<html><body><A class=eResources href="http://www.aei.org/events/eventID.923/event_detail.asp">A Conversation with Adel Abdul Mahdi, the Iraqi Minister of Finance</A> October 6, 2004 Unedited transcript prepared from a tape recording <TABLE width="100%" border=0> <TBODY> <TR> <TD vAlign=top align=left width="25%">9:00 a.m.</TD> <TD vAlign=top align=left width="75%" colSpan=2> Registration</TD></TR> <TR> <TD vAlign=top align=left width="25%"> </TD> <TD vAlign=top align=left width="25%"> </TD> <TD vAlign=top align=left width="50%"> </TD></TR> <TR> <TD vAlign=top align=left width="25%">9:15 </TD> <TD vAlign=top align=left width="25%">Introduction:</TD> <TD vAlign=top align=left width="50%">Danielle Pletka, AEI</TD></TR> <TR> <TD vAlign=top align=left width="25%"> </TD> <TD vAlign=top align=left width="25%">Remarks:</TD> <TD vAlign=top align=left width="50%">Adel Abdul Mahdi, Iraqi minister of finance</TD></TR> <TR> <TD vAlign=top align=left width="25%"> </TD> <TD vAlign=top align=left width="25%"> </TD> <TD vAlign=top align=left width="50%"> </TD></TR> <TR> <TD vAlign=top align=left width="25%">10:30</TD> <TD vAlign=top align=left width="75%" colSpan=2> Adjournment</TD></TR></TBODY></TABLE> Proceedings: MR. DeMUTH:  If we can take our seats and begin, please? At the American Enterprise Institute, we are very partial to free markets and very partial to free Iraq.  So we are particularly delighted that Adel Abdul Mahdi, the Finance Minister of the Iraqi Interim Government, who is in Washington this week for the IMF/World Bank meetings, would come here this morning to report on developments in his nation's economic and financial reconstruction. In America, we sometimes think that we invented the marketplace, but its origins, in fact, go back to the land of the Tigris and the Euphrates.  The Iraqis are great commercial and entrepreneurial people, and although Minister Mahdi's portfolio had understandably been receiving less attention in the Western press than the immediate security challenges in recent months, in fact, his work is central to the aspirations of his countrymen to build a free and prosperous nation once again.  And he is using the week and his remarks will be devoted to the negotiations that he is taking part in this week, not only with individuals in the--officials of the American Government, but at the World Bank and IMF and through them the nations of Europe. Minister Mahdi is a prominent member of Iraq's Shia community.  As a young man, he was a political dissenter and activist.  He spent most of the years of Saddam Hussein's rule in exile in France, where he studied politics and economics, became head of the French Institute for Islamic Studies, and edited several magazines in Arabic and French.  He has become increasingly prominent in Iraqi politics over the last 18 months and exemplifies the calm, steady, and brave leadership that is the great hope for the future of this nation. We're very glad that he would come to AEI during his busy week in Washington.  He will offer remarks and take questions.  The question period will be moderated by my colleague, Danielle Pletka.  Please give a very warm welcome to Minister Adel Abdul Mahdi. [Applause.] MINISTER MAHDI:  Good morning, ladies and gentlemen.  When I told my people I am coming to the American Institute, they told me, "They are tough.  They are tough guys, so be careful." I will be careful, and I will be open later on to any question. It's really an honor for me and a pleasure to address the American Enterprise Institute.  Today marks nearly the endpoint of a very busy and fruitful week for Iraq's delegation to the Annual Meetings of the World Bank and the International Monetary Fund.  This week has afforded to me and other members of the Iraqi delegation the opportunity to renew contacts with old friends, both individual and institutional, and to make new ones. It was my privilege this week to take on the role of Iraq's Governor to the World Bank and participate in the deliberations of that institution.  And I was pleased when my colleague Central Bank Governor Dr. Shabibi (ph) assumed the role of Iraq's Governor to the Fund. As you know, official relations between Iraq and the international financial institutions were interrupted for more than two decades.  So I was proud for my country that this week Iraq took additional and important steps towards full reintegration in the international financial community. Such reintegration takes many dimensions.  One of the most important dimensions occurred on Wednesday, September 29th, when the IMF Executive Board approved emergency post-conflict assistance for Iraq.  At one level, that approval reconfirmed and deepened Iraq's relations with the IMF.  But in a broader sense, the decision of the Executive Board representing the IMF's 184 member countries marked an endorsement of the economic and financial path that Iraq has charted for itself. Today, I would like to talk to you about the specific economic initiatives and developments in Iraq that made it possible to conclude an assistance package with the IMF and, more broadly, are transforming my country.  Taken together, the initiatives and reforms that make up Iraq's economic program constitute one of the main pillars of the new life and institutions that we are building in Iraq. I would also like to talk to you today about another crucial dimension to Iraq's full reintegration in the international financial community:  the conclusion of an international agreement on the reduction of Iraq's external debt.  In particular, I would like to discuss why deep debt reduction is essential to achieving both the economic and broader political and security objectives to which Iraq and its partners are committed. To give you some current picture on our economy, I would say that the main features of Iraq's current economic picture include--you may be surprised to hear--a number of positive elements:  a sound macroeconomic framework, robust economic activity, and a good start on a broad range of structural and legal reforms that are critical to making the transition from the centralized economy to an economy based on private ownership, open markets, transparency, and the rule of law. There are, of course, a number of very real economic problems and challenges.  Chief among them are high unemployment, a large number of state-owned enterprises; an infrastructure that, despite improvements, is in need of further repair; and as I will discuss later, a very large overhang of foreign debt. These economic issues are in turn part of a broader picture that includes political and security challenges.  We are in the midst of preparing for elections, which can be a continuous process, and we are fighting every day against insurgents and foreign terrorists who seek to undermine everything we are trying to achieve. These challenges have not deterred us, however, from moving forward with our economic reform program.  Let me describe the main elements of that program, noting what we have achieved thus far and what remains to be done. In the macroeconomic field, one of the most important accomplishments in Iraq since the end of the conflict and one you do not read about in the papers is the stabilization of the economy inherited from Saddam's regime and the establishment of a sound macroeconomic framework.  Given the economic mismanagement of the Saddam era, Iraq's post-war economy could have been characterized by a collapse of the currency, by hyperinflation, and by widespread tensions, if not   (?)  , born of fears of an economic meltdown.  Instead, Iraq enjoys overall macroeconomic stability, which is the basis on which all else having to do with the economy rests. Consumer prices have been broadly stable this year, and the exchange rate has remained largely unchanged in active trading.  Thanks in part to this stable macroeconomic environment, growth is expected to be about 50 percent in 2004 despite the difficult security environment. The sound macro environment is the result of a number of crucial reforms and initiatives.  In the monetary area, the introduction of a new currency has brought confidence and facilitated the day-to-day transactions of Iraq's 25 million citizens.  A new central bank law provides for the independence and accountability of the central bank of Iraq and prohibits the central bank from extending credit to the government.  I am happy to report that the central bank, which was once a part of the Finance Ministry, is no longer the lender of the first resort. Monetary policy has focused on maintaining price stability in the context of a stable exchange rate.  The central bank conducts daily foreign exchange auctions.  To limit the impact on money growth from oil export earnings, new monetary policy tools are being created to give us more and better tailored options for managing liquidity, including a lender of last resort and overnight facilities. Adjustments to reserve requirements and a T-bill market.  The Ministry of Finance recently introduced regular treasury bill auctions, and we intend to develop a secondary market that will facilitate open market operations by the central bank.  This demonstrates that there is extensive domestic savings in Iraq, a factor fundamental to growth and investment.  The T-bill market will also help banks manage their liquidity, which in turn will support much needed intermediation. The economic activity.  The main driver of Iraq's economy is, of course, oil production, which constitutes more than 75 percent of total economic activity.  By September of this year, oil production has risen to 2.4 million barrels per day, and exports were up to 1.7 million barrels per day, although production and export levels continue to fluctuate due to sabotage and deteriorated infrastructure.  Oil production is expected to average slightly more than 2 million barrels a day in 2004 and exports about 1.5 million barrels. Non-oil economic activity has been recovering driven mainly by commercial and construction activities.  Despite the security environment, retail commercial activity continues to be brisk, and there appears to be a revival in the agriculture sector.  The streets and bazaars are filled with all kinds of goods.  Many of those goods are imported, reflecting   (?)   trade relations with Iraq's immediate neighbors and other members of the international community.  Trade has been facilitated by a sweeping reform of Iraq's trade regime.  Imports are subject to a single flat import duty of 5 percent.  And the creation of institutions such as the Trade Bank of Iraq has spurred trade and helped support reconstruction efforts. To date, the Trade Bank of Iraq, which involves the participation of a consortium of international banks, has issued letters of credit with a total value of well over $1 billion.  To strengthen Iraq's integration in the international trade community, Iraq is actively pursuing membership in the World Trade Organization and recently achieved observer status. On the structural reforms, Iraq has taken some important steps to emerge from a legacy of statist controls, price distortions, and government ownership.  Interest rates have been fully liberalized.  A new foreign direct investment law provides national treatment for foreign investors and allows foreign ownership in all sectors of the economy except natural resources, real estate and insurance. The banking sector has been the focus of much investor interest, both domestic and foreign, thanks in part to the passage of a modern commercial banking law in October of last year and the opening of the financial sector to foreign banks.  Four foreign banks have been licensed to operate in Iraq, and domestic entities have shown strong interest in applying for banking licenses.  With the increase of banking activity, the central bank has taken steps to strengthen its ability to evaluate applications and to monitor and regulate banking operations.  We have also taken steps to require commercial banks to strengthen their capital base. What's coming ahead?  The steps I have just described helped make it possible for the IMF's membership to provide emergency post-conflict assistance.  The IMF support, as well as other assistance we are receiving from the international community, will in turn help us to deepen and strengthen the economic reform program we have undertaken.  Let me describe the main things on the horizon, particularly in the areas of fiscal policy, further structural reforms, and debt relief. On fiscal policy, achieving a sustainable fiscal position is one of my top priorities.  High costs for reconstruction and security combined with fluctuating revenues from the oil sector make this a challenging task.  Among my chief concerns is the heavy dependence of the economy and, in turn, the budget on the oil sector.  Iraq must avoid falling into the trap of oil dependency and instead create conditions in which a diverse and vibrant economy can flourish.  We have already implemented reforms to the tax code and to customs policy that will help make Iraq a more hospitable environment for trade and business activity.  Especially we have simplified and liberalized the trade regime.  As I noted earlier, there is now a flat 5-percent duty on imports and capped individual and corporate income taxes at between 3 and 15 percent. Our efforts to create conditions for growth have been matched by steps to keep expenditures at a level that Iraq, with assistance from the international community, can afford.  We are making a special effort to keep the current expenditures in check in order to ensure fiscal balance in the coming years. In this regard, we are committed to limiting the wage and pension bill and eliminating off-budget expenditures.  We are also taking steps to strengthen the infrastructure of sound fiscal policy, the laws, and management systems that underpin the budget.  Increasing transparency is a crucial part of our effort.  This year, for the first time in decades, the Ministry of Finance published the federal budget.  This is a practice I intend to keep.  We have also adopted a financial management law that establishes a framework based on international best practice for developing, executing, and reporting the annual budget. As part of our IMF program, we are implementing throughout the country a financial management information system and taking steps to ensure effective metering(?) of oil production.  Changing outdated systems and practices of budget formulation and execution, as well as economic policy management more broadly, will take time, but we are committed to this. Other further structural reforms.  Creating the conditions that support job creation, private sector growth, and fiscal soundness requires that Iraq push ahead with structural reforms.  Two of the most important and politically difficult challenges are the  (?)  Iraq's energy and food subsidies.  While ensuring support for the most needy and to reduce the presence of state-owned enterprises, domestic prices for oil products are well below international and regional standards.  Our goal is to bring domestic energy prices up to a level where costs are recovered.  Towards that goal, by the end of this year Iraq will reduce subsidies on a range of oil products, including gasoline. Regarding food subsidies, Iraq continues to operate a food rationing system as part of the social safety net.  We intend to move from a food-based system to a cash distribution system that is targeted at the poor.  Monetizing the ration system will support the revitalization of the agriculture sector and open new opportunities for the private sector while continuing to provide for the needs of the poorest sectors of society.  We will also be analyzing the viability of state-owned enterprises to determine how to deal with each entity. In the financial sector, we are focusing our efforts on adopting a plan for restructuring and streamlining Iraq's state-owned banks.  Iraq's two state-owned commercial banks, Rafidain and Rasheed Banks, currently account for nearly 90 percent of total banking assets, and their extensive network of branches constitutes the main banking presence throughout the country.  At the same time, Iraq's private banking sector is enjoying a renaissance.  As I noted earlier, both foreign and domestic entities have shown keen interest in obtaining licenses to operate in Iraq.  It will be important to restructure the state-owned banks in a way that supports the continued development of a robust private banking sector. Concerning this important question of debt relief, I would like to conclude with some remarks on one of the most pressing issues facing Iraq.  It is its staggering external debt burden.  Deep reduction of Iraq's external debt is essential.  Iraq's economy has great potential if it can be unchained from the constraints that hold it back.  Some of those constraints are internal, and to a greater or lesser extent, within Iraq's control.  The economic reforms that I have described will go a long way towards removing the burdens imposed by poor policies, outdated institutional practices, structural rigidities, and other legacies of Iraq's statist past.  But these reforms will not suffice.  In order for Iraq's economy to attract the kind of investment needed for sustained growth in order for Iraq's authorities to maintain a fiscal regime conducive to private sector activity and investment in human capital in order for the Iraqi people to achieve living standards that support political stability, virtually all of Iraq's debt overhang needs to be eliminated. I do not want to dwell on numbers or percentages, but the basic numbers tell a compelling story.  Iraq's external debt, $125 billion, much of which was accumulated during the period of sanctions, represents almost six times Iraq's GDP.  Six times, I repeat.  Some have spoken of eliminating half or two-thirds of Iraq's external debt.  That would leave a debt burden that is still multiple to our GDP. To service such a debt burden, Iraq's financial authorities would be forced to divert funding that is desperately needed for investments in infrastructure, education, health care, and other reconstruction priorities, and would be obliged to institute a tax regime that stifles private sector activity.  I believe that part of the reason that some may be reluctant to provide deep debt reduction for Iraq is because a misunderstanding about real living conditions in Iraq today.  Some, perhaps remembering that Iraq was once one of the more prosperous countries in the Gulf, simply do not realize that Iraq's GDP per capita has fallen from $3,200 in 1980 to less than $1,000 today. Iraq's human indicators are on a par with some of the poorest countries in the world.  In the year 2000, the infant mortality rate was estimated at 121 per 1,000 births, and adult illiteracy at approximately 60 percent.  Housing standards are extremely poor.  Providing Iraq with a traditional debt treatment would be tantamount to condemning Iraq to years of poverty. Some find it hard to believe that a country with vast oil reserves could be impoverished under any circumstances.  Iraq does enjoy very significant oil reserves, but if Iraq cannot attract the investment capital needed to repair and upgrade its oil industry, then its reserves stay in the ground. Investors, especially those that need to commit capital for a significant period of time in order to see a real return on their investment, will not come to Iraq if there is a major debt overhang.  These are the kinds of investors Iraq must attract if it is to transform its oil reserves into real economic assets and to restructure and privatize its state-owned enterprises. In closing, let me emphasize that deep debt reduction is not only very important for Iraq, but will also pay returns many times over to the region and the world.  An Iraq that enjoys robust and sustained economic growth, political stability, and greater integration with the international community is in everyone's interest.  I look forward to continue working towards that goal and retain hope that the international community will continue to support Iraq in its efforts. Thank you.  Thank you very much. [Applause.] MS. PLETKA:  Ladies and gentlemen, the Minister has very graciously agreed to take some questions.  I want to give him a word of warning.  You know, in America, people don't want to tell your story.  They don't want to tell a story about market reform, and they don't want to tell a story about optimism, and they don't want to tell a story about hope for the future.  They want to tell a story about Iraqis who miss the stability of Saddam Hussein, who really enjoyed life, who really thought that things were a lot better.  And those are the stories that we read in the press here everyday.  So I want you to remember, as you talk to these people, that your responsibility is to tell a different story, if, in fact, that is correct. So, with that, we're going to turn to questions from the audience. MINISTER MAHDI:  Before taking questions, can I brief my friends about [inaudible]? MS. PLETKA:  Please, absolutely.  I'm sure that they would be very interested. MINISTER MAHDI:  Well, since I came to the States, really, I was in Baghdad more optimistic than reading in the press here, really.  It seems that you are getting really a certain virtual reality, not the real one, a one-sided reality. There are bad things in Iraq, and we don't have a good situation.  That's right.  But we had worse before, before Saddam Hussein and even last year.   From all points of view, the situation was worse--economically, politically, ethnically, and in the secular tradition. Iraq--and I will leave the other--our friends, the multinational forces, but I am talking about Iraq.  The annual casualties in Iraq were counted by ten thousands each year in the time of Saddam Hussein.  Today, it is much less than before.  Don't forget that people were tortured, killed, assassinated, sent to wars, massive graves, et cetera.  So we were losing in Iraq more people than we are losing now today. Don't forget that Iraq has three wars during 20 years.  Four generations lived in the period of Saddam Hussein.  So it wouldn't be easy, it wouldn't be rational to see that things will go smoothly after the overthrow of Saddam Hussein.  That regime accumulated so many bad things, conflictual things, disputes, but things are going much better than before.  It is not because I am a Minister talking to you about that, but go to Iraq and see what's going on. Our markets really have a jam of traffic.  Markets are filled with goods, as I said.  People spend up to midnight their time in the restaurants and cafes.  Don't take it as a one-sided picture as if fighting is going just behind my window or my door.  That's not the reality in Iraq. For decades, the country was governed by a minority, a dictatorship.  Now it's governed by plural(?), multi-diverse political forces and independent personalities--Sunnis, Shias, Arabs, Kurds, Turkoman, Assyrians, et cetera, Islamists, secular.  So it's not easy to see things.  Now we have almost 250 newspapers without counting the channels on the TVs.  They are reporting.  That's why you see some of those pictures that would give you a one-sided vision.  Two hundred fifty newspapers, tens of political parties are working in Iraq.  The political process is going on.  Security is getting better.  Since the transfer of sovereignty, Iraqis are taking security more and more in their hands. The question of Najaf was resolved, more or less peacefully.  There was fighting before.  This secured security to all the South.  The North, Kurdistan, is in a peaceful situation.  Don't take the idea that what they call the Sunni Triangle is the Sunni population.  The majority of Arab Sunnis live in Baghdad, in Mosul, in Dialla, and in other parts of Iraq.  They are not all in Fallujah.  Still, we are trying to propose political arrangements, and it's working.  Now in Sadr City, I spoke today with Baghdad, and they are telling me that there is political settlement in Sadr City where a few hundred people are fighting, they are still fighting there.  Samarra had been taken back to the government, and the situation is stable. We will deal with Fallujah.  We are taking contacts with them.  But the political process is really progressing.  All of the main political forces are within.  The violence, insurgence, and terrorism is really being defeated.  That's why they are so brutal.  They are few in numbers.  They have to use brutal methods--beheading people, taking them--kidnapping them and taking them hostage to make the front page and the main news on TVs. So, really, I was here--when I came to the States, I became pessimistic.  I came with optimism knowing my country.  And please look after the news.  Don't look at the news itself as if it reality.  Behind the news, there is another reality you have to see.  Repeating, the situation is not perfect, but it is progressing in the good sense, and I think we will have good elections next year, and this political process will be victorious. Thank you. MS. PLETKA:  If I can ask questioners to identify themselves, wait for the microphone, and ask a question, don't make a statement, please.  This young lady in the green. MS.           :  My name is Ayan Batrawi(ph)  (?).  My first question to you is:  Have you met with any of the Kuwaiti Finance Ministers or any one of the Kuwaiti finance leaders regarding debt relief with Kuwait? MINISTER MAHDI:  Yes. MS.           :  And can you please then tell me some of the discussions you've had? MINISTER MAHDI:  Yes, we've had many contact with our brother Kuwaitis, and we sent a technical team to Kuwait just two or three weeks ago, and they reported to me that they had done very good work there. We met here with the Kuwaiti delegation.  We had a very good conversation, and they showed their willingness to assist Iraq in its debt issue. MR. HOAGLAND:  Jim Hoagland, Washington Post.  Mr. Minister, first of all, thank you for being here and thank you for your exposition this morning, which I think did give us new insight into what's going on Iraq. I wonder if I could ask you a three-part question having to do primarily with trade, which you said is now quite robust in Iraq. Could you tell us which of your neighboring countries are most active in terms of trade, what the balances and imbalances are, and what kind of long-term perspective does this give for relations with your neighboring countries, such as Jordan, Iran, and all of the others? Secondly, you mentioned that four foreign banks are now licensed to operate.  What countries are they from? And, finally, sir, there's much discussion now of a conference, an international conference, a regional conference in November.  I wonder how you see the economic component of that conference, how important the economic situation in Iraq should be to that conference, and, ideally, what you would like that conference to do. MINISTER MAHDI:  Thank you for your questions.  The first one was about trade. MR. HOAGLAND:  Trade with your neighbors. MINISTER MAHDI:  Yes.  We can see a lot of Turkish goods, from Emirates, from Iran, from Jordan, from the (?)-ians.  Of course, there are some Asian products coming through Dubai and via certain countries, a little bit from Europe, and from the States.  So it's mostly -- [blank spot on tape]. MS. PLETKA:  Let's see how that works.  Oh, it's back. MINISTER MAHDI:  So that was the first question. The second one, the banks come from Kuwait, Jordan--Aziz, correct me if I am wrong--from Britain.  So Britain, Kuwait, Egyptian has something to do with that also, Americans, and Jordanian. MS. PLETKA:  If I may, the upcoming conference. MINISTER MAHDI:  Tokyo conference? MR.           :  No, Cairo conference in November. MINISTER MAHDI:  Okay.  This is a regional conference that Dr. Allawi--yes.  I wonder it was an economic one.  I think it's all issues, security, political issue, and, of course, economy.  We think this is a very important conference if we can really achieve it.  Some of our economic and political problems in Iraq are regional ones, and, of course, international also.  We have internal problems.  That's why we were working on a conference where all the regional players with international ones, including the Gulf States, the Arab League, the Islamic organization, they can participate in a way to dialogue, exchange views, and have a common policy vis-a-vis Iraq.  That is our purpose because we see that--we don't want to be in the crossfire of neighbors and certain conflicts that shouldn't take place in Iraq.  That's our intention, and to have a common policy of all our neighbors.  Whenever we go and ask them, they all say we want to assist Iraq, we want stability in Iraq, we want to reconstruct Iraq. That's why there is a need to bring all those people together with the international community, with the main international nations, such as United States, England, France, and Russia, et cetera.  That's why we think it's a very important conference if we can do it. MR. LACHMAN:  I'm Desmond Lachman from the American Enterprise Institute.  Thank you very much, Mr. Minister, for a very clear and informative presentation. You mentioned that you would like to see Iraq reduce its dependence on the oil sector over the long term.  My question to you is:  How do you see the management of the oil reserves and the exchange rate in that context?  And, in particular, do you have in mind anything along the lines that the Norwegians did to prevent the economy from suffering from what's called "the Dutch disease," you know, where the exchange rate goes too high and gets moved around by fluctuations in oil prices? MINISTER MAHDI:  Well, as you know, Iraq is very rich in other resources--agriculture, sulfur, gas, although gas is considered in the same sector.  Anyway, Iraq, I think, has the potentiality to diversify its resources. We have today in Iraq a Supreme Council to put forward strategies in the oil industry.  We are discussing many issues, and one of the ideas is that a national company should return on really an economical and marketing basis to work on the oil issue, which is not the case today.  It's all centralized and the Ministry of Oil controls all the issue of oil.  So there will be many national--a main national company, oil company -- [tape ends]. -- of accepting some investment in the oil industry. On the exchange, I didn't understand the question about the exchange.  Which exchange rate? [Inaudible comment.] MINISTER MAHDI:  Yes, okay.  Inflation and exchange rate.  Well, we are trying to float our currency.  It's not a fixed exchange rate.  It's a floating one.  But it is stabilized.  It's today around 1,460, the exchange rate, 1,460 dinar for each dollar.  And it's stable.  That's a very important issue. We are looking really carefully concerning the question of inflation, but some of us see that let inflation come, that means that we've finished with the security issue.  Let inflation come, that means investment is in the country.  Left inflation come, that means activity is going on.  Then it's easier to deal with inflation than to deal with terrorists and insurgence. This is an issue, of course, it's an important one.  But I cannot predict today what measures we are going to take next year.  But inflation is a question that we will face when all investments, internal and external ones, will come.  But this is something that we are welcoming, really, foreign investments and activities, and this is one of the symptoms of our [inaudible]. MR. BOLTON:  Thank you.  Andrew Bolton (ph), Financial Times.  I just wanted to ask, you've outlined the positive outlook for Iraq with needed investment in the country.  In terms of debt renegotiations, I just wanted to ask why the focus was on a full write-off now and why the focus isn't more on restructuring the debt so as to have no payments in the next several years during a period of growth, but then have payments at a later date.  The Fund's analysis says that a broad range of about two-thirds to up to 95 percent of debt relief is going to be needed in order for long-term sustainability.  What's wrong with proposals whereby you shift the burden off into the future and give it time to see what the macro variables are going to be in that analysis? MINISTER MAHDI:  Well, my first reaction is that for generations Iraq lived under an unknown situation.  We don't want to leave the coming generations to unknown factors, and I think the same thing will be requested from the investors.  If we leave an unknown future that the debt question will be settled within three or five years, then I don't think we will have a lot of investors coming to Iraq.  That's why we are looking for a real deal coming before the end of this year, and a real reduction, call it major, deep, a high reduction, whatever would give the idea that this reduction should be in a way that the country would be in a sustainable situation.  Otherwise, it could not honor its engagement. We should have our own deal, although we can look forward to see how we are going to be able either staging or phasing the way to do it.  But we need certain clear deal coming before the end of this year.  And, for example, we are arguing that most of the debt with the Paris Club creditors are late interests.  Those late interests were accumulated because of sanctions, because of an international resolution taken by the Security Council.  Even if Iraq was willing to pay, it couldn't do so.  There was an international resolution, so most--about $19 billion were considered as late interest, and we are asking for cancellation of this debt. We cannot leave the burden on the Iraqi economy and at the same time reconstruct the country, including the oil industry.  We are arguing with our friends and partners that, look, if Iraq had to turn back to its oil markets, what are the positive factors it will afford to the whole world economy?  I think if Iraq now returned back, there will be a push downward to  (?)  prices, and it will be in the benefit of all economical--in the world economy. So we have an argument there.  We don't want people to put percentages, numbers, half, two-thirds, et cetera.  Let them define to us what is the sustainable situation in Iraq.  The IMF has issued a DSA, debt sustainability analysis, and it shows how much Iraq can take of debts.  And we want, if others are arguing this analysis, to show us how, why they are putting such numbers.  That's why we went to the IMF.  We went working on such a DSA to provide the basis for negotiations. MR.           :    (?)    Resources, sorry.  Back to oil.  We've been hearing stories, yes or no, that the South is talking about getting a deal like the North in terms of not getting enough attention economically in terms of rebuilding and that they may create a structure, as the North has set up a structure, to have more autonomy vis-a-vis control of the resources. How is the integration of the overall economy with regard to oil resources bringing the North, making sure it's part of the structure, the South part of the structure?  How are those discussions going?  And is there any credibility to this claim that the three southern provinces are talking about setting up a more autonomous structure? Thank you. MINISTER MAHDI:  This is an economical or political question? MS. PLETKA:  Both. [Inaudible comment.] MINISTER MAHDI:  No.  No, I think they are integrating well.  The country, the North, Kurdistan, was apart from the central government for decades.  Now it's integrated.  You have a Foreign Minister who is a Kurd, a Vice President who is a Kurd, a Deputy Prime Minister who is a Kurd.  Many Ministers, they are Kurds, and they are very active in the government.  They are not puppets, as was the situation in Saddam's time.  And economically also, they are integrating, the budget, everything has been integrated gradually, not completely. Concerning the South, you have  (?) , the Minister of the State of Iraq, and it should restructure the provinces in a way that  (?)-sion could become a reality in Iraq, not only the Kurds in their area, then the central government with the other areas.  There should be a certain restructuring process of some provinces to have bigger entities and a federal state. MS. WARD:  I'm Kathy Ward of the International Crisis Group.  One of the questions, issues that you've touched on--and, again, when we talk about sort of gloom and doom reporting here in the United States--is the issue of unemployment and jobs and job creation.  And I'm wondering if you could--you know, drawing on what you've already said--talk a little bit more specifically about what you're seeing currently on the ground in terms of employment and what some of your projections are for the coming year to two years. Thank you. MINISTER MAHDI:  We don't have statistics.  For decades, Iraq didn't have any statistics.  As I said, even we didn't have a real budget.  Unemployment was estimated at almost 60 percent in 2003.  We think--I am not sure.  We think that it is now between 20 and 30 percent. Empirically, if we go where untrained workers would wait for a patron, an employer to take them for a day, we don't see a lot of people staying at the end of the day.  By noon, no one is there.  Salaries went up to 8,000 and 10,000 for unskilled workers.  That was the salary--that was a monthly salary.  This is a daily salary I am talking about. [Inaudible comment.] MINISTER MAHDI:  Yes, dinars, of course.  Not dollars. [Laughter.] MINISTER MAHDI:  So empirically speaking, I think the economical situation is getting much better.  You know, we raised salaries about 20-, 30-fold in the administration.  So there is a lot of spending.  That's why commercial activity is getting much better than before.  And unemployment really is getting back. MS. WARDS:  [inaudible] projections for the next year [inaudible]? MINISTER MAHDI:  Well, we are working on small and medium enterprises.  This is a priority, to absorb as much unemployment as we can.  We discussed with the IMF and World Bank and other institutions, even with our neighbor, our policies concerning those small and medium enterprises as a way to promote the economy on one side and to phase unemployment on the other side. Thank you. MS. PLETKA:  Mr. Minister, you have been very generous with your time, and-- MINISTER MAHDI:  You were very generous with me. MS. PLETKA:  We're very grateful for your being here.  Good luck. MINISTER MAHDI:  Thank you. MS. PLETKA:  Thank you very much. [Applause.]</body></html>