DUBAI, Sept 21: US-controlled Iraq told the world’s leading financiers on Sunday it would throw its economy open to foreign investors in every industry but oil.

The surprise announcement by Iraqi Finance Minister Kamel al-Keylani dominated the second day of key weekend meetings organised by the International Monetary Fund in the glitzy Gulf city of Dubai south of Iraq.

The other highlight was a tacit invitation to China by the G7 nations — the “economic establishment” — to throw off capital controls and pay greater heed to how its currency and exports affect the world’s trade, growth and jobs.

The G7 club, comprising the United States, Japan, Britain, Germany, France, Italy and Canada, traditionally meets when the 180-plus member countries of the IMF gather for twice-yearly meetings also swamped by private bankers and investors.

IRAQ OPENS: The US-backed Iraqi finance minister announced a sweeping package of economic reforms to open up Iraq to foreign investment, allowing 100-per cent foreign ownership in all sectors except oil.

The measures, which aim to rebuild an economy devastated by years of sanctions, wars and tyranny, concern Iraq’s foreign direct investment code, its banking sector and tax regime.

“The measures will be implemented in the near future and represent important steps in advancing Iraq’s reconstruction effort,” interim finance minister Kamel al-Kilani said in a statement released by the US delegation to the IMF meetings in Dubai.

They will “significantly advance efforts to build a free and open market economy in Iraq, promote Iraq’s future economic growth and accelerate Iraq’s reintegration into the international economy,” he added.

Under the reforms, foreign companies will be able to buy Iraqi firms outright, forge joint ventures with Iraqi partners and open branches in the country.

One hundred-per cent foreign ownership will be allowed “in all sectors except natural resources”, the statement said.

The reforms also allow foreign banks to enter Iraq, with a total of six foreign banks allowed to buy up to 100 per cent of local banks within the next five years. The first two foreign banks in Iraq will benefit from a fast-track entry process, while after five years there will be no limits on foreign bank entry into the country, the minister’s statement said.

The reforms also hand the Iraqi Central Bank full legal and operational autonomy.

In a speech on the sidelines of the meeting, Kilani called for patience from both Iraqis and the international community in rebuilding the battered Iraqi economy and warned there was no quick-fix solution.

“The job ahead of us is very hard and as we move forward we must build on a strong foundation and not rely on a band aid solution ... there is no cookbook formula we can translate.”

A senior US official at the Dubai meetings said the new regulations, which were drawn up following discussions between the Iraqi governing council and the coalition, were decreed on Saturday by the US overseer in Iraq, Paul Bremer.

Kilani, who said he had received “excellent feedback” to the reform plan here, met US Treasury Secretary John Snow on Sunday.

Snow described the programme as “a very promising set of policies” and dismissed suggestions that the reforms were being imposed on Iraq by Washington.

“These are the proposals, ideas, and concepts of the Governing Council. The Governing Council was very clear on that: ‘These are our ideas.’”

Iraqis will continue to be exempt from income tax until the end of this year, but taxes will be levied on hotels, restaurants, petrol use and the transfer of motor vehicles.

From January 1, 2004, both individuals and companies will have to pay a maximum tax rate of up to 15 per cent on income.

The authorities have also agreed to impose a five-per cent flat “reconstruction surcharge” on all imports, although humanitarian goods will be exempted from the charge.

US officials also insisted that foreign companies would be able to benefit from doing business in Iraq, despite the political instability, daily attacks on US troops and lawlessness.

A Baghdad-based US official added here that while security is an issue, “you can make money in a country like Iraq,” and suggested foreign investors should not wait until security concerns have been fully resolved.

“You don’t need to have everything perfect to make money,” he said, on condition of anonymity.

The official played up the reforms announcement, describing it as creating a uniquely open economy in a region that “barely registers” in terms of world exports.

NEW APPEAL TO ASIA: The centre-piece of a meeting of Group of Seven finance ministers on Saturday was a communique that took the novel step of appealing to Asian nations to stop trying to keep their currencies weak to make their exports cheaper.

“We reaffirm that exchange rates should reflect economic fundamentals. We continue to monitor exchange markets closely and cooperate as appropriate,” the statement said.

That much was reminiscent of past cryptic signals to the currency markets that G7 governments will keep an eye on the impact of currency levels and intervene when they see fit.

But two things changed this time.

The communique also said:

“In this context, we emphasise that more flexibility in exchange rates is desirable for major countries or economic areas to promote smooth and widespread adjustments in the international financial system, based on market mechanisms.”

While the opaque statement did not exactly provide the “biblical simplicity” French central bank head Jean-Claude Trichet attributed to it, officials said financial markets would be able to read between the lines.

Traders said Japan would now be expected to bow to pressure and lighten off on yen-selling by its central bank, action seen in Tokyo as necessary to keeping the yen from rising to levels that could penalise exports and a fragile recovery in growth.—Reuters/AFP