The political economy of economic policy in Iraq

Since 2003, despite an abundance of resources and a more pluralistic political settlement, Iraq’s economic reform process has failed to take off. This paper explores the link between the evolution and consolidation of Iraq’s post-2003 political settlement and the way this has impacted the incentives decision-makers face when implementing economic policy. Paradoxically, the fact that the settlement has accommodated more groups than its repressive predecessor has not resulted in more inclusive, long-term oriented and programmatic economic decision-making. This is because the inclusion of more (elite) groups reflects the fact that more actors can now generate violence if they are not placated with state-generated rents. Consequently, Iraq’s political transition has exacerbated incentives for decision-makers to pursue more short-termist policies that have diverted resources away from long-term productive investments and reconstruction, and towards a focus on satisfying ethnic and religious clientelist networks. Transitioning away from this modus operandi will require patient and opportunistic economic reforms that slowly create new pressures on political actors to support the delivery of public goods and a policy environment more conducive to private sector growth.