While no rational person disputes that Saddam’s regime was on intimate terms with terrorist groups, the Bush administration has never even attempted to tie his regime to the 9-11 atrocity. Satisfying as it was to see Saddam’s leering likeness eclipsed by the WTC flag, it was an empty gesture where justice for the victims of Black Tuesday is concerned.

Victory in Terror War?

U.S. Special Forces troops in Baghdad did capture Abu Abbas, the Palestinian terrorist allegedly responsible for murdering disabled American Leon Klinghoffer following the hijacking of the Achille Lauro cruise ship in 1985. "He got away from us, and we’ve been chasing him ever since," former CIA counter-terrorism chief Vince Cannistraro told Newsday. "He’s a big catch for us. It’s an old score to settle."

Abbas was one of several terrorists — members of a splinter faction of Yassir Arafat’s Palestine Liberation Organization — put on trial in Italy during the mid-1980s. Claiming they had insufficient evidence to hold Abbas, Italian authorities dropped the case and allowed him to leave. Holding an Iraqi passport, Abbas reconstituted his terror cell in Baghdad, at a time when Iraq was receiving military and economic aid from Washington.

Although Abbas is typically described as a fugitive, his whereabouts have not been a mystery. The New York Times conducted an interview with him late last year, in which the accused murderer of a U.S. citizen condemned the September 11th attacks. And while the Bush administration is eager to cite the capture of Abbas as validation of its war in Iraq, it had previously shown little interest in snaring him. Newsday points out that "U.S. Justice Department officials said as recently as last year that they had no grounds to seek his extradition."

On April 16th, the Bush administration lowered the national terrorism "threat level" from Orange (high) to Yellow (elevated). The threat level had been raised on March 17th to coincide with President Bush’s pre-war 48-hour ultimatum to Saddam. Down-shifting the alert level signaled that our military conquest of Baghdad had reduced the terrorist danger to Americans.

Or had it?

On April 21st, the State Department issued a warning to Americans overseas that the conclusion of the war in Iraq "may increase the potential threat to U.S. citizens and interest abroad including by terrorist groups.... U.S. citizens are encouraged to maintain a high level of vigilance and to take appropriate steps to increase their security awareness."

Given that the military conquest of Iraq increased the terrorist danger to Americans, how can it be viewed as a victory in the "war on terrorism"?

Hail Liberation!

The fall of Baghdad did signal the end of a regime that ruled by terror at home, and there is no doubt that the overwhelming majority of Iraqis are relieved by Saddam’s removal. However, it’s far from clear that the absence of Saddam translates into the presence of freedom.

Note that after World War I British colonial authorities created Iraq out of wildly incompatible tribal and ethnic groups. It has no tradition of ordered liberty. Brutal as he was, Saddam Hussein was typical of the ruling elite that has held sway in Baghdad since Iraq’s creation. It’s true that Saddam — like most rulers in the region — used torture and terror to deal with his personal enemies. But lurid violence of this type is, tragically, an Iraqi tradition.

"As a young lad in the town of Mosul I lived through the horror of the civil war in Iraq in 1959-60, when the Communist and Kurdish coalition fought the Nationalists for control of the country," recalled Iraqi expatriate Burhan al-Chalabi in the March 24th London Guardian. "With my brothers and parents, we used to hide huddled together, in a small concealed basement for days on end, absolutely terrified of being slaughtered because we were considered to be on the Nationalist side."

During that pre-Saddam conflict, recalls al-Chalabi, "I saw Iraqis split in half, while alive, by two cars. Girls were hanged from telegraph posts, with fish hooks through their breasts. Men were hanged outside my school gates. We were forced to watch mass hangings in public squares. Dead bodies with their throats slit lay in the streets."

Al-Chalabi points out that the Iraqi Communists committed the most gruesome of these atrocities. Thus it is by no means a welcome sign of "liberation" that "the long-banned Iraqi Communist Party … won the race to publish the first newspaper in Baghdad since the fall of Saddam Hussein," as Reuters reported on April 20th.

With the help of its servants in the "respectable" conservative media, the Bush administration cultivated the impression that with Saddam’s removal, freedom would blossom in Baghdad, and the Iraqis would swoon with gratitude toward their American liberators. Unfortunately, this has not been the case.

"The people of Tikrit [Saddam’s home town] are like the rest of Iraq," declared Abdul al-Malaki to a reporter for The Guardian of London. "They hated Saddam Hussein. I want to kill him." But the 28-year-old café owner wasn’t eager to see U.S. troops remain in his country. "This is an occupation, nothing else," he told the British reporter as they watched a Marine patrol. "We will keep quiet for a year and if they have not gone we will kill them."

Iraqis, who have never had a genuine sense of national identity, are also preparing to kill each other. In the northern Iraq city of Mosul — where, as a child, al-Chalabi witnessed the bone-chilling horrors described above — "Arabs are fighting with Kurds. Pro-Saddam residents are fighting with anti-Saddam Arabs," writes foreign correspondent Phillip Robertson in the April 21st Salon. "And just about everyone is angry at the United States. For Americans, especially, Mosul is not a safe place."

"The fall of this city on April 11 was not at all what we expected," continues Robertson. "[N]o victorious troops welcomed by cheering masses, no women throwing flowers from balconies, no happy families taking the tour of a free city.... On that day, armed men, some of them Kurds, organized themselves to rob the banks while peasants and poor people from town and nearby villages ransacked the office buildings and utilities.... People came from all over the region to get a piece of whatever they could get, in anything that moved."

Pillage and plunder also beset Baghdad after liberation. Shops, hospitals, and the Iraqi National Museum — which housed priceless and irreplaceable antiquities from the dawn of civilization — have been looted mercilessly. "Hardly anyone is going to work," reported the London Telegraph on April 20th. "Offices are closed or wrecked; the economy, such as it was, has collapsed."

The American concept of freedom, which "Operation Iraqi Freedom" was supposedly designed to transplant, is rooted in the sanctity of individual rights and property. Having removed the threat to rights and property posed by Saddam’s regime, the U.S.-led coalition did little if anything to address the threat posed by looters. An April 11th report from Britain’s Sky News described a tragic incident in which U.S. troops actually aided the looters by killing a shopkeeper attempting to defend his property. According to eyewitnesses, "The merchant pulled his rifle on the thieves when they began ransacking the shop.... When U.S. soldiers approached the area, the looters told them that the shopkeeper was a member of Saddam Hussein’s Fedayeen paramilitary police. The American troops reportedly opened fire with machine guns, killing the man...."

Interestingly, under Saddam’s admittedly brutal rule, individual ownership of firearms was relatively widespread. While occupation forces have yet to find the Iraqi government’s much-discussed "weapons of mass destruction," they have — in familiar fashion — begun initial efforts to disarm the civilian population.

"British forces have launched a gun amnesty in Basra in a bid to make the streets safer," reported London’s Ananova news service on April 9th. "An ‘amnesty pit’ has been created close to one British compound in the city in the hope residents will dump their guns." "Iraq has a culture of weapons," explained British military officer Cliff Dare. "There are a lot of them around, most held quite legally. If we want to give the new Iraq a chance these weapons have to be taken out of circulation."

The "New Iraq"

One harbinger of the "new Iraq" was visible in Hay al Ansar, a suburb of the city of Najaf. Residents of that small town, after being freed from the reign of Saddam’s Ba’ath Party, were immediately terrorized by a group calling itself the Iraqi Coalition of National Unity (ICNU), a previously unknown Shi’ite Muslim militia who arrived in vehicles driven by U.S. Special Forces troops.

"They steal and steal," complained a local man to the April 8th Financial Times. "They threaten us, saying: ‘We are with the Americans, you can do nothing to us.’" Hassan Mussawi, a Muslim cleric who leads the ICNU, insisted the group was simply trying to root out suspected Ba’ath Party collaborators. "If they do not resist arrest we hand them over to the Americans," claimed Mussawi. "If they resist then we take measures accordingly."

Across Iraq, noted the London Telegraph, "There is as yet no new authority to replace Saddam and the citizens of Iraq are disoriented. For the revolutionary Mullahs, the conditions are ideal." Those "revolutionary Mullahs" are largely radical Muslims aligned with Teheran, "many of whom … crossed the border from Iran" when Saddam’s secular socialist regime collapsed. Defying a history of intra-Islamic conflict, Shi’ite and Sunni Muslims — by some estimates as many as 20,000 — joined in an April 18th march to demand that American troops leave Iraq. During Friday prayer observance at Baghdad’s Abu Hanifah Nouman mosque, "Shia and Sunni clerics urged the congregation, in fiery sermons, to show their bitterness to the Americans," reported the London Independent.

In Sadr City — a Baghdad suburb once called "Saddam City" and now unofficially nicknamed "Revolution City" — "the text of a speech by Ayatollah Mohammed Emami-Kashani, an influential cleric, was read out," continues the Independent. "It said: ‘Unite with each other and send America and Britain out of your country. It is a duty for the Iraqi nation.’" Within days, reported Reuters on April 22nd, this anti-Anglo-American refrain was taken up by "hundreds of thousands of Shi’ite Muslims [who] swarmed through Iraq’s holy city of Kerbala in a pilgrimage...."

More than 60 percent of Iraq’s population consists of Shi’ite Muslims, most of whom look to neighboring Iran for spiritual direction. The implications of that fact are not lost on Iraq’s minorities, including the nation’s small but ancient Christian community.

As with the Iraqis’ ability to own firearms, the condition of Christians under Saddam’s reign illustrates that while that regime was brutal and highly authoritarian, it was not "totalitarian," in the full sense of the term. Saddam and his henchmen devised perversely inventive ways to torture and kill political dissidents, and the exalted likeness of the "Dear Leader" was pervasive, but Saddam did little to disrupt, reform, or destroy private institutions and customs. Avak Asadourian, Iraq’s Armenian archbishop, told the April 21st Christian Science Monitor that "we enjoyed total religious freedom and there was no religious discrimination" under Saddam’s rule. This may change if Iranian-style revolutionary Islam takes root in Iraq — a development that may be unavoidable if "democracy" is planted there at bayonet point.

Bishop Ishlemon Wardouni, head of Iraq’s Chaldean Christian Church (the only community that still speaks Aramaic, the language spoken by Jesus Christ and His disciples), told the Monitor that Shi’ite Muslims who follow the late Ayatollah Khomeini "want to convert a building next to his church — formerly belonging to the ruling Ba’ath Party — into a mosque." "If this sort of thing happens, maybe later there could be problems," warns Bishop Wardouni. "We have heard their slogans, ‘No Saddam, No Bush, Yes to an Islamic State.’"

Why?

By the time active hostilities had died down in Iraq, the official tally of Americans killed in action was 129. Unofficial estimates of the Iraqi battlefield casualties start at around 10-12,000. While we properly mourn and honor each American who gave his life for our country, we must also acknowledge that the radically disproportionate allotment of battle casualties illustrates that Iraq was never a military threat to our nation or our interests. Why, then, did 129 of our nation’s bravest sons and daughters die in Iraq? Did they give their lives to allow Iran-aligned Shi’ite Muslims to build a revolutionary "Islamic State"?

The evidence clearly shows that Americans and Iraqis died in "Operation Iraqi Freedom" as part of a demonstration project in coercive disarmament and as an object lesson to other nations. "Iraq is not just about Iraq," a "senior administration official" told the April 6th New York Times. According to this key administration strategist, President Bush regards the war against Iraq to be "of a type" with other potential wars of disarmament against such rogue states as Syria, Iran, and North Korea.

In a March 26th Wall Street Journal op-ed column, National Security Adviser Condoleezza Rice insisted that "the coalition currently assembled to disarm Iraq shows the way" by foreshadowing the treatment other nations can expect if they disobey UN disarmament decrees. Reiterating a familiar Bush administration theme, Rice placed the war on Iraq in the context of 9-11, which she said represented "one of the relatively rare earthquakes that cause lasting tectonic shifts in international politics...."

However, in a January/February 2000 essay published in Foreign Affairs (the flagship journal of the globalist Council on Foreign Relations, to which Rice belongs), Rice insisted that a war to remove Saddam Hussein would be a top priority of a prospective Bush administration: "Nothing will change until Saddam is gone, so the United States must mobilize whatever resources it can … to remove him."

Those words were published 10 months before George W. Bush was elected, and a year and a half before the September 11th attack — the atrocity commemorated by wrapping the face of Saddam’s statue in the WTC flag. War on Iraq to enforce the UN’s disarmament decrees had been planned long before Black Tuesday supposedly made that war a necessity.

Removing Saddam did nothing to avenge our innocent dead or make our nation more secure. It did little to free the long-suffering Iraqi people, and may actually result in the emergence of an even nastier and more militant regime in Baghdad. Our military victory has left our nation saddled with the prospect of a long, bloody, expensive occupation, and an escalating terrorist threat.

But the war in Iraq did achieve something previously unthinkable: It has united the "mainstream" American right behind the proposition that the United Nations — or a successor organization — must have the military power to disarm rogue nations. Where "mainstream" conservatives once warned that the UN sought the power to rule the world, the "respectable" conservative position now dictates that the UN is to be mocked for its supposed impotence.

Conservative columnist Adam Sparks ably recited the Bush administration’s position in an April 14th San Francisco Chronicle column urging fellow conservatives to adopt the left-globalist mantra, "Think Globally, Act Locally." "The United States is now facing strong criticism from the United Nations, the same organization that didn’t want to get its hands dirty in Iraq; the UN is apparently now interested in rebuilding that nation," observed Sparks. "I think the UN should first rebuild itself into a meaningful organization that can drive homicidal tyrants from power."

Similar suggestions for UN reform were offered in an April 23rd syndicated column by David Davenport of the Hoover Institution, a conservative think tank at Stanford. Rather than abandoning the UN, insists this conservative scholar, we must "fix" it to make it a more "effective decision-making body," especially "in deciding matters of war and peace." Toward that end, Davenport urges — among other things — "limitations on vetoes" in the Security Council, by "requiring at least two nations to exercise it to be effective."

This "reform" would certainly prevent the French from vetoing Security Council resolutions favored by Washington. But it would also prevent the U.S. from vetoing resolutions hostile to America’s national interest.

Reform proposals of the kind suggested by Sparks and Davenport are being offered by numerous conservative analysts and commentators, all of whom — whether knowingly or ignorantly — promote the creation of a world government strong enough to disarm rogue states. In time, the same world government would be strong enough to disarm us as well.

Vladimir Lenin is said to have predicted that Communism will be built by non-Communist hands. In like fashion, it is supposed conservatives — President George W. Bush and his partisans — who are doing the heavy lifting necessary to build the power and precedents necessary for the UN, or a successor organization, to rule the world. Were Lenin alive, he would undoubtedly look on this development with a malicious satisfaction.

By Ottawa Business Journal Staff Tue, May 6, 2003 8:00 AM EST

Gas prices in Ottawa flirted with their lowest level in more than year Monday even as the federal government decided against investigating recent price spikes.

In a report before the House of Commons industry committee, Competition Bureau chief Konrad Von Finckenstein said the run up in prices during the first three months of the year was consistent with the global situation and did not merit a formal investigation.

The report comes amid a fresh wave of allegations that Canadian gasoline producers conspire to fix gas prices.

According to Von Finckenstein, the spike in prices that peaked in mid-March accurately reflected events in motion around the world. He cited political troubles in oil exporter Venezuela, the build up to the U.S. invasion of Iraq and a severe winter across much of North America.

The Competition Bureau will only launch an investigation if it believes prices are being fixed or market players are attempting to illegally squeeze out competition. Von Finckenstein said he found no evidence of either.

In Ottawa, meanwhile, the price of regular unleaded gasoline fell below 58 cents on Monday, the lowest level since a brief flirtation with 52 cents in January 2002.

In the U.S., prices fell to the equivalent of about 60 cents last week. American consumers pay far fewer taxes on their gasoline.

The wholesale price of regular gas in Ottawa is about 60 cents a litre. Almost half of that price is federal and provincial tax.

In the first three months of this year, local motorists paid an average of 3.4 cents a litre more than the wholesale price.

Since mid-February the wholesale price has fallen by about 13 cents.

Spencer Knipping, an analyst with the Ontario energy ministry, believes wholesale prices will continue to fall over the next few weeks.

By Peter Wilson

Caracas, May 6 (<a href=quote.bloomberg.com>Bloomberg) -- Venezuelan National Guardsmen used tear gas to disperse pro-government protesters who were demonstrating for jobs in front of the state oil company's El Palito refinery, El Nacional reported.

About 200 protesters gathered to try to force Petroleos de Venezuela SA to honor a commitment to offer them permanent jobs that was made when a nationwide strike began Dec. 2. During the strike, Petroleos de Venezuela employed many temporary workers outside the industry to replace strikers.

Protesters claim that they are now being passed over for permanent jobs being offered at the refinery. Protesters said jobs are being handed out as political patronage by President Hugo Chavez and his close ally, Freddy Bernal, the mayor of the Libertador section of the Venezuelan capital.

El Palito is Petroleos de Venezuela's third-largest domestic Refinery, processing about 130,000 barrels a day. Petroleos de Venezuela fired more than half of its workforce of 33,000 in a bid to break the strike.

(EN 5/6 B3)

To see El Nacional's Web site, click on {NCNL } Last Updated: May 6, 2003 09:04 EDT