IRAQ'S BALANCE OF PAYMENTS AND ECONOMIC DEVELOPMENT, 19^17-1955 DISSERTATION Presented in Partial Fulfillment of the Requirements for the Degree Doctor of Philosophy in the Graduate School of The Ohio State University By EVANS ELIAS GHAZALA, B. A., M. A ****** The Ohio State University 1957 Approved by ylT Amriser Department of Economics TAIUJ1! 01*' CONTENTS Chapter Page One Introductioni Two [ m q - The Country,........ t> X. Geographical Featured........ h II. Water Resource*! and Control ........ U A. Navigable Waterwaya B. Storage anti Flood Control C . Irrigation 1). Recant Developmenta 1X1. Industry ..... 11 A. Agriculture 1. Principal Crops 2, Agriculture Development B. Oil C. Livestock, Wild flame and Fisher.leu D. Other Industries XV. Summary......................... 2'j Three Iraq - The People........ .......... ................ I. Political Background ..... ;-’Y A. Persian, Moslem and Ottoman Rule B. World War I, the British Mandate and the Reign of Faisal C . The Reign of Qha?.i D. World War II E. The Post-War Period F. Development of the Oil Induatry II. Population........ 37 A. 81*o, Distribution and Density B. The Labor Force C. Racial Groups D. Consumer Groups E. Special Characteristics III. Social Structure.................. Ji3 A. The Tribal System B. The Fellaheen C. The Towns D. Status of Women E. Role of the Family IV. Land Ownership....... ^6 A. Concentration of Land Ownership B. Land Reform V. Living Conditions.*............ Ji8 VI. Health... .... 50 A. Health Conditions B. Hygienic and Medical Facilities VII. Education............. 52 11 11.1 Ghnnto r V H X *Hn 1,l,g t on ..... !>*i IX. Form of Government............ !>*■ X . Itacmvl Development ...... V> A. Distribution of state tat ids I). Agriculture 0. Education D. Uocin.! Welfare If.. tabor F. Housing 0. Indusdry and Trans par taUrm 11. Technical Aflsietanae Four Analynie of the Balance of Payments of Iraq,. , u'd I. Introduction ..... (>'d 11 * Merchandise Trade ................ 66 A. Exports 1. Oil 2. Other Exports 3. Distribution of Exports a. United Kingdom b. India c . The Netherlands d. Japan e. United State0 f. Other Countries B. Imports 1. Trends In Imports 2. Type® of Imports 3* Distribution of Imports 111. Other Current Transactions ........ 8 |> A. Foreign Travel B. Transportation C. Investment Income D. Government Transactions Not Included Elsewhere E. Donations IV. Capital Movements................................ 89 V. Foreign Currency Balances.......................... 91 VI. Balance of Payments Adjustments............. 9k VII. Summary.... • 99 Five Monetary and Foreign Exchange Policies......... 97 I. The Banking System.................... 97 A. The National Bank B. Commercial Bonks and S&rrafs C. The Other Non-Commercial State Bonks 1. The Agricultural Bonk 2. The Industrial Bank 3. The Mortgage Bank Iv gimp tec IX. The Bter.llng Aron.................. ,............ ,|p| .III. Exchange Control and l;h« foreign Exchange) Markett• • * ,IP| IV. Mono tar,y Policy............ .. ................. ;iyJi A. Tha Demand for and BuppJy of Money P. The Coal of the Monetary Policy V . 1 oreign .Exchange P o l i c y 1t? VI. Summary *. *....................... i n Six Public Finance and pineal Policy,,, ............ ip) 1 • 'Die Fiscal, System and Its 'fronds ...... .133 II. Financial Structure ........ 119 III. Characteristics of Government Expenditure!! and Revenue!!...... *................ jli.t A. Public Expenditure!! B. Public Revenues IV. Public Debt......... 1D1 V. Fiscal Policy........ .131 A. Variations in Government (expenditures and Revenues and the Influence of Such Variations on Economic Activities D. Structure of Government Expend!Lures and Revenues in Iraq,, and Fiscal Policy 1. Public ffixpendituren 2. Public Revenues VI * Summary .............. 1,62 Seven The Development Board and Economic Development.... 163 1. The Development Board.......*..... .............. 163 IX. Measures for a Successful Development Program...... 173 III. The Development Plan............................ I80 A. Water Improvements B. Agriculture and Improvements in Agricultural Productivity 1. Agriculture 2. Improvement in Agricultural Productivity C. Transportation and Communication D. Industry and Industrial Development 1. Industry 2. Expulsion and Establishment of New Industries E. Housing Development P. Education 0. Health IV* Summary* ........ 214 Eight Summary and Conclusion. ................... *....... 216 Bibliography....... 226 Autobiography 236 LIST OF TABLES Table Page m i m III 1 Cultivated Land, Cropped Land and land in Agricultural Use in Iraq, 1951 «.............................. 16 2 Production of Oil in Iraq, 1927-1955........ ....... 19 3 Distribution of Non-Agricultural Labor Force in Iraq, 1951 39 ** Consumer Groups in Iraq, 195*1........... ill 5 Students Enrollments and Number of Schools and Teachers in Iraq, 19*19-1953....................................... 52 6 Iraq's Balance of Payments, 19h7-195i| ......... 65 7 Value of Iraqi Exports, 19*15-195** •..... 67 8 Volume and Prices of Iraqi Barley and Dates Exported, 1950-195**. • ........ TO 9 Distribution of Iraqi Exports (Excluding Oil) Among Principal Countries, 1938, 19*+8-195**................... 7** 10 Distribution of Iraqi Exports (Including Oil) Among Principal Countries, 19*16-195** ............ 77 11 Iraq's Trade Balance, 19**5-195**......................... 79 12 Iraq’s Principal Imports, 1938, 19*i8-1953«. »•......... 8 l 13 Distribution of Iraqi Imports Among Principal Countries of Origin, 1938, 19**8-1953................................ 8 U 1*1 Investment Income of Foreign Owned Companies In Iraq, 1951-195 3 ............................................. 87 15 Iraq's Free Foreign Exchange, 19**7-195**« ...... 93 16 Combined Balance Sheets of the Issue and Banking Departments of the National Bank of Iraq, 19**9-195**. *.... 100 17 Consolidated Statement of Commercial Banks in Iraq, 1951-1953..... 109 16 Transactions and Advances Made by the Agricultural Bank of Iraq, During the Fiscal Year 195l*-1955». ....... 113 v vi Table Page 19 Shares of Major Industries Held by the Industrial Bank of Iraq ........................................... 116 20 Value of Denominations of Currency in Circulation in Iraq, 195I-I95U ........................................ 125 21 Government Expenditures and Revenues and Indices of Wholesale Prices in Iraq, 1939-195**-• •••• ............... 137 22 Iraq's Public Debt, 19^5-1953........................... 139 23 Comparative Expenditures by Public Sectors in Iraq, 1 9 ^ 7 - 1 9 ^ ............................................. iko 2k Distribution of Government Expenditures in Iraq, 1939* 1 9 ^ - 1 9 5 ^ ............................................. 1^3 25 Distribution of Government Revenues in Iraq, 1939* 1 9 W -195 ^ ............................................. 1^7 26 Sources of Income Tax in Iraq, 1951-1953• •• ............. 150 27 Domestic Loans in Iraq, 19^5-195^*•••••••..... «... 15^ 28 Estimated Expenditures and Revenues of the Development Board of Iraq, 1951-1956............................... 169 29 Financial Position of the Development Board of Iraq, 1952-1955 171 30 Employment Statistics in Iraq, 1953 ................... 176 31 The 1955 Proposed Development Program in Iraq............ 189 CHAPTER ONE INTRODUCTION The importance of Iraq, as well aB other countries of the Middle East, dates hack through many centuries. In recent years its importance in international economic relations increased with the heightening tension in the cold war between the U. S. S. R. and the Western powers. Iraq is a large producer and exporter of oil which is purchased largely by countries of Western Europe. Russia, with plans for world domination, finds that Western influence in Iraq and the Middle East, particularly with reference to oil, is a serious obstacle to its expansionist policies. To achieve its objectives, Russia has attempted (with some success) to create and strengthen anti-western feelings and capitalize on the area’s ever-growing spirit of extreme nationalism. The prevailing poverty and unstable political conditions in the Middle East have facilitated Soviet efforts. Also, Arab suspicion of Western colonialism helps to create a suitable environment for communistic infiltration. Thus, in the midst of a serious international struggle, Iraq has become involved in world politics. Aside from its strategic location and oil resources, Iraq also occupies an important position in world affairs as one of the so called "Underdeveloped Countries". The conviction has been growing in the free world, especially since the end of World War II, that the extension of aid to the non-communistic underdeveloped countries, to help them along the road of economic development and modernization, would thereby strengthen the West's relationship with these countries and bolster them against communistic penetration. Iraq can rightly be considered typical of this group of countries. Poverty, illiteracy, a diseased population, an unjusti­ fiable social structure, and weak public administration are the obvious qualitative characteristics which have prevailed in the country over the past several centuries. But the impact of the more developed countries as a result of the last world war, and advances in trans­ portation and communication have created overwhelming feelings among the people of Iraq of dissatisfaction and discontent with their pre­ vailing conditions. In many instances these feelings have found expression in stormy upsurges of nationalism and demands for