4 percent growth projected in Iraq

BAGHDAD, Iraq — Iraq's economy is expected to grow by 4 percent this year and by double digits in 2006 as reconstruction efforts begin to bear fruit, a U.S. official said Thursday. But the cost of the insurgency remains high, both in financial and emotional terms.

Iraqi merchants complain that business has dropped off because bombings have terrorized customers and say the government must do more to help them.

Dan Speckhard, the U.S. official in charge of reconstruction in Iraq, said 16 percent to 20 percent of reconstruction money goes to providing security for businesses. He said the cost of rehabilitation projects is high because the security situation is "tenuous and difficult."

Nevertheless, Speckhard said, Iraq's "fundamentals are there."

"Iraq's economy will grow at 4 percent this year and accelerate into the double digits next year," Speckhard said. "Per capita income is nearly double what it was two years ago, [and] sales of consumer and durable goods are booming."

Speckhard spoke to reporters a day after President Bush said economic progress in Iraq is lifting hopes for a democratic future despite "fits and starts" in the reconstruction program.

Although unemployment remains a problem, more than 30,000 new businesses registered with the government in the last year, Speckhard said.

In Baghdad, where 23 percent of Iraq's 27 million population lives, business owners have charted ups and downs.

Kadhim Morshed Salloum, a clothing merchant, said that in the weeks after the fall of Baghdad, "demand increased and commerce flourished."

"But during the last six months, the market has been fluctuating for various reasons," he said. "Many families stopped going to the market because of the security situation. Before, many women used to come by themselves, but now they go out only with their husbands or brothers."

A constant complaint in Baghdad has been electricity, and it has become part of the battle against insurgents, said Brig. Gen. Bill McCoy, the commander of the U.S. Army Corps of Engineers in Iraq.

Power plants in Iraq have the capacity to generate 10-12 hours of electricity a day for most of the country, and those outside of the capital mostly receive it, he said. But Baghdad remains a problem, with an average of only four hours a day in November because of downed transmission lines.

Iraq's oil sector, also hampered by unrelenting insurgent attacks, appears set to pump less crude in 2005 than last year's disappointing showing and far less than under Saddam Hussein. The only bright spot is that near-record oil prices have softened the blow by boosting export earnings.

The attacks have made it all but impossible to attract foreign expertise needed to rejuvenate the rusty infrastructure, drill new wells or take any number of steps toward increasing production or exports.

U.S. officials have long cited progress in Iraq marked by setbacks along the way.

For example, Bush pointed to the northern city of Mosul, 225 miles northwest of Baghdad, as an example of progress in curbing the insurgency and building up the local economy.

Despite tenuous security, Hamid Shabki, a Mosul official, said about 25 reconstruction projects were under way, each worth about $25 million.

"We started with 20 schools in different parts of the province, a heart surgery center, improving electricity" in addition to two sewage networks and a center for a dentist, he said.