Tuesday, January 10, 2006


Iraqi leaders are also beginning to make the tough choices necessary to reform their economy -- such as easing gasoline subsidies. Until recently, government subsidies put the price of fuel in Iraq at artificially low prices -- really low prices. President Bush Jan 10, 2006

Twice in my life I've witnessed riots following the imposition of a substantial oil price increase; in Indonesia in 1998 and in Jamaica in 1999. Neither experience was pleasant but as tends to happen in such instances, not without its lessons, if you take the time to reflect.

Although I'd remembered seeing video of the Rodney King riots in Los Angeles, its one thing to see it TV and quite another to realize that you could be the next Reginald Denny, the truck driver dragged from his cab at a traffic light and beaten in view of helicopters with TV cameras. In addition to highlighting to me how thin the veneer of civilization can be, I also learned that substantially raising the price of one of the now staples of modern life, oil, is a dangerous political act.

While Jamaicans, who import virtually all their oil, do, as I can attest, get upset by the price increases, Indonesians, who had been substantial exporters, get more than upset. Although the 3 decade reign of Indonesian strong man Suharto was already on thin ice as 1997 drew to a close, the agreement his government made with the International Monetary Fund, with the "quid" of US$43B for the "quo" of, among other things, reducing Indonesian government subsidies for oil was the proverbial straw that broke the camel's back of his adminstration.

Why, asked the Indonesian man on the street, should I pay more for my cooking oil, which is produced here in Indonesia, just because the guys running the nation's finances ran afoul of international bankers? It was a question I answered reflexively in 1998, certain of the wisdom of the IMF.

The Indonesians, by contrast, took such a dim view of the agreement that Suharto was soon removed from power. A few years and a few governments later, with the IMF still pushing Indonesia to cut oil subsidies, Indonesia ended its credit arrangement with the IMF.

I recalled this bit of personal history while reading of the recent IMF agreement with another oil exporting nation, Iraq. In this instance, the loan is quite small. Relative to Indonesia's US$43B, Iraq is only getting US$685M to remove, among other things, domestic oil subsidies. To be precise, the government of Indonesia got the US$43B. To be even more precise, Suharto's cronies got the money and I'd guess that the flow of funds in Iraq is similar. How amusing to see that convicted fraudster and neo-con darling Ahmed Chalabi recently was put in charge of Iraq's Oil Ministry.

It was no big surprise to me to see an escalation in violence in Iraq following the oil price increase. I don't suppose the average man on the street in Iraq today would think much differently about the end of oil subsidies than the average man in Indonesia did in 1998, with the exception that he might be even angrier. After all, Iraq's oil reserves dwarfed Indonesia's.

One big difference between the riots I saw in Indonesia and the increasing violence in Iraq that stands out to me is that the Indonesians were angry first at their government and only tangentially at the IMF. The IMF had no tanks in the streets, nor had they been bombing the countryside.

The Iraqis, on the other hand, seem to see the real culprits through the illusion that is their government. The idea that the Americans are coming to steal their oil is probably ringing a bit more true to any Iraqi paying 2-3 times more to fill his car, or cook his meal. However the information is mediated, the fact of an occupying military presence combined with a price increase of this magnitude of a commodity in plentiful supply in Iraq, but in severe deficit in America leads to obvious conclusions.

What I wonder though is why? Surely I have no special vision to see that such actions lead to such outcomes. This IMF imposed condition seems to me like throwing gasoline on a fire you claim to be trying to extinguish. Looking at the issue from a smaller perspective, let's say I am a lawyer. Should I charge my child, my wife or my friend the same price for my time as my clients?

Insanity has been defined as doing the same things and expecting different results. Getting the IMF involved in this way was sure to anger the public, and in this instance it isn't domestic soldiers trying to keep the peace but foreign, mainly American soldiers. It is also sure to once again raise the issue of western financial vultures in the Islamic world and in this instance there will be a bunch of western faces at which to direct their anger.

The rallying cry of radical Islam which is officially derided from the President of the United States on down is that the West is looting Islamic nations. I guess it depends on what the definition of "looting" is.

The American people know the difference between responsible and irresponsible debate when they see it. They know the difference between honest critics who question the way the war is being prosecuted and partisan critics who claim that we acted in Iraq because of oil.
President Bush Jan 10, 2006