Administrator’s Weekly Report
Economy
March 20-26, 2004
HIGHLIGHTS
-- As of March 21, 2004, estimated crude oil export revenue reached $3.4 billion for 2004.
-- The CPA Administrator signed the 2004 revised budget this past week, and sent the approved
budget to the Minister of Finance for execution.
I. BUILD FINANCIAL MARKET STRUCTURES
Modernize the Central Bank; Commercial Banking System; Re-establish Baghdad Stock
Exchange; Restructure National Debt

The Central Bank of Iraq (CBI) authorized two new private banks that will open headquarters
branches in Baghdad in early April: North Bank and Industrial Union Investment Bank.

The CBI authorized this week the First National Bank of Lebanon to open a representative
office in Baghdad. This is the third office authorized under Article 7 of the Banking Law,
joining the Housing Bank of Iraq and the Jordan National Bank.

The Bank Supervision team from U.S. Treasury completed their assessment of the Central
Bank’s bank supervision process using the Basle Committee’s Core Principal Assessment.
The Central Bank was in substantial non-compliance with the 25 assessment principals, and
the supervision team made recommendations to comply with international bank supervision
standards. The bank supervision team is conducting two one-week training sessions on the
basics of bank supervision for approximately 60 supervisors from the Central Bank
supervision staff.

The New Iraqi Dinar (NID) has now been stable the past month and a half. At the NID
auction on March 25, the settlement price was 1,425 dinars per dollar, the same as the
previous day. The value of dollars sold at the auction varied over the week from $7.7 - $27.3
million. The total net purchases of U.S. dollars by the Central Bank of Iraq from October 4,
2003, until March 25, 2004, was $1.49 billion. The exchange rate on the Baghdad streets
was 1,420 dinars per dollar on March 25, the same as the previous day. During the past
week, March 20- 25, the NID depreciated 0.5 percent against the U.S. dollar.
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New Iraqi Dinar monthly fluctuation:
 December 26 – January 25:
 January 26 – February 25:
 February 26 – March 25:
NID appreciated 18.4 percent
NID depreciated 4.4 percent
NID appreciated 0.7 percent
Exchange Rate Movements
New Iraqi Dinars (NID) per US $1
12
/2
5/
20
03
1/
1/
20
04
1/
8/
20
04
1/
15
/2
00
4
1/
22
/2
00
4
1/
29
/2
00
4
2/
5/
20
04
2/
12
/2
00
4
2/
19
/2
00
4
2/
26
/2
00
4
3/
4/
20
04
3/
11
/2
00
4
3/
18
/2
00
4
3/
25
/2
00
4

2000
1800
1600
1400
1200
Old Saddam Rate (10K per $)
Street Market Price
Settlement Price (Auction)
Source: CPA Senior Advisor to the Central Bank of Iraq
Annualized Weekly Volatility of the NID
80.00%
70.00%
60.00%
50.00%
40.00%
30.00%
20.00%
10.00%
12
/2
5/
20
03
1/
1/
20
04
1/
8/
20
04
1/
15
/2
00
4
1/
22
/2
00
4
1/
29
/2
00
4
2/
5/
20
04
2/
12
/2
00
4
2/
19
/2
00
4
2/
26
/2
00
4
3/
4/
20
04
3/
11
/2
00
4
3/
18
/2
00
4
3/
25
/2
00
4
0.00%
Settlement Price NID Volatility
Street Market Price NID Volatility
Source: CPA Senior Advisor to the Central Bank of Iraq

The annualized weekly volatility of the new Iraqi dinar this past week was 1.1 percent.

The following chart shows the month/month change in Consumer Price Index (CPI) from
January – February 2004 by category. The Iraqi Central Statistical Office (CSO) in the
Ministry of Planning and Development Cooperation conducts the surveys and calculates the
CPI. The CPI is not seasonally adjusted, but CPA advisors are working with the CSO to
include this type of analysis. The average month-to-month percentage change in the CPI
from August 2003 – February 2004, was 3.7 percent. The month-to-month percentage
change in the CPI from January – February 2004, was -5.3 percent. Inflation has actually
decreased the past two months, confirming some recent polls showing that people believe
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prices had decreased from January to February. The weighting for the CPI is based on
information gathered in the 1997 census. The CSO will update the CPI weighting after
conducting a new census.
February 2004 CPI: Month/Month Non-Seasonally Adjusted Change
-8.0%
Food
Cigarettes / alcohol
-1.4%
-4.6%
Clothing
Overall CPI Change: - 5.3%
-3.2%
Furniture
-17.1%
Fuels / electricity
Transport and
communications
-2.6%
1.6%
Medical
-2.3%
Service
s
0.0%
Rent
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
Source: Iraqi Central Statistical Office
The following chart shows the year/year change in the CPI, from February 2003 – February
2004 by category. The CPI increased by 27.9 percent over the course of a year. While an
annual inflation of this magnitude is rather high, for comparison, the average annual
percentage change in the CPI from 1991- 2002 was 115 percent. In post-conflict situations,
and compared to Iraq’s recent history, this inflation rate is much better than expected.
February 2004 CPI: Year/Year Change
160%
141.3%
60%
40%
37.9%
36.1%
18.3%
20%
9.9%
Cigarettes / alcohol
80%
Overall CPI Change: + 27.9%
Clothing
100%
Furniture
120%
Transport and communications
140%
18.8%
-12.1%
-7.5%
Food
Fuels / electricity
-40%
Medical
-20%
Services
0%
Rent

-39.7%
-60%
Source: Iraqi Central Statistical Office
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
The Iraq stock exchange continues to plan for an April opening. The Iraqi Governing
Council is reviewing the securities law.
II. DEVELOP TRANSPARENT BUDGETING AND ACCOUNTING ARRANGEMENTS
Redrafting and Execution of 2004 Budget

The CPA Administrator signed the 2004 revised budget this past week, and sent the approved
budget to the Minister of Finance for execution. The revised budget totals are $19.927
billion, an increase of $6.51 billion (48 percent) over the initial 2004 budget. Moving from
the 4-tier to the 11-tier civil salary scale and hazardous duty payments increased expenditure
by $480 million, and required fuel imports increased the budget by $2.1 billion, among other
expenditure increases.

In the finalized budget, salaries account for 12.7 percent of the budget, the Facilities
Protection Service receives 0.3 percent, capital costs are 12.7 percent, and the operating costs
(not including salaries) represent 74.3 percent of the budget.

The estimated revenue for the 2004 budget is $14.486 billion, consisting primarily of $14.2
billion in projected oil revenues. The reconstruction levy and other minor taxes provide the
balance of the estimated revenue. The $5.41 billion of uncommitted funds remaining in the
DFI account on December 31, 2003 ($4.4 billion greater than projections in October 2003),
and transferred assets from abroad ($200 million) will finance the budget deficit, resulting in
ending financial capital worth $170 million.

As of March 25, the balance in the Development Fund for Iraq (DFI) was $7.3 billion,
comprised of $6.3 billion in the original Federal Reserve Bank of New York (FRBNY)
account, and $1 billion on deposit in DFI-Baghdad. Of this, $4.1 billion is already
committed to projects, and the remaining $3.2 billion is slated for projected 2004 budget
items. Since establishment, the DFI investment program at FRBNY earned $17 million in
interest. As of March 25, the total payments out of the DFI amounted to $7 billion.

State Department and U.S. Agency for International Development (USAID) assistance to
Iraq disbursed in FY 2003/2004 totals $3.2 billion as of March 26, 2004:







USAID/ Asia and Near East (ANE):
USAID/ Office of Foreign Disaster Assistance (OFDA):
USAID/ Food for Peace (FFP):
USAID/ Office of Transition Initiatives (OTI):
State Department/ Bureau of Population, Refugees,
and Migration (PRM):
$2.6 billion
$101 million
$426 million
$104 million
$39 million
The Program Management Office (PMO) intends to commit $10.4 billion (56 percent of the
$18.4 billion supplemental) toward contracts by July 1, 2004. As of last week, $4 billion are
currently committed to Iraq relief and reconstruction efforts, 39 percent of the July 1 goal.
As of last week, $2.1 billion of funds are obligated with contractors (20 percent of the
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committed fund’s goal). The following chart shows the money committed by sector against
the July 1 target as of March 24.
PMO: Supplemental Money Committed by July 1
6000
5000
Millions of Dollars
4000
3000
2000
1000
0
Oil
Electricity
Security
Water
Transport/
Telecom
ED &
Human
Rights
Roads/
Bridges
Private
Sector
Justice &
Public
Safety
Health
Care
Democracy
2207 Report
1701
5560
3243
4332
500
280
370
184
1018
793
458
July 1 Target
1701
2079
3057
861
601
618
4
131
540
325
458
Updated Apportionment Mar 24
1600
1708
2483
496
165
203
119
70
526
330
458
Total Committed March 24
904.9
1402.7
1143
31.9
137.2
31.6
4
0.2
145.7
0
204.8
Source: Program Management Office

Section 2207 of the Emergency Supplemental Appropriations Act for Defense and for the
Reconstruction of Iraq and Afghanistan, FY 2004 (Public Law 108-106) enumerates the
allotments granted to CPA for each sector and levies a quarterly reporting requirement to
Congress detailing PMO’s spending.
III. PRIVATE SECTOR INITIATIVES
Streamline existing commercial code/regulations; Facilitate lending to private businesses;
Technical Assistance for Small and Medium Enterprises (SMEs); Iraqi Participation in
Reconstruction Subcontracts; Business Development

The Minister of Trade signed all instructions for the different types of corporate registration
(foreign branches, domestic companies, domestic companies founded by foreigners),
effective immediately. CPA will assist the Ministry of Trade with the implementation of
new systems and hardware at the registrar.

CPA continues to follow-up with companies that participated in the foreign investment road
show in Europe. Insurance is a major concern for potential investors, and CPA is working to
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understand insurance options for companies who are interested in investing here. CPA is
updating the investor packet to reflect any new information.
IV. DESIGN OIL TRUST FUND
Proposal for Oil Trust Fund

As of March 21, 2004, estimated crude oil export revenue reached $3.4 billion for 2004
(crude oil export revenue for 2003 [June - December] was $5.1 billion).
V. LAY FOUNDATIONS FOR AN OPEN ECONOMY
Provide IG Staff Capability; Trade Bank; WTO Observer Status; Draft Intellectual Property law
to IGC by April 15, 2004; Develop Framework for Collateralizing Movable and Immovable
Property

As of March 24, the Trade Bank of Iraq has issued 123 letters of credit, totaling $516.3
million, covering imports from 24 countries. An additional 36 letters of credit are pending,
including one letter of credit that will be guaranteed by the Export-Import Bank of the United
States and 13 Oil for Food letters of credit.
VI. PURSUE NATIONAL STRATEGY FOR HUMAN RESOURCES DEVELOPMENT
Begin to employ workers in Public Works programs around the country

The Ministry of Labor and Social Affairs (MoLSA) operates 17 employment centers
nationwide. MoLSA is on target to have 28 centers nationwide open by June 30. The
Baghdad employment center registered 2,171 new job seekers this week, bringing the total
registered job seekers for Baghdad to 51,303. The Baghdad employment center also placed
326 unemployed people in permanent jobs this week. MoLSA is beginning to collect data on
registered job seekers for all of its employment centers, and will report this in the coming
weeks.

Combined Joint Task Force 7 (CJTF-7) Civil Affairs units estimate that the CPA has created
394,717 jobs for Iraqi citizens (46 percent of the CJTF-7 target of 850,000):





Security/National Defense employs
Regional Jobs Programs employ
CJTF-7 employs
Civilian contractors working under CPA contracts employ
Governorate Teams employ
229,665
42,521
51,673
69,308
1,550
VII. INITIATE PUBLIC SECTOR MANAGEMENT REFORM
Civil Service Salary Review

As of March 27, the CPA Administrator had appointed Inspectors General (IG) in 18
Ministries, and another five Ministries had selected nominees (out of 26 total). Almost all
Ministries are expected to have IGs appointed by the end of March.
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