Middle East Economic Review

I. Iraq Feuds with the United Nations over Sanctions
One of the persistent and recurrent causes of disagreement between Iraq and the United Nations centers on the role of the Sanctions Committee (known as Committee 661). According to Iraq, the Committee has suspended 693 contracts worth $7.5 billion.[1]

In this connection, Iraqi Minister of Trade, Muhammad Mahdi Saleh, accused the United Nations of "seizing" since 1996 $18.5 billion from the "Oil for Food" program while the Iraqi people received about $15 billion. Saleh said that, since its creation in 1996, the Sanctions Committee is characterized by "delaying, hindering, postponing and refusing the approval of new contracts." He said the Committee delays contracts for a year or two and then approves them without changes, thereby preventing food from reaching the Iraqi people. He quoted Saddam Hussein as saying that "Iraqi wealth is stolen in the name of the United Nations under the pretense of compensation."[2]

Iraq argues that the suspended contracts have nothing to do with military material but have everything to do with humanitarian necessities. During the 10 phases (5 years) of the "Oil for Food" program, Iraq exported $50 billion worth of oil but received only $18.5 billion worth of merchandize and commodities (in the previous paragraph Iraq alleged it has received only $15 billion worth of imports). This amount is less than what Iraq used to pay for its imports one year before the embargo. The balance of the money "is spent on dubious reparations, or goes to the pockets of the U.N. employees… or stays frozen in the bank that holds the Iraqi account."[3]

Iraq has taken issue with the Commission for seeking to include Iraq's debt, which originated before the Gulf War. It maintained there is no legal justification for this and said:

...The Security Council Resolution 687 rejected [such measure] for legal and administrative reasons, since the debt was part of commercial undertakings among countries, and took place before the events [the Gulf War]… In addition, the Commission, in hundreds of cases, has paid off some claims more than once, or paid more than the requested amount…When the Security Council decided to establish the Commission… it preempted the law that governed international relations and replaced it with an arbitrary procedure that contradicts the simplest accepted international laws and principles of basic fairness.[4]

An Iraqi magazine, Al-Zawra, claimed that 78 foreign companies have conspired to receive double reparations by submitting parallel claims to the U.N. Compensation Commission and to their respective national courts "with the goal of enriching themselves at the expense of Iraq."[5] Among the companies accused of fraud, 13 are French, 10 are Italian and 9 each from the U.S. and Germany. The submission of claims to national courts has created a serious problem for Iraq. According to the Iraqi Ministry of Foreign Affairs, "the states of those courts can attach the sales and exports of Iraq other than oil, as a result of issuing such judgments, a matter that restricts Iraq's foreign trade indefinitely."[6]

A source in the Iraqi Foreign Ministry said that the Compensation Commission does not bother to check the legality and accuracy of compensation claims, while Iraq, which was prohibited from membership in the commission, could not object or express its opinions. The source cited a few examples of compensation claims that it described as "ridiculous," such as a claim from an Australian diplomat in Israel to pay for his daughter's school tuition, since he had to send her to Italy during the Gulf War, and a hospitalization claim from a woman who was moved to Amman, Jordan to deliver a baby, and a claim from the Government of South Korea to reimburse it for gas masks that it distributed among its representatives in the Middle East.[7]

UN Director of "Oil for Food" Calls for Reforms
Iraqi newspaper Babil reported on the conclusion of a 25-day visit to Iraq of Vinon Sivan, the Director of the "Oil for Food" program. He told reporters in Baghdad that the program requires "continuous reform." He said it was necessary for the Security Council and the Sanctions Committee to review the instruments used in applying the program and to consider the necessary changes that would meet the needs of the Iraqi people. He expressed his regret that the program "suffers from paralysis." Following his meeting with Sivan, Iraq's Vice President, Taha Yassin Ramadan declared: "We call on the United Nations to exercise its role to ensure proper implementation of the memorandum of understanding on 'Oil for Food' program."

Sivan said that the there was no substitute for the program as long as the sanctions exist. Regrettably, he was quoted saying, "the program cannot be kept independent of the on-going political debate about Iraq." While in Iraq, Sivan visited both the northern and southern regions of the country.[8] These two regions are guaranteed a certain percentage of the program, not subject to Iraqi government's control. Commenting on Sivan's visit, the official government newspaper Al-Thawra wrote:

…the so-called humanitarian program has changed from an instrument to alleviate the suffering of the Iraqi people to an instrument to harm it. Indeed it has turned into a weapon to wage war on Iraq and to impede its economic growth and scientific and cultural progress. And this has been rejected by the honest employees of the United Nations… including Messrs. Dennis Haliday, Hans von Sponeck and Dr. Ashraf Biomi.[9] [Both Haliday (Irish) and von Sponeck (German) served as U.N. representatives in Iraq following the signing of the Memorandum of Understanding between the U.N. and Iraq in 1996.]

Uday Saddam Hussein Meets with Iraqi Foreign Minister
Uday Saddam Hussein met with Iraq's Foreign Minister and discussed the relations between Iraq, the U.N. and the Arab League as well as Iraq's diplomatic efforts to contain and undermine what is called the "smart sanctions" that the U.S. wants to pass at the Security Council.[10]

Iran Intercepts Iraqi Oil Tanker
Iran has informed the United Nations about its attempt to intercept in its territorial waters Iraqi oil tanker carrying smuggled Iraqi oil. In a message to the Sanctions Committee, the Iranian Ambassador to the U.N., Hadi Najd Husseinan said that an Iranian naval patrol chased the tanker which succeeded in returning to Bakr Port in southern Iraq. [11]

II. Regional Economic News

AOPEC Concerned About Further Decline in Prices
The Arab Organization of Petroleum Exporting Countries (AOPEC)—a significant component of OPEC- is concerned that the price of oil which was weakened in the last quarter of 2001 and, particularly after September 11, will continue to slide in 2002. Some of the disturbing signs identified by AOPEC were the decline in tourism which meant a shortfall of 0.5 million b/d in jet fuel, increased utilization of oil stored by industrialized countries, and a rise in the production of oil by non-OPEC members.

To bolster prices, OPEC members have reduced their production by 1.5 million b/d in January, supported by further reduction of 462,500 b/d by non-OPEC members: Russia, Norway, Mexico, Oman and Angola, bringing the total reduction target to 1.962 million b/d.[12]

According to the International Energy Agency (a Paris-based agency representing 25 of the largest world economies) OPEC and non-OPEC countries have reduced their production by only 640,000 b/d, suggesting an over the ceiling production of 1.3 million b/d. With the exception of Norway and Mexico, which adhered to the agreed reduction, Russia and Angola have increased their production and Oman kept the same level of production.[13] Since the three non-OPEC members were responsible for only a small amount of the over-production, the assumption is that some of OPEC members as well have been responsible for violating their quotas. The following table gives estimates of oil production by OPEC members during December, 2001 and January 2002.

European Investment Bank Reviews Activities The European Investment Bank which began lending to the southern Mediterranean countries in 1974 has increased its lending from 680 million euro in 1996 to 1.5 billion euro in 2001, for a total of 7.4 billion euro since 1974. The loans were distributed as follows: 27.6% to the private sector, 24.6% for the protection of the environment, 26.4% to improve the sources and distribution of energy and 21.5% for telecommunications. Egypt was the largest beneficiary with 17.3%, followed by Morocco and Turkey with 16.8% each, Algeria 16.6%, Tunisia 12.1%, Lebanon 5%, Jordan 4.6% and Israel 0.5% (this is explained by Israel's high level of income, developed infrastructure and its high-tech industry.) The bank would like to make regional loans which contribute to strengthening the peace. Among such regional projects, currently financed by the bank, are the rapid highway that will connect Morocco, Algeria and Tunisia, the electric interconnection between Syria and Turkey on one side and Egypt and Jordan on the other side, the Euro-Med Gas pipeline that will connect the natural gas fields in Algeria with Spain through Morocco, and improving the port facilities in Morocco, Tunisia, Jordan and Lebanon.[14]

High Level Egypt-Syrian Committee Sign New Agreements
The Committee, chaired by the two countries' respective prime ministers, met in Cairo on February 9 to discuss trade issues and the creation of a free trade zone between them.

The Committee is seeking to increase the volume of trade between the two countries to 300 million Egyptian pounds (Approximately $60 million) per year.[15] The proposed volume of trade is hardly a significant one given Syria's trade with Iraq, estimated to reach $5 billion this year.

Upon the conclusion of the meetings, the two sides signed 9 agreements and memoranda of understanding for collaboration in the economic, trade, informatics, technology, civil aviation, housing, electricity and environmental fields. President Mubarak has urged the two countries to consider this work as the beginning of an Arab common market. [16]

Syria and Iraq Sign a Protocol for Industrial Collaboration
The Ministers of Industry of Syria and Iraq, Dr. Issam Al-Za'im and Myassar Raja Shallah, respectively, signed a protocol in Baghdad on industrial collaboration and complementarities between the two countries. The protocol calls for the expansion of trade and technical assistance between the two countries and for the construction of new joint projects. While this information appears in identical form in both Syrian and Iraqi press, the Syrian press added a caveat not mentioned in the Iraqi press. It calls for maintaining the quality of products exchanged between them.[17][Iraqi merchants have often complained about the poor quality of some Syrian products exported to Iraq. In highlighting the caveat, the Syrian government is telling the Syrian manufacturers to mend their ways or stand to lose their biggest market.]

Saudi Arabia: Growth of the Mining Sector
According to the Saudi Ministry of Petroleum and Mining, there are good indications that the revenues from mining will be the most significant sources of revenue by 2012. The ministry has issued so far more than 1000 mining permits in areas such precious and industrial metals, raw material for cement, and a variety of other metals.[18]

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Saudi Court's Verdict: Whipping as a Form of Punishment
A Saudi court decided last week that a businessman will receive 40 lashes for obstructing the elections in the Chamber of Commerce and for threatening and insulting his opponent. The opponent will be allowed to witness the lashing.[19]

Egypt Closes 11 Foreign Exchange Agencies
The Egyptian Government has closed down 11 foreign exchange agencies in Cairo for periods ranging from 2 to 6 months for "illegal practices which harm the economy," a euphemism for speculations in the dollar against the Egyptian pound. Earlier, the government announced it had placed 10 persons accused of speculation under administrative arrest in accordance with the Emergency Law. [20]

Egypt to Admit Tourists with Personal Identity Cards
In a measure designed to boost tourism, the Egyptian Government has decided to admit German and Italian tourists to Egypt with only personal identity cards. [21]

Egypt: No Israeli Ship Passed Through Suez Canal Throughout the Intifada
The Suez Canal Authority announced that not a single Israeli ship has passed through the Suez Canal during the 14 months of intifada. Israel has stopped using the Canal since October 2000 although 32 Israeli ships passed through the Canal between January and October of the same year. The Egyptian shipping agents have decided in October 2000 to boycott Israeli ships.[22]

In this connection, the head of the Suez Canal Authority, General Ahmad Fadhil, reported a short decline in the number of ships which passed the Canal in 2001 but there was an increase in tonnage. During that year, 13,986 registered vessels have passed through the Canal generating revenues of $1.9 billion, a decline of $42 million compared with the previous year. [23]

Lebanon Faces Economic Hardships
Lebanon faces a heavy burden of external debt of $26.5 billion, equivalent to 165% of its gross domestic product and equal to the foreign debt of Egypt with a far larger economy. The IMF has proposed that Lebanon devalue its currency but the country has balked because the devaluation would accelerate the inflation pressures which are mounting since the introduction of a value added tax of 10% this month. The annual budget for 2002, recently approved by parliament, is based on estimated expenditures of $6.28 billion and estimated revenues of $3.76 billion, leaving a deficit of $2.52 billion.

The donor community is not interested in supporting it because of its refusal to adhere to U.N. resolutions on terrorism. In addition to the impact of terrorism on the Lebanese economy, Lebanon suffers from two additional problems. First, the state controls the telecommunications and electricity sectors, the latter losing $500 million per year. The state also has a monopoly over the sale of cigarettes, and over railroads and refineries. Second, the Lebanese people don't pay taxes, as required by law. [24] The introduction of the V.A.T. in February will provide a measure of relief to the otherwise dwindling state revenues.

EU Urges Lebanon to Reform its Laws
Pascal Lamy, the Trade Commissioner in the European Union, said that Lebanon must reform its laws to remove the impediments that discourage foreign investors. By doing so, the country will also derive the benefits inherent in the partnership agreement between Lebanon and the EU, which was initialed recently. He said foreign investors will need "security, transparency and clarity" in order for them to invest in Lebanon which is seeking to restore its reputation as a trade center, damaged by the civil war in 1975-1990.[25]

Jordan: Economic Reform Program
The Secretary General of the Jordanian Ministry of Finance, Muhammad Abu Hamoor, outlined the principles of an economic reform program that would reduce the burden of external debt:

• Revise laws to create a legislative environment compatible with economic development
• Allow the private sector to take the initiative to accelerate economic activity
• Endorse scientific and managerial developments and simplify procedures for servicing the citizens
• Maintain the standard of living of the civil servants within the framework of improving the state machinery (the state cannot continue to serve as investor, trader and employer and must allow the private sector to take an active part in developing the economy)[26]

Israel Aircraft Industry Receives Record Orders
State-owned Israel Aircraft Industry received record orders in 2001 worth $2.88 billion, an increase of 11% over the previous year, despite a difficult airline industry environment. The new orders are divided between $2.195 billion from overseas and the remaining $689 million from the local market.[27]

Palestinian Authority: Criticism of World Bank and Donors
Daoud Al-Zayer, Chairman of the Palestinian Contractors Federation criticized the donor countries and the World Bank for their reluctance to proceed with the implementation of approved projects in the Palestinian controlled territories. In 2000, projects approved for implementation were to cost $400 million but only $100 million worth of projects were implemented. In 2001, implemented projects were valued at $60-80 million, which represent a big loss of income to the contracting industry. The 500 member companies in the Federation incurred losses of $28 million in 2001 and many of them have closed down for lack of business.[28]

Palestinian Authority Signs Cooperation Agreement with Britain
Britain and the Palestinian National Authority signed an agreement which will provide the latter 10-15 million pounds ($14-21 million) for the development of an independent foreign trade structure and prepare the necessary economic studies for the final phase of negotiations between the Palestinian Authority and Israel.

The studies will be completed in 20 months and will be conducted by foreign and local experts under the auspices of the London School of Economics.

Geoffrey Adams, the British Counsel in Jerusalem, who signed on behalf of his government, pointed out that "peace can only be achieved through concerted efforts to create Palestinian institutions founded on transparency and sound administration and by allowing the Palestinians to take an active part in the international commercial and economic efforts as a first step toward building a viable Palestinian state."[29]