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Remarks to the Private Sector Conference on Iraqi Reconstruction

John W. Snow, Treasury Secretary
Madrid, Spain
October 23, 2003

Good evening. Ambassador Argyros [George Argyros, U.S. ambassador to Spain] thank you for hosting tonight's reception. Thanks for organizing so much support for the people of Iraq. Thank you also to Jaime Malet, President of the American Chamber of Commerce in Spain, for hosting this event.

This is a historic time in world affairs, and a historic opportunity for a region called the "cradle of civilization." The land of Iraq has been freed of tyranny and is now free to embrace democracy and rejoin the community of nations. Where commerce once flourished, it can thrive again. President Bush has committed the United States not only to ridding Iraq of an evil regime -- a promise we and our partners have fulfilled; he also promised to help Iraq to recover from a quarter-century of misrule and repression.

In truth, the 22-day coalition military operation that crushed Saddam's regime was the beginning of the reconstruction process; the devastated Iraqi economy was the product of the old regime's malignant policies.

The next step in reconstruction, now in progress, is to assist the Iraqi authorities in their efforts to create institutions and infrastructure to create jobs and growth through private investment, entrepreneurship, and trade. This will enable them to achieve economic as well as political independence. That's why I'm so pleased with the special attention on the private sector here in Madrid. You are just as essential to Iraq's success as the official commitments that will be announced at tomorrow's conference. Alone, these commitments cannot launch sustainable economic growth in Iraq. For reconstruction efforts to truly succeed, these resources must help catalyze and spark domestic and international investment.

Before going further, I want to say a few words about the security situation in Iraq. I know some of you are concerned with physical risks in Iraq, and reasonably so. I am not attempting to minimize the risk. The risk is present, but a business opportunity is also present.

I firmly believe that the threat of those opposed to a free Iraq is diminishing. The resistance isn't growing; it's dying. Even as we speak more international troops are arriving to supplement a strong coalition force already present.

To end the security threat for good, we need to continue to support a stable, growing society, where every individual has rights and opportunities to succeed, and where life, liberty and property are treated with respect.

That means greater international support for the Iraqi people in official aid, and it also means identifying and making private investments in Iraq's future -- sooner, not later. As the Iraqi people take political and economic ownership of their destiny and reenter the international community, they will not abide lingering agitators who threaten their prosperity and freedom.

Given that things are improving in Iraq by the minute, now is the time for forward-thinking investors to seize on this unique opportunity.

If we can help the Iraqi people succeed through these early stages of economic and political transition there is no reason why Iraq cannot resume its place as a vibrant, prosperous economy and serve as an inspiration for the Middle Eastern region.

Before Saddam Hussein, Iraq was a leader in the region. Before he plunged the nation into darkness and isolation, Iraq had one of the highest national incomes in the region. Iraq also had one of the best-educated populations in the region, with a long history -- in fact, an ancient history -- of combining sound public-sector management with a spirited entrepreneurial culture.

Consider for a moment a historical perspectives reflected in the designs of the new Iraqi dinar. The Coalition Provisional Authority [CPA] and the Iraqi Governing Council introduced the new dinar last week. A major exchange program is underway to replace the hodgepodge of Saddam's dinars with these new bills and create a basis for sound monetary policy. The exchange program is an incredible undertaking, and I've been very pleased and impressed with its organization and implementation.

The new bill designs allude to Iraq's ancient roots in law, commerce, and scientific inquiry. For example, the largest note -- the 25,000 dinar bill -- has an image of King Hammurabi, who lived almost 4,000 years ago. Hammurabi ruled Babylon and is known for his code of laws, the first known code of laws in human history.

The 10,000 dinar note shows the philosopher Abu Ali Hasan, who was born in the city of Basra over 1,000 years ago. Ali Hasan was both a philosopher and scientist, and in his vast research he explained, among other things, the manner in which the human eye interacts with visible light.

I think these are fascinating facts, of course, but they signify something larger.  Iraq is reclaiming a great heritage of enlightenment. This is a country with immense potential on many fronts, with great human and natural resources. It was once, and will again be, a great contributor to the international community in terms of both culture and trade.

Nonetheless, there's a long way from here to there. Iraqi GDP [gross domestic product] in terms of purchasing power today is less than a third of what it was in the late 1970s. Education and health care have deteriorated substantially. That is why we're holding this donor conference. If Iraq is to get on its feet, it needs other international donors to be forthcoming. Secretary Powell [U.S. Secretary of State Colin Powell] and I will be making that case tomorrow morning. The World Bank has estimated reconstruction requirements of about $36 billion, with CPA estimates of an additional $19 billion for other reconstruction needs. But as I said at the outset, Iraq cannot succeed on donor assistance alone. Ultimately, Iraq's success will depend on many of you in this audience, as well as many like you -- private companies with capital investments, know-how, and technology. And the rewards for investing now will be great.

Consider the opportunity there. Domestic demand is primed and export opportunities abound. The energy sector will be large but need only be a fraction of a highly diversified economy. Agriculture is underdeveloped and employs 20 percent of the workforce. This is, of course, the heart of the "fertile crescent."

Small trading, service and manufacturing businesses are already returning in force, and with a national transportation and communications infrastructure solidifying, many are poised for growth. Financial services also show great potential: two state-owned banks have dominated the industry but smaller domestic and foreign financial services companies are entering the market. Remittances are pouring in from Iraqis abroad, and Iraqis at home will need all manner of banking services to support an expanding economy.

I am also confident that the new Iraqi legal framework is certain to welcome, respect and protect capital. Iraqis understand that private investment will be the key to raising national income. Last month, the Iraqi finance minister announced economic and financial reforms that permit foreigners to own up to 100 percent of investments in Iraq, with the exception of oil, gas, mineral and real estate rights, which can be leased.  Six international banks have been authorized to operate in Iraq. New domestic regulations on domestic banks have increased capital requirements. The Trade Bank of Iraq is being established to finance food and capital goods imports.

And tax rates have been set to encourage growth, with a top marginal rate of 15 percent for individuals and corporations and a 5 percent reconstruction tax imposed at the borders.

Finally, the macroeconomic environment has remained remarkably stable -- inflation has been only 2-1/2 percent, and the Governing Council has approved a sound budget for 2004 that does not allow for inflationary financing.

Iraq is a nation on the road to progress, and it will not be turned back. This nation that was a leader among its peers will be leader once again. And those who invest in that effort will benefit from an historic economic opportunity as well as playing their part in restoring a proud people to their place among nations.

Thank you.

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