In March 2003, the United States declared war on Iraq because of Baghdad's refusal to comply with UN weapons inspections. The goal of the war was to remove Iraqi President Saddam Hussein from power and precipitate a pro-market, pro-democracy "regime change." The regime did change--Saddam Hussein was replaced by the Coalition Provisional Authority and the recently installed Governing Council. Supporters of the war in the U.S. government and in the Washington-based conservative think tanks spurred on the Bush administration, arguing for extensive U.S. intervention to establish democracy, the ending of a cycle of poverty engendered by Hussein's antidevelopmental and predatory policies, and the creation of an oasis of pro-Western political and economic stability in the Arab world.

Watering the seeds of hope: Iraqi children in the town of Un Dayr got bottled water and snacks from members of the U.S. military in April. Basic services, such as water and electricity, remain disrupted in much of Iraq. Tammy L. Grider / UPI

        Yet, if the U.S. presence in Afghanistan--which started some 17 months earlier--is any predictor of U.S. engagement in Iraq, the promise of a U.S.-led, democratically based economic development seems distant. By September 2002, America had spent $13 billion on the Afghanistan war effort, in contrast with only $10 million in humanitarian assistance. Preference for spending on war rather than peace does not augur well for an ambitious rebuilding effort in Iraq.
        As Afghanistan and Iraq show, the current system of international development is unable to deal with military-induced humanitarian crises. Iraq could turn into a large-scale "development disaster" that the current system of international development cannot accommodate. The present system is based on unilateral U.S. action that largely ignores the United Nations and spends much more on war than peace.
        In each instance of U.S. intervention in the Arab world, there is talk of a new Marshall Plan. In Iraq, it was U.S. Agency for International Development chief Andrew Natsios who compared the reconstruction effort to the famed post--World War II reconstruction plan. Yet, instead of heralding a new Marshall Plan portending economic development, U.S. intervention appears to lead to long-term humanitarian crisis. If America hopes to move from ineffective unilateralism to sustainable development for the Arab world (and elsewhere), it will need to engage in the enlightened self-interest of multilateral action through the United Nations and Arab organizations.

UPCOMING DEVELOPMENT DISASTER

he humanitarian effects of the Iraq war have been dire, representing the next stage of a development disaster spanning more than a decade. According to the United Nations, 13 years of economic sanctions have already exhausted Iraq's economy and resulted in at least 800,000 children being chronically malnourished. The International Physicians for the Prevention of Nuclear War says that the Gulf War in 1991 resulted in over 100,000 civilian causalities; by the time of the latest war in Iraq, only 41 percent of the Iraqi population had access to potable water. The most recent war has brought increasing hardship for the Iraqi population. According to a July 9 Reuters article, over 6,000 Iraqi civilians were killed, and a recent World Food Program report asserts that 20 percent of Iraqis suffer from

How to Win the War in Iraq The United Nations should be strengthened and given a role in planning and implementing Iraq's reconstruction. The International Monetary Fund and World Bank should be given a key role but should provide only grants, not loans, which would further impoverish Iraq in the long run. To strengthen Arab institutions in Iraq and elsewhere, development funds should be administered in cooperation with Middle Eastern banks and consultants. Including Mideast business institutions in Iraq's reconstruction would promote regional integration, economic growth, political stability, and cooperation with the West. Oil companies in Iraq should be "bailed in" to the reconstruction effort, which would encourage long-term productive investment and ease the burden on Western donors' purses.

chronic poverty. In many cases, women, children, and the elderly are the most dramatically affected. Basic infrastructure, such as transportation and electricity, in many parts of Iraq have been crippled. Disrupted water and sanitation systems create an environment for the spread of cholera and dysentery. Medical facilities are overwhelmed and underresourced. The result is widespread looting and an overall lack of security.
        In the short term, security is the most pressing problem preventing reconstruction and development in Iraq. Yet, security will be difficult to restore given the wide range of divisions in Iraq that create a free-for-all grab for resources. Social divisions between Kurds (mostly concentrated in the northeast), Shiite, and Sunni Muslims (who held minority rule under Saddam) are often compounded by political divisions between ethnic and regional factions. Added to these tensions are the skirmishes between Iraqi insurgents and coalition forces.
        In Afghanistan, lack of security caused by warlord-centered feudalism has already led to a near collapse of development efforts--a road that Iraq looks likely to travel. In the long term, the country's developmental prospects are conditioned on its ability to accumulate capital, effective labor, and technology. By the late 1980s, Iraq had established some light industry and electronics industries with the help of French and Soviet investment. But after the war, much of this investment was crippled. Most current investment focuses on petroleum, which contributes neither to the Iraqi human or industrial capital stock.

DEVELOPMENT DISASTER SPREADS

n Iraq, the development consequences of the war are direct and apparent. In other Arab and developing countries, the war's deleterious effects will be less visible. From a historical perspective, oil prices are relatively high due to disruptions in Iraqi supply and general uncertainty. In the short term, this will be a boon for oil-producing Arab countries. In the long run, though, oil from Iraq would increase beyond the current UN sanction level as U.S. companies participate in the rehabilitation of Iraq's oil sector, adding an additional 5--6 million barrels a day of

World-issues body: Some feel the United Nations should be included much more than it has been in Iraq's reconstruction. Here, the UN Security Council votes in May to lift sanctions against Iraq. UPI

capacity in upcoming years. Given that Iraq is the second-largest oil producer after Saudi Arabia, the result would be increasing quantities and lower prices for world oil.
        Oil price changes will lead to international income redistribution, possibly causing important economic and political changes in the Arab world. In Saudi Arabia, lower oil prices have led to falling per capita incomes by 60 percent since 1980. Such incomes are likely to fall further and income disparities are likely to grow, leading to social tensions and pressures for reform. Long-term adjustment to falling oil prices will probably require development finance to promote the diversification of Middle Eastern economies.
        Aside from oil, the Iraq war has led to economic instability affecting Turkey, Syria, Israel, and Palestine and has generated uncertainty throughout the Arab world. The war will certainly affect the results of World Bank and International Monetary Fund discussions on economic reform as adjustment leads to restrictive monetary and fiscal policy, putting in jeopardy disadvantaged groups and undermining Middle Eastern economic development.

PAYING FOR CHANGE

ccording to U.S. officials, the United States envisions a postwar Iraq involving an extended American military presence administering the country and providing economic, humanitarian, and reconstruction assistance. According to Mark Stoker, defense economist at the International Institute for Strategic Studies, if Iraq is to attain a per capita gross domestic product equal to that of Egypt or Iran, reconstruction aid would need to total about $20 billion. If occupation as well as reconstruction costs are tabulated, Congressional Budget Office estimates place the cost of occupation anywhere between $17 billion to $45 billion per year, resulting in a total estimated minimum cost of $75 billion and a maximum cost of up to $500 billion.
        Other experts provide similar estimates. William Nordhaus, in a Yale University study, has put reconstruction and nation building at $100--600 billion over the next decade, while former presidential economic adviser Lawrence Lindsay places the figure at $100--200 billion.
        In all likelihood, the United States will be unwilling or unable to pay such a large reconstruction and development bill for two reasons. First, global economic recession has reduced Washington's ability to collect taxes. Global GDP growth has fallen about 2 percent since 2000. The IMF estimates that a $10-a-barrel rise in the price of oil (an "oil shock") sustained over a year could reduce global gross domestic product by 0.6 percent. The IMF's April 2003 Economic Outlook notes a number of "transmission mechanisms" for oil-shock effects on output and growth, including lower consumer and business confidence and depressed investment.

Oil glut: A U.S. soldier helps to guard an oil field in April after some wells were set afire by Saddam Hussein's forces. Once Iraq's oil really gets flowing again, it will have a big impact on the welfare of Iraq and the rest of the Mideast. Chris Corder / UPI

        Second, the U.S. administration has taken on a number of other commitments that will reduce funds available for Iraqi postwar reconstruction. The cost of continuing American involvement in Afghanistan is likely to require, according to Afghan President Hamid Karzai, at least an additional $15--20 billion in aid. In March 2002, President Bush promised a $5 billion increase in development aid as part of a "new compact for development."
        The regime change occasioned by the Iraq war has not been one in Iraq so much as one in the system of international development. Before the war, many pundits and journalists claimed that unilateral action by Washington would signal the death of the United Nations and the multilateral system. While such claims have turned out to be an exaggeration, the current system of international development has undergone a serious blow. Indeed, the international development regime was already limping before the war, as shown by the steadily falling level of wealthy nations' assistance to the developing world. Of that assistance, America is a small donor as measured by its less than 0.1 percent of GDP (compared to Denmark, with more than 1 percent of its GDP in aid).
        Yet, such aid--even multilateral aid--has been largely dominated by U.S. policy. During the Cold War era, the United Nations was increasingly marginalized, as the United States preferred to use the United Nations to articulate its geopolitical interests and shift forums to the World Bank and IMF when it could not get its way in the United Nations. As geopolitics moves from the clash of economic ideologies embodied in the communism-capitalism divide to the clash of civilizations embodied in the Christianity-Islam divide, the multilateral system appears to be getting even weaker. The fact that the United States is limiting UN activity in Iraq to humanitarian assistance, and the funds it provides to the United Nations are telling (the United Nations appealed in June for $259 million to carry on its work in Iraq). The United Nations has been engaged in some important activities--such as delivering 100,000 metric tons of food, providing vaccines for about a quarter of a million children, assessing 10 percent of the total medical facilities in Iraq, and issuing a preliminary repatriation and reintegration plan to assist up to half a million Iraqi refugees. Yet these activities are only a drop in the bucket.
        The World Bank and IMF have been similarly restrained from engaging in Iraqi reconstruction. At present, both institutions have not officially declared any support but stand ready to play their "normal role" and have sent fact-finding missions. Yet, even with the full engagement of the relatively large resources of the World Bank and IMF--especially for infrastructure and capacity building--it is unclear how effective their spending could be in averting the upcoming development disaster. The results of spending in Afghanistan have been less than spectacular, and World Bank and IMF lending could simply lead to the debt spiral in which many developing countries today find themselves. Even if the World Bank and IMF could cancel Baghdad's outstanding debts (which are equal to 150 percent of Iraq's GDP), it is unclear where productive capacity would come from.

AVERTING DISASTER

hat can be done to assuage Iraq's development disaster?