IRAQ - The Economy.

Recent foreign aid and trade accords, however, provide hope that Iraq's economy, plagued by years of sanctions and violence, is on the road to recovery. GDP growth was estimated at 54% in 2004. This year GDP growth is forecast at 34%. Iraq's new dinar introduced after Saddam's downfall in 2003, has since appreciated by about 25% against the US dollar. A request for WTO membership is pending.

While Iraq's future holds promise through expanding trade and investment, its staggering unemployment rates continue to perpetuate social and economic instability. A UN survey finds that nearly 20% of the Iraqis are unemployed. But many experts argue that the actual number is nearer to 50% because the survey was not done in unstable areas. Those with work usually hold more than one job to survive. Many insurgents commit attacks for the hundred dollars or so earned for planting a bomb. Therein lies the catch-22: the high unemployment rate drives insurgent attacks, and instability caused by these attacks drives unemployment.

Up to $500m in soft loans will in 2005-06 finance development in priority sectors. This is the first to be extended by the World Bank since 1973, after which Iraq "graduated" from the Bank due to a rise in per capita income. The loans are part of a lending framework pledged in Madrid at the first donor conference in 2003.

The World Bank runs the Iraq Trust Fund to provide donor financing. Additional operations have been launched to rebuild schools, restore infrastructure, support emergency health care, etc.

Baghdad has appointed Citibank and JPMorgan to help settle about $20 bn of Saddam-era commercial debts. Total claims on Iraq have been estimated at more than $125 bn, according to the country's Finance Ministry.

Commercial creditors represent just part of that. Smaller commercial creditors will be offered a cash payment, while larger obligations will be settled with a debt-for-debt exchange. The Paris Club of creditor states will write off 80% of their claim of about $40 bn, and allow Iraq to repay the remainder over 23 years with no principal repayments until after a six-year grace period.