October 3, 2003 - The Detroit News: Peru RPCV Peter McPherson says Foundation built for Iraq's new economy

Peace Corps Online: Peace Corps News: Headlines: Peace Corps Headlines - 2003: October 2003 Peace Corps Headinlines: October 3, 2003 - The Detroit News: Peru RPCV Peter McPherson says Foundation built for Iraq's new economy

By Admin1 (admin) on Friday, October 03, 2003 - 11:12 am: Edit Post

Peru RPCV Peter McPherson says Foundation built for Iraq's new economy





Read and comment on this story from the Detroit News about Peru RPCV Peter McPherson who just returned after a five-month tour as the Bush administration's first director of economic policy for the Coalition Provisional Authority in Iraq. He'd be among the first to concede that the job of rebuilding Iraq is far from complete. But the Iraq he sees described in recent media accounts, a place of chaos, killing and dislocation overshadowing any kind of normalcy, isn't the Iraq he left less than two weeks ago. Such sentiment is understandable for a Bush appointee, yet it's gaining credence as more Iraqi veterans return for reassessments and first-ever opinion polls of Iraqis tell a more balanced story. "We aren't simply getting the full picture," McPherson said. "Yes, there is a security problem. But Iraqis go about their daily lives. In a few days, the schools will reopen. All the hospitals and clinics in Baghdad are open. Read the story at:

MSU's McPherson: Foundation built for Iraq's new economy*

* This link was active on the date it was posted. PCOL is not responsible for broken links which may have changed.



MSU's McPherson: Foundation built for Iraq's new economy

Delivering cash to people was the key to jump-starting nation after war, looting

By Daniel Howes / The Detroit News


They had an economic structure that was irrational and extremely intrusive.
-- M. Peter McPherson,
Michigan State University president

EAST LANSING, MICHIGAN -- Rebuilding an economy ravaged by war and dictatorship isn't about remembering to wear your flak jacket and worrying when the next bomb might explode.

For Michigan State University President M. Peter McPherson, back on campus after a five-month tour as the Bush administration's first director of economic policy for the Coalition Provisional Authority in Iraq, it was about getting cash into the hands of ordinary Iraqis and bringing some order to economic chaos.

First, pay 1.3 million government employees. Then dole out payments to 1 million retirees. Reopen banks. Establish a central bank independent of the Ministry of Finance. Cut government subsidies to state-owned companies, but not too deeply or too quickly, lest more average citizens get pushed into unemployment.

"The whole system was brutal," McPherson told me in his first one-on-one interview since returning from Baghdad. "They had an economic structure that was irrational and extremely intrusive. There was almost nothing the state didn't produce. Under Saddam there were very intricate controls."

It was Stalinism in the Middle East. Government companies traded with each other and provided jobs, but squelched competition and growth. The Saddam Dinar, held by roughly 85 percent of the population, existed in just two denominations -- 250-dinar and 10,000-dinar bills, worth 25 cents and $10, respectively.

The national debt totaled some $100 billion for a country whose gross domestic product, excluding oil revenues, is about $5 billion.

"Right after the war, everything was shut down," said McPherson, back in his office, an unlit, slightly chewed cigar in his hand. "The power was down. The railroad wasn't functioning. The banks weren't open. The communications system for the country was not functioning.

"The war had done some damage, but by far the most damage (was done by) the looting that occurred afterward."

Trying to sort all this out is how McPherson, this week celebrating his 10-year anniversary as president of MSU, spent part of his spring semester and all of his summer. Judging by the energy he exudes talking about it all, it's obvious this apostle for internationalizing the university he leads loved every minute of it.

New challenge

McPherson is not a typical college president. He's what university types call a "business guy," more interested in tackling problems and applying management principles to higher education than publishing a paper few outside academia are likely to read.

He was a Peace Corps volunteer in the 1960s and later administrator for the Agency for International Development. He was a special assistant to President Gerald Ford, a deputy secretary of the Treasury Department and an executive vice president at Bank of America, where he honed his understanding of debt restructuring and currency in developing markets.

Laying the foundation for a new Iraqi economy rooted in free market principles, democracy and the rule of law was his latest challenge, one melding experience in developing countries with his years in banking and the Treasury Department.

"We simply had to get money in people's hands," McPherson said. "We bought the wheat and barley crop from farmers at over $100 million. We had to get cash into the economy to get rudimentary activity."

That meant identifying, with Iraqi help, the government employees who should be paid, the first time in late May. It required the help of American forces to transport cash around the country because electronic transfers were impossible, checks were non-existent and timeliness was necessary to reassure anxious Iraqis.

"We're now caught up," he said, explaining that the controversial decision to use old bills bearing Saddam's picture was intended to signal confidence in the currency. "That process ... became the overwhelming job. When we started to pay salaries, retail operations began, too."

On July 7, McPherson and his team announced creation of the New Iraqi Dinar, which will resemble the Swiss dinar that circulated in northern Iraq. Starting Oct. 15, Iraqis have until Jan. 15 to exchange their old bills for new ones. Then old dinars become souvenirs, much like German marks and French francs after the birth of the euro.

There's a new national budget, a state secret under Saddam. Import tariffs are lifted, effectively cutting prices on foreign goods. And the central bank will be independent of the Ministry of Finance, symbolizing institutional separation between Iraq's currency and the national government, whoever may lead it.

Takes time

McPherson is a realist. He'd be among the first to concede that the job of rebuilding Iraq is far from complete. But the Iraq he sees described in recent media accounts, a place of chaos, killing and dislocation overshadowing any kind of normalcy, isn't the Iraq he left less than two weeks ago.

Such sentiment is understandable for a Bush appointee, yet it's gaining credence as more Iraqi veterans return for reassessments and first-ever opinion polls of Iraqis tell a more balanced story.

"We aren't simply getting the full picture," McPherson said. "Yes, there is a security problem. But Iraqis go about their daily lives. In a few days, the schools will reopen. All the hospitals and clinics in Baghdad are open.

"Yes, it's a spotty delivery system. You can say the glass is two-thirds full, but it's two-thirds full. It takes some time. But during that time it isn't that nothing is happening."

Banks are starting to function as banks do in the United States and Western Europe. By mid-month, 80 branches across Iraq will be capable of managing transactions over a satellite e-mail system. Some will be issuing loans as large as $50,000 to businesses and consumers.

Six foreign banks can establish a presence in Iraq through acquisitions, and foreign companies will be allowed 100 percent ownership of their operations in Iraq, except in natural resources (such as oil). Maximum tax rates on individual and corporate incomes will be 15 percent.

And, no, McPherson counseled, don't make the additional $20.3 billion earmarked by the Bush administration for rebuilding Iraq a loan, as some in Congress have suggested.

"The world knows that when people have gone through something like this you don't make money on it," he said. "You build and you reach out."

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9/29/03
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This story has been posted in the following forums: : Headlines; Iraq; COS - Peru; Economics

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