U.S. reconstruction officials will soon hand out pink slips to nearly half a million Iraqi military and civilian personnel, exacerbating an unemployment crisis that experts say could slow the pace of postwar reconstruction.
The layoffs will mean the loss of a government paycheck for roughly 1 in 10 Iraqi workers. The Bush administration hopes to soften the blow by making cash “termination payments” to members of Saddam Hussein’s armed forces, Information Ministry employees and other government workers whose services are no longer wanted. The amount of the payments had not been announced.
Officials of the U.S.-led reconstruction effort acknowledged that the dismissal of so many people will magnify the economic misfortune of a country where a majority of the population depends on food rations; an estimated 30% of the labor force works for the government; and unemployment, as best anyone can tell, already exceeds 20%. The layoffs will be the latest blow to the once-thriving trading nation, already reduced to Third World subsistence levels by nearly three decades of authoritarian rule, international sanctions and intermittent war.
“We are fully aware of the difficulties that have been created,” Iraq civilian administrator L. Paul Bremer III said Monday. “The purpose of our policy is not to punish people. We are looking for ways that those who did not have a prominent role or an active role in [Hussein’s now-outlawed] Baath Party can find employment.”
Several economists, investors and business owners familiar with conditions in Iraq said the effect of the mass firings could be more severe than Bremer and other officials of the Pentagon-run Office of Reconstruction and Humanitarian Assistance are anticipating.
“It will be catastrophic for the Iraqi economy,” said Humam Shamaa, senior professor of finance and economics at Baghdad University. “There will be a depression. It is a contraction to the reconstruction.”
Shamaa and other experts said they understand the need for the U.S. to downsize the Iraqi army and retire Hussein’s propaganda apparatus. But they urged that the reductions be phased in slowly, that new jobs be found for at least some of those laid off, and that as much severance pay be distributed to as many Iraqis as possible to mitigate the impact.
“You cannot bar salaries from some sectors of the economy and expect it to function,” said London economic consultant Salah Shaikhly, who used to run Iraq’s central bank, Bureau of Statistics and Overseas Development Ministry. “Lay them off and you have half a million people on your back.”
One of those permanently losing her job is Nidaa Abaas, who was supervising 12 people in the Information Ministry’s satellite broadcasting department before the war. Abaas, 45, said her husband is also out of work. A son is attending college, and three girls live at home. The family depended on her monthly salary of 30,000 dinars -- about $23 at Saturday’s exchange rate -- as well as United Nations food supplements and the extra money she made baking flat bread at home.
Abaas wants coalition authorities to reconsider their layoff decision. If they don’t? “I will cry, and pray that God hurts the Americans.”
Saad Hamdani, who headed the foreign affairs branch of the ministry’s international department, said he learned only 10 days ago that 5,200 jobs in the agency, including his, would be permanently eliminated.
“Where will those people be working? Where will they go? To the grave? To the street to live?” asked Hamdani, 52.
Bremer said Monday that the coalition was attempting to provide new jobs as best it could. He said thousands of former enlisted men would be hired to serve in the Iraqi Corps, which will replace Hussein’s army. He cited a $70-million community action program administered by his office that is hiring Iraqis to clean up their neighborhoods and build public facilities.
The goal, Bremer said, is to create “an economy that has real jobs with real wages for millions of citizens who need and deserve them. This will take time.”
For now, even trying to calculate the effect of the layoffs is a challenge. Iraq’s economy became highly distorted under Hussein.
The best available estimates suggest that Iraq, a nation of 24 million people, has a public and private work force of about 5 million. Of those, an estimated 1.5 million were receiving a paycheck from the government before the war. About 1 million were civil servants, from technocrats to teachers. The remaining 500,000 were officers and soldiers in the armed forces.
Coalition officials said the number of military personnel affected by the layoffs is believed to be about 400,000, but they acknowledged that some advisors have told them the figure could be as high as 680,000.
Perhaps 100,000 soldiers will be absorbed into the new army, officials said. The rest will have to fend for themselves.
Iraq’s defense and information ministries are being dissolved. In other agencies, varying numbers of senior Baath Party loyalists are being shown the door.
Most government employees have families. The average family size is five, so more than 2 million Iraqis are expected to suffer a direct income loss as a result of the layoffs, coalition officials acknowledged.
“You’re talking about hundreds of thousands of people without pay,” said Bathsheba Crocker, co-director of the Post-Conflict Reconstruction Project at the Center for Strategic and International Studies, a Washington think tank. “It’s just going to add to the already heavy burden of all the people who are dependent on the government for their basic resources.”
The amount of the severance payments is still under discussion, officials said. But the word on the street is that they will be about the same size as the $20 and $30 cash handouts dispensed to government employees in lieu of salaries in April and May.
Although the affected workers represent roughly 10% of Iraq’s work force, the effect of the layoffs will not be as severe as if 1 in 10 Americans lost their jobs, experts said. That’s because government workers in Iraq were grossly underpaid. Most took second jobs or found other ways to supplement their incomes, and they relied on U.N. aid to help feed their families.
Still, the economic fallout will be extensive, and the political recoil could be substantial, experts said.
Shamaa, the Baghdad University economist, said the situation calls for the kind of fiscal pump-priming endorsed by early-20th century economist John Maynard Keynes, who argued that governments should spend public funds aggressively to ward off recessions.
Instead of distributing baskets of food and $20 bills, Shamaa said, the coalition should forget about commodity handouts and boost the monthly cash payments to $50, $100 or whatever the bank account will bear, to stimulate demand for goods and services and get the economy growing again.
The money should come from the confiscated assets of Hussein and his cronies and future Iraqi oil revenue, Shamaa said, not from taxpayers of the United States or other coalition countries.
“We have our dignity as Iraqis,” he said. “We can use our resources. This is not for other countries to do.”