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Monday, 16 June, 2003, 16:54 GMT 17:54 UK
Baghdad economic strategies
Baghdad street
There are signs that, belatedly, life in Baghdad is slowly being put together again. Services like sewage and water are being restored, and more and more people are returning to work.

But in economic terms what passed for normal in Iraq before the war was a world away from the sort of free market model the Americans are hoping to establish.

David Loyn reported from Baghdad on what still needs to be done to remake a shattered, totalitarian economy.

There's never been a pay day like it in Iraq. These are street cleaners, dustmen, sewage workers, the vital wheels of a city which all but ground to a halt with the fall of the old regime two months ago. Since then, all they've had is one emergency payment of $20 a head. Now they are being paid for April, half in dollars and half in newly printed dinars. The currency is the only thing in the country which still pictures Saddam. Sewage worker Majid Shakir fights his way to the front when his name is called. He counts the money. The total is seven times his last pay packet under Saddam. Sewage is Baghdad's biggest problem. The system is choked and decaying. Floods of raw effluent are breeding grounds for waterborne diseases in the sapping heat of the day. It's 45 degrees, for now. Next month will be even hotter. Majid says the Americans didn't know what they were letting themselves in for.

(Sewage Worker) (TRANSLATION)
Absolutely not. I don't think they had any idea. They can't have had a full understanding of the real situation in Iraq. If they had known, then these problems would not have happened.

They try to shift the blockage by hand. Most of their tools were looted, and America is facing the blame for the law and order breakdown which has made things so difficult. Among the crowd who gather to complain is a Muslim cleric who wants to know why his mosque is flooded with sewage. Once, Majid was a playwright, before Saddam's secret police sent him to look after the drains. There's certainly material enough for a tragedy in the chaos which followed the fall of Baghdad, but at last things are beginning to change.

(US Army)
We will go to sewage sub-station two. He needs to give us a list, and we need to find out what exactly they need to get things working, then we can help to get what they need.

Lieutenant Travis Shin is a man with a mission. Sewage station number two is an outpost in the sprawling badlands next to Baghdad which used to be called Saddam City. It's been fixed before, and he wants to know why it's not working properly now.

We patrol this whole sector, and we are telling them that this is the worst area.

The vicious cycle of the days when the repair teams couldn't keep up with the looters is being broken.

Absolutely, yes. The situation is getting better. For 34 years, the Iraqi people were oppressed. They lived in fear. Now they want instant change, but if you look at the reality you can feel some progress. There was looting at the beginning but it's much less now than before. There's been no chance of a normal life until now.

It's not quite a normal life, but at least Majid's children can now go to school, if only under the watchful eye of the 2nd Air Cavalry Regiment. They are patrolling more at night now, and noticing the difference.

(US Army)
There's less shooting at night now than there was three weeks ago, less than there was one week ago. Things are good, they're improving.

But the teachers have not been paid for months. Some even tell us that although the school has reopened, things were better under Saddam. Majid tells her it's unreasonable to expect everything instantly. It's a classic argument between a pessimist and an optimist. Is this glass half full or half empty? As well as better security and open schools, this week, American aid money paid for an epic clean-up of the piles of rubbish which have been untouched since the war. The country's chief optimist is Paul Bremer, now in charge after the wasted weeks which followed the fighting. America's imperial viceroy has brought sacks full of cash with him.

(US Administration of Iraq)
One of the things which is already creating jobs is the fact that we are paying salaries to almost two million civil servants. We plan to finish the process of paying the back salaries from April this week, and we will then commence, right away, to pay the May and June salaries. This process will put, over a period of three months, almost $500 million into the economy.

Many of those getting the money had non-jobs anyway. Even before the war, civil servant Kadim Abdul Nadi ran his own electrical repair shop, alongside a so-called full-time government job. Moonlighting was an art form. Kadim is Majid's brother-in-law, a pawn in a Soviet-style command economy.

(Civil Servant) (TRANSLATION)
To us, it used to feel like mass unemployment. The state wanted workers to depend on it. It encouraged corruption and theft, especially by those in the regime. They had the best jobs, but the honest people had only their low wages.

How long do you think the state companies can continue to pay workers who do nothing?

(World Bank Economist)
It's important to continue to pay them, essentially for social reasons. These should be thought of as social security payments or as unemployment payments. Some state enterprises will undoubtedly be able to compete, and sell their goods at international prices. But I am afraid there are many others which will not be able to withstand the competition, simply because they were set up in artificial conditions under the old regime, and they'll undoubtedly have to close.

DAVID LOYN: With the state economy now paralysed, one bit of private sector activity has done well in the last couple of months. There are more than 40 thieves in the city where the story of Ali Baba was first told. In this Steptoe's paradise, the horses live in paddocks made of scrap metal, when they are not pulling loads like this stolen electrical cable, which is burnt to recover the copper inside. Iraqi nationalists see the looting as part of an American plot, and they are suspicious of the big cash payouts to government workers, fearing they will fuel inflation.

(Economist) (TRANSLATION)
I believe that the US did this to help themselves, to make the Iraqi people feel that they have come to help them. They are paying salaries now to meet basic needs, but it's just a temporary measure, and it will lead to inflation. It has to lead to an increase in prices. The only thing on offer will be imported goods.

The best recent economic parallel to the task here is perhaps Russia in the 1990s, when an entire state-planned economy was dragged by the scruff of the neck to face the harsh realities of the free market. The consequences there were hardship and huge social dislocation. Here, they have bomb damage to face as well. The immediate solution, pumping in $500 million in inflated state salaries, runs completely counter to all the orthodoxy coming out of Washington in recent years. Failing economies usually have to fend for themselves, show austerity, prove how disciplined they are, before they get funds of this sort. Iraq is being treated differently. So what effect will all this money have? After the sanctions, the flood gates are already opened to imported goods. Iraq's economy is so weak that it can absorb a lot before inflation comes.

This additional infusion of foreign resources in this country would jump-start the economy, would get production going, would get small and medium enterprises tooled up, and ready to employ people. Now, it would be inflationary in a normal economy that would be near full employment, but that is not the case with Iraq today, unfortunately, so I think the danger of inflation is very low indeed.

Whether you are an optimist or a pessimist, some of Baghdad's streets are still full of sewage. So what does the sewage worker who was a playwright make of it all?

The last play I did was in exile in Jordan. It was all about how low Iraq had gone. People could only worry about their basic needs then, like getting milk for their children. But now my role as a playwright will be to write about what the changes really mean, how we can live without fear, and have our voices heard.

It's a noble hope and after the chaos of the first American weeks which followed the cruelty of Saddam, in Iraq things can only get better.

This transcript was produced from the teletext subtitles that are generated live for Newsnight. It has been checked against the programme as broadcast, however Newsnight can accept no responsibility for any factual inaccuracies. We will be happy to correct serious errors.

The BBC's David Loyn
reported from Baghdad on the economic challenge facing America and its allies.
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