*** iraq booming ***

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Iraq economy shakes off the shackles of Saddam Money flowing again, but corruption lingers
By Paul Wiseman
USA TODAY


BAGHDAD -- Hussein Abizaid Khadum doesn't care where the cars come from. His auto-repair shop serves car thieves and crime victims alike. He and his crew paint over vehicles, patch up bullet holes and pound out the dents and dings suffered in the daily crush of Baghdad traffic.

His business is thriving, taking in about $1,000 a day. He estimates that stolen cars account for 20%. ''I don't care about the source of the business,'' Khadum, 37, says cheerfully, his T-shirt and work pants splotched with paint, the air around him heavy with paint fumes and exhaust. A longtime renter, he's about to move his family into a brand-new house.

Anything goes these days in Baghdad's teeming streets, crowded souks and back alleys. An exhilarating but virtually lawless economy has risen from the ashes of Saddam Hussein's government. Business opportunities are everywhere, but so are corruption and crime.

''The regime is gone,'' says Osama al-Quraishi, an Iraqi entrepreneur who returned to Baghdad to search for business opportunities after decades in exile in Europe and the Middle East. ''There are no restrictions. There are no rules.'' He predicts Baghdad will soon replace Dubai, in the United Arab Emirates, as the Middle East's commercial center.

Besides crushing human rights, Saddam smothered the Iraqi economy. The dictator, who invaded Iran in 1980 and Kuwait in 1990, ran a war-based economy, diverting resources to the military and starving the rest of the country. Iraq's infrastructure deteriorated; the oil industry alone needs $10 billion to $40 billion of investment to catch up. Saddam and his cronies imposed stiff duties on imports, steered government contracts to loyalists and buried business in regulations. This encouraged a culture of kickbacks and corruption.

''It was a lawless economy governed by one principle: Saddam and the Baathist party took whatever they wanted,'' says Bill Block, an economist with the U.S.-led Coalition Provisional Authority.

Under Saddam, the shops were silent, the goods available were obsolete or absurdly overpriced, and the cars were clunkers dating back 15 or 20 years. Now that Saddam is gone, signs of bounty are visible everywhere in Baghdad and to a lesser extent in smaller cities such as Mosul and Basra.

The World Bank says Iraq's economy shrank by nearly a third last year after several years of smaller declines. The World Bank projects a sharp rebound in 2004 -- growth ranging anywhere from 30% to 70% -- and an overall economy worth $17 billion to $22 billion. That would make the Iraqi economy about the size of North Dakota's or Vermont's, which have the smallest output among the 50 states.

Bush administration officials working on Iraqi reconstruction are optimistic that Iraq's growth will approach the high end of the World Bank projection. Salaries and pensions for public employees have been increased. Repairs to the power grid, oil facilities and roads are having ripple effects throughout the economy. Farmers who could not get seed, fertilizer and animal feed in recent years are producing again.

The billions of dollars in U.S. taxpayer money pouring into Iraq acts as a powerful stimulus. The United States is expected to award contracts for $14 billion in reconstruction work this year and $4 billion to $5 billion next year. Much of that will go to pay Iraqis working for contractors and subcontractors and to Iraqi businesses furnishing equipment and supplies.

Cellphones and TV sets

That money then trickles down to the car-clogged streets of the capital. Television sets and washing machines are piled high in boxes outside Baghdad appliance stores. Trucks loaded with consumer goods trundle down the streets. Families line up outside shops for satellite phones and cellphones, which were banned by Saddam's government. Entrepreneurs offer truckloads of merchandise -- TV sets, office equipment -- obtained from who-knows-where.

In a gold-rush atmosphere, hustlers cut business deals over glasses of sugared tea or cups of thick Turkish coffee. Schemers map out grandiose plans for five-star hotels and fancy restaurants in a city where most accommodations are stuck in a 1970s time warp. Business people arrive from overseas, some from exile, eager for a piece of the reconstruction contracts.

Foreign companies are weighing whether to place a long-term bet on Iraq. Pepsi is refurbishing a bottling plant; Nestle is considering a bottled-water factory; MCI is providing cellphone service to the U.S. authorities. Companies from Merck to Motorola are studying the market, according to Tom Foley, the Coalition Provisional Authority's private-sector czar.

Baghdad families show off late-model used cars, just imported from Dubai. Police say the number of cars in the capital, a city of more than 5 million people, has doubled to 600,000 since Saddam fell. ''Where are they going to find roads to drive all these cars?'' wonders police Lt. Gen. Sulaiman Taha al-Shaikhli, commander of west Baghdad's car-registration center.

The new arrivals are conspicuous by their fresh paint jobs and black license plates. Saddam-era clunkers are betrayed by their age, rust and white plates. The car market is so strong that Gezar Tuma, 32, and his brothers closed their struggling Fallujah Kebab restaurant in Baghdad's posh al-Mansour neighborhood and replaced it with a car lot, their second.

''Each day today is worth 10 years under Saddam,'' says Abdul Reza Ougla, 48, a truck driver who cruises south Baghdad's Karada commercial district looking for merchants who need him to haul something somewhere. He earns 40,000 Iraqi dinars (about $28) a day, up from 15,000 under Saddam.

Behind the boom:

* Iraq is duty- and tax-free until Thursday, when a flat tax rate will be launched. Imports are flooding into the country partly because the stiff duties are gone. The duties once accounted for more than half the price of imported goods. A Baghdad family can now buy a Maytag refrigerator for $825, down from $1,200 a year ago. Truck driver Ougla just bought a Kia flatbed truck for $8,400; it would have cost him $12,000 under Saddam, he says. Car dealer Khadum Jurri, 40, used to sell two or three cars a month. Now, he's selling 50 a month, among them late-model Mercedes sedans.

* Spending power is up. Civil servants got huge pay raises after the coalition decided to correct Saddam-era parsimony. ''Public-sector wages under Saddam were quite literally starvation wages,'' economist Block says. Thana Ismail, 40, has seen her monthly wages at the Ministry of Trade shoot up from 3,000 Iraqi dinars a month (barely $2 at today's exchange rates) to 300,000 (just over $200). This means she can finally afford to replace the wheezing washing machine she bought nearly two decades ago. She has her eye on a $185 jumbo Samsung model.

* Saddam's relatives and loyalists are no longer around to harass entrepreneurs and demand kickbacks or ownership stakes in profitable businesses -- or to flex their muscle just for fun. (Jurri remembers when customs officials impounded one of his cars, a violet BMW, because they said the color would offend the sensibilities of Saddam's oldest son, Uday.)

Back in business

From a brick building on a quiet side street in south Baghdad's Arasat al-Hindiyah neighborhood, Omer Tabra, 37, enjoys a unique vantage point over the simmering local economy. In a country where no one trusts the banks, people have long come to the Tabra family to wire money overseas and receive remittances from abroad.

Since Saddam's fall, the volume of cash moving through the offices of his family's Nepal Trading Co. has risen from $2 million to $12 million a day. He says funds are divided about equally between incoming and outgoing. Cash leaves Iraq mainly to pay for imports and arrives to finance new projects.

''All kinds of businesses are active -- cars, home appliances, ready-made clothes, tires and batteries, foodstuffs,'' Tabra says. All that is good news for Nepal Trading, which collects a 0.5% commission on outgoing cash and a minimum fee of $10 for each delivery of inbound money.

The firm's office is conspicuous only by the three BMWs parked on the street and the steady stream of people in and out. Tabra oversees the family empire from a room hidden behind a window with thick purple drapes. It's sparsely decorated with three purple couches and battered fiberboard furniture. A picture of his father, one of several dozen entrepreneurs executed by Saddam on trumped-up charges of hoarding food, hangs on a wall in the waiting room. Tabra often wears a traditional dishdasha robe, a gold pen slipped into the breast pocket.

He's expanding his modest quarters by a third. You can hear it through the walls: the pounding of hammers, the shrill whine of a power drill. The makeover will move his cashiers farther into the building, where they will be less vulnerable to an armed assault.

Security concerns are not theoretical in Baghdad's Wild West atmosphere. Crime is rampant, carjacking common. Tabra's couriers have been robbed three times since Saddam's fall, losing a total of $800,000 cash. In December, Tabra's brother-in-law and a cousin were ambushed in their car while carrying money through the streets of Baghdad. Four gunmen in a white Mercedes ordered them to stop. Instead, the cousin slammed his car into reverse and tried to get away. The gunmen riddled the car with bullets, wounded both men and grabbed $400,000. The two are still in the hospital; the brother-in-law is paralyzed.

Street violence and corruption are the flip side of the Baghdad boom. Under Saddam, car dealer Tuma complains, he and his brothers only had to bribe one of Saddam's relatives. In a way, it was one-stop shopping. Now, every cop on the beat seems to have his hand out, he says. Police threatened to arrest Tuma on trumped-up charges and relented only after collecting a $50 payoff. When thieves drove off with a car someone had entrusted the Tuma brothers to sell, police demanded a $100 payment on top of $2,000 compensation to the car's owner.

''The police are always trying to create trouble for you, so you have to pay them,'' Tuma says. They want only U.S. dollars.

On the other hand, Tuma concedes that some of his best customers are crooked cops. One cash-rich police captain recently ordered three cars, including a fully loaded '93 Mercedes for $8,000.

Underlying the boomtown atmosphere is the fear that the good times won't last or that those who don't move swiftly will be left behind. ''If you don't have people on the ground, you're going to miss the boat,'' Foley says.

One sign of the ongoing uncertainty about what will happen once political power is restored to Iraqis: Jurri's car dealership still carries the name (al-Sakker) of a Saddam crony, now in hiding, who forced Jurri to accept him as a partner, contributed nothing and confiscated most of the profits.

Jurri would love to change the name but says, ''I'm scared he'll come back.''

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