261
THE WAR IN IRAQ
From the outset, the Transitional Government was in crisis mode.
In light of the assassination attempt on Allawi the previous month
and the increased violence from insurgents and terrorists, the new
government took a hard line against the fi ghters. Thousands were
arrested in Baghdad alone. One result of the new government deal-
ing with intense violence was that “the demarcation between militias
and the formal police and special security units became increasingly
blurred” (Allawi 2007, 421). This led to the increased politicization
of the security forces. The war had also created disarray in the petro-
leum and electricity industries, which the insurgency targeted daily,
especially after the January 2005 election of the National Assembly.
The chaos within the energy sector continued throughout the entire
term of the Transitional Government, which could only practice tri-
age (repairs of damages) as the violence escalated. The effect was that
Iraqis, especially in the capital city of Baghdad, faced ever decreasing
energy output.
Less visible but important for Iraq’s long-term stability were the prob-
lems of Iraq’s budget and debt. At the time of the fall of the Baathist regime,
Iraq’s debt totaled more than $130 billion, a good deal of it dating back to
the Iran-Iraq War of the 1980s. The debt was classifi ed into four catego-
ries, with the largest amount owed, more than $50 billion, to Saudi Arabia
($39 billion), Kuwait ($8 billion), the United Arab Emirates, and Qatar.
During the term of Prime Minister Allawi’s Interim Government, another
of the four categories of Iraq’s creditors, the Paris Club (consisting of vari-
ous Western nations and Japan), agreed to cancel 80 percent of Iraq’s $40
billion debt, though the majority of the debt forgiveness ($20 billion) was
tied to Iraq’s negotiations with the International Monetary Fund. As for
the budget, Allawi acknowledged that “the central problems . . . were the
twin issues of revenue generation and . . . large, untargeted entitlement
and subsidy programs” (Allawi 2007, 429). Both of these problems were
the direct result of a wrecked economy that neither increased oil produc-
tion nor a “quick fi x” cash infl ux would repair. As a result, public subsi-
dies, especially to the oil industry, were reduced, petroleum prices were
increased (with a $500 million “safety net” for the poor), $1 billion block
grants to the provinces were set aside, as were $500 million to capitalize
regional development banks, and $300 million to support the families
of Baathist victims (Allawi 2007, 431). Predictably, rioting followed the
December 18, 2005, implementation of price increases on petroleum
products, but the increases remained in effect.
The Transitional Government captured the world’s attention with the
ratifi cation of the Iraq constitution on October 15, 2005, by national