With no letup in insurgent attacks, confidence in the new Iraqi government may rest on its ability to revive an economy torn by violence, business leaders and financiers said. Economic recovery will remain difficult unless the government takes tough measures to curb corruption and the politicisation that has undermined basic services, such as electricity, and created food shortages, they told Reuters. A tough stance could help restore services, raise confidence in the US-backed political system and help security forces fight the rampant lawlessness and sabotage that has reduced oil exports, the main source of hard currency.
"Two years after the war, Iraq remains a dump," said Khaled al-Shumari, an Iraqi investment adviser.
"The team in charge of the economy can make progress by starting projects in more stable areas and show that they can succeed," said Shumari, who has offices in Amman and Baghdad.
Iraq, with one of the world's largest reserves of oil, has seen its economy torn by widespread violence since the US-led invasion two years ago, which came after more than a decade of stringent economic sanctions overseen by the United Nations.
Unemployment is about 30 percent and electricity is spotty, with power available only part time in Baghdad. However, the government says output has risen since the war. The economy shrank by almost half in 2003 compared with the year before, according to Planning Ministry and Central Bank numbers.
Oil facilities, especially in northern Sunni Muslim regions, come under regular attack. The insecurity has delayed projects to develop 112 billion barrels of reserves and raise exports, still at a prewar level of 1.5 million barrels per day.
On the positive side, the Iraqi dinar has strengthened to about 1,440 to the dollar from about 2,000 before the 2003 war.
There also are new cellphone networks and wages have gone up. However, billions of dollars of US funds earmarked for rebuilding have been diverted to security.
"Without security there is no growth. The government has to show first it can secure itself with officials assassinated daily," said Iraqi businessman Mahdi Kanbar Agha.
Prime Minister Ibrahim al-Jaafari's cabinet was approved by parliament on Thursday after three months of negotiations.
Ali Allawi, a former World Bank consultant, is finance minister. His close relative Ahmad Chalabi, a former financier, is acting oil minister and deputy to Jaafari.
In charge of planning is Barham Salih, a senior Kurdish politician with a reputation as a good manager.
The new government, working with parliament, will oversee the writing of a permanent constitution. Elections will be held under the charter in December.
Mudhir Salih Kasim, chief economist at the Central Bank of Iraq, said international reconstruction funds were unlikely to mean improved services soon. Excluding the United States, countries have pledged about $15 billion to rebuild Iraq.
"Don't expect much from this government in terms of overall development because it is also temporary until another election at the end of the year," Kasim said.
The violence has discouraged Iraqi investors and delayed rebuilding contracts awarded to foreign companies, which have set up back-up operations in countries such as Jordan.
It remains to be seen whether the cabinet can shed the legacy of infighting that delayed its formation and proceed with rebuilding the economy.
"We woke to nine car bombs today," said a government supplier who is preparing to close his headquarters in Baghdad. "I don't see a chance for progress for at least another year."