Speech

VICE CHAIR APRIL FOLEY:

This morning our thoughts turn again to the brave men and women serving the Armed Forces of the United States and those of the coalition forces serving in Iraq, Afghanistan, and elsewhere in the world. Will you please all stand for the National Anthem?

[NATIONAL ANTHEM]

Thank you. For those of you whom I don't know, I'm April Foley, and I am vice chair of the Ex Im Bank. I'm delighted that so many of you are here today. We have a very exciting program with some distinguished speakers. Our special focus today is on Iraq and how Ex Im Bank can help U.S. companies to export the equipment and services they need that will help rebuild Iraq.

As President Bush has said, the goals of our coalition are sovereignty for Iraq, dignity for Iraq's great culture, and for every Iraqi citizen, the opportunity for a better life. Ex Im Bank wants to help U.S. companies participate in this critical work.

In fact, it's already happening. This week, Ex Im Bank approved its very first transaction under our $500 million short term insurance facility for the Trade Bank of Iraq. Iraq's Ministry of Health wants to buy U.S. made insect abatement equipment, of all things, from Tifa of Millington, New Jersey. Ex Im Bank is insuring a letter of credit issued by the Trade Bank of Iraq and confirmed by J.P. Morgan Chase.

This sounds like a nice, clean, straightforward Ex Im Bank transaction. But getting it done has been a monumental task, spearheaded by one of Ex Im Bank's ablest executives, Peter Saba, whom I especially want to recognize for his really dazzling thought leadership on this.

Working with Peter are countless other people who labored long and hard to put the complex legal framework and financing mechanisms to make this transaction happen. This will require the efforts of people at Ex Im Bank, the U.S. Treasury, the Trade Bank of Iraq, the Coalition Provisional Authority, the Iraqi Ministry of Health, the Iraqi Ministry of Finance, J.P. Morgan Chase, and the Export Insurance Agency, just to name a few. Thank you to all of you.

This transaction is like the first little rowboat going through a newly constructed Panama Canal. It is a small transaction, but it is a giant step forward for the future of Iraq. And it is a proud moment in the history of Ex Im Bank.

Unfortunately, most of the news from Iraq today is not rosy. The continuing conflicts are of great concern. The Bush administration continues to address them with courage and determination. But these problems, serious as they are, should not overshadow the other real progress that is being made - progress that is not adequately heralded by the media.

Here to tell us the straight story is one of my favorite people in the world, Tom Foley. For those of you who don't know, Tom is my brother-in-law. He is the brother of my late husband, Giff. And, although he has distinguished himself in countless ways, to me, he is a true friend and the best brother-in-law in the world. Family just doesn't get any better than this.

Tom has recently returned from Iraq where he was the director of Private Sector Development for the Coalition Provisional Authority. Private Sector Development has the responsibility for overseeing most of Iraq's 200 state owned enterprises that make up substantially all of Iraq's large businesses. In addition, Private Sector Development is charged with formulating a privatization plan, developing foreign trade and investment, and advising Iraq's Ministries of Trade, Industry and Minerals.

Prior to joining the CPA, Tom was a private equity investor making and overseeing investments in operating companies through the NTC Group of Greenwich, Connecticut. He has nearly 20 years of experience operating businesses, including experience doing turnarounds and restructurings, which turned out to be pretty useful in Iraq. Tom holds a BA in economics from Harvard University and an MBA from Harvard Business School. Please join me in welcoming Tom Foley.

TOM FOLEY:

Good morning. I'm really thrilled to be here to tell you about my experience in Iraq - partly because this is a very influential group who can make a difference in the outcome in Iraq, but also because it gives me an opportunity to thank the Ex Im Bank for the excellent support that they have provided to the coalition effort in Iraq, starting with Phil Merrill having shown up in Madrid to help with a donor's conference. And April, having come to Baghdad herself, of which I was very proud. She is my favorite sister-in-law. So, family does run deep here. And, last but not least, Grayson Wolfe, who came over with April and agreed to stay on and join the Private Sector Development team. He's been an invaluable resource and is planning to stay through June 30th.

I'd like to talk this morning about two separate things. The first is what I call "the two Iraqs," and I'll explain what I mean in a minute. Second, I'd like to talk about the objective about which I believe there is a consensus in Iraq, what it's going to take to achieve that objective, and how we're doing - in essence, sort of a brief progress report. The reason I want to do this is that I really think that the progress in Iraq is much better and much more hopeful than one would be led to believe merely by watching television and reading the printed media here in the States and listening to the debate.

So, let me first talk about "the two Iraqs." The first Iraq is the one that you would come to understand if your primary information inputs were television and printed media - and that applies to most of the people in the United States.

The second Iraq is the one that I came to know and others have come to know who are there, and it's a very different place. The TV Iraq, if we can call it that, is a place that seems chaotic, and it seems that there has been very little, if any, progress since the war. It appears to be a place where nobody has a job and people are either cowering in basements or are part of some roving mob ready to do trouble.

It appears to be a place where they hate Americans, and where Americans aren't safe walking on the streets. It also is a place where people would be led to believe that Iraqis don't share our vision for the future of Iraq.

A very different place is the Iraq I came to know, and that is a place where tremendous progress has been made since the war in restoring basic services and implementing a number of other changes that I'll talk about in a minute. It's a place where most people go to work every morning, and kids have been going to school since last fall. The schools in Iraq actually opened on time, despite the war. It's a place where most Iraqis are going about their business. If you were to go out among the streets in Baghdad, you would see traffic jams. You would see pedestrians dodging cars, markets active along the sidewalks, and otherwise things being quite normal.

It's a place where all the Iraqis I met are truly grateful that the U.S. came in and liberated them from a brutal tyrant, and who remain grateful that we are still there providing security because they know that were the U.S. armed forces to leave, chaos would indeed break out.

It's a place that, except in certain isolated areas, Westerners move around freely. When I was in Iraq - I was there since August - I used to go out into Baghdad frequently by myself, and I had no problem walking up and down the streets. I never once ran into a situation that I considered hostile. I did for entertainment carry around a 9-millimeter pistol. It runs in the family. But I never needed it, and it was probably mostly for show.

It's also a place where the Iraqis I ran into share our vision for their future. They want a stable country. They want a modern economy, and they want representative government that's fair to all its citizens.

So, how do we account for this difference, this divergence, between these two views of Iraq? I don't really have the answers, except I'll recount for you a conversation I had with Tom Friedman, who I stopped in to see last fall when I came back for the first time and was very curious how Iraq could be such a different place from how it appeared if your primary inputs were television and printed media. He said, "Well, there are probably two things going on here." One, he said, was that most of the press really weren't in favor of the war, don't think it was a good idea and don't think that our efforts over there will work. So, whenever they see something go wrong, their attitude is a little bit, "Ah, here we go." And so, their bias is to report it as more unstable than it actually is, and less optimistically than you might otherwise report it.

But more importantly, he said that you have to understand how the news works, and that is that things being normal isn't newsworthy or reportable. Unemployment rates coming down don't make headlines. But, things being out of the ordinary, presenting a contrast, going wrong, or even the titillating nature of, unfortunately, the blood and guts that are part of the experience over in Iraq are reportable events and do sell newspaper and television time. So he drew the analogy that the New York Times doesn't go out to JFK and report all the successful landings, but if there's an unsuccessful landing, you can bet they'll be there.

So that helped me understand a little bit about why the image of Iraq in the States and in Europe is so different from what it's actually like on the ground there. And one of the reasons I wanted to tell you this is to help you adjust or handicap, if you will, what you're witnessing if your primary inputs are the printed and television media.

Whatever you're seeing, it's not as bad as it appears. And there are a lot of good things going on and a lot of progress is being made that isn't being told, and you just need to accept that on faith. I've run into a few people here who have actually been there, and I believe that you would agree with me that when you're there, the impression is very different from what you see on the media.

Now I'd like to move to the second area of my comments, and that is sort of a progress report, and maybe help you understand, if you don't know some of these things, what is going on there that isn't being reported. And, most of it, I believe, is quite hopeful.

The objective, I believe, of our intervention in Iraq is three-fold. One was to eliminate Iraq as a funding source and a base for terrorist activities, and we have done that. A second was to liberate the Iraqi people from a brutal tyrant, and we have done that. And, the third is to establish Iraq as a stable and secure nation with representative government and modern institutions in the middle of the Middle East, and hope that that country and possibly others in the region as a result will become more stable and more integrated in the global community. That is still ahead of us.

What must happen for us to succeed? I identify five major tasks ahead of us. One is to establish security. There is no question that democratic institutions and free markets cannot exist without a threshold level of security, which does not exist there yet. We need to restore basic services. We need to establish modern institutions. We need to open and expand the economy, and we need to get per capita incomes up to and exceeding a level of about $5,000 a year, which is a proven threshold for democratic institutions being sustainable. Below per capita income levels at $5,000, democratic institutions don't tend to survive for long. Above that level, they are almost impossible to hold back. And, finally, number five is to change certain attitudes.

So, how are we doing on those five important tasks? Well, let me start with security, which is the most difficult to address. Security is a huge challenge in Iraq, as we've known from the beginning but more particularly from the events of the last four weeks or so. It's widely accepted that in a post-conflict area, you probably need something like 20 security people per 1,000 of population. With 25 million people in Iraq, that means half-a-million security people. We have 135,000 coalition forces in Iraq, and there are approximately 100,000 police that have been hired. But, as we have learned in the last several weeks, it takes time to train the police and to provide them with the commitment to the task that they'll need to truly provide security.

So, we have a long way to go. And right now we have the problem in the isolated area of the insurgents and what I call thuggery, which occurs without police around. Anybody who goes to Iraq and spends a few days in Baghdad will understand what I'm talking about. When there are no police around, it's amazing how quickly people stop obeying the laws. People drive down the roads the wrong way. They run through lights. Most of the lights don't work, but the ones that do, they ignore.

And, people who have criminal inclinations, of which there are a fair number in Iraq because Saddam Hussein let all the criminals out of jail - they pretty freely enter into carjackings, robberies, kidnapping people for ransoming, and all sorts of things that were typical in the "Wild, Wild West," for example. And until there are police established, those security problems probably are not going to go away.

But I believe that they will go away. It will take time. It takes time to hire the forces that are going to be necessary, and it takes time to communicate and punish people and make them understand that there actually are security forces in place and there are consequences for criminal behavior. So, I think we will succeed on security, but it will take time.

Basic services - I believe that the coalition effort over there should get an A, or maybe an A plus, for restoring basic services to Iraq. This is an uncovered story, and it's a story that when it does get covered, all they cover are the complaints that the people have about there not being enough electricity or potable water or good telephone services. If you were to go to Iraq and see the dilapidated condition of the infrastructure as a result of the regime, which didn't invest in the infrastructure, you would be amazed what's been done to restore electricity to 4,500 mega watts, for example, and to get telephone service back up in virtually all of the nation except in parts of Iraq where it was a strategic asset in the war and had to be destroyed, and water and sewage treatment facilities, and the other efforts underway. It is a miracle that in a place the size of California with half the population that electricity, water, food supplies and other things are being delivered to people after what's happened there.

It will be a Herculean task to keep this going and to continue to get the infrastructure up to a point where we can support the economy and the growth that's required in Iraq to support the institutions that we hope for in the future. But I believe the Coalition Provisional Authority has made tremendous progress in this area and deserves a lot of credit.

Institutional reform - this is another area where I think the coalition should get very high marks. In a very short period of time, we have revised a number of the laws: the commercial laws, the laws relating to property rights. We have begun the process of putting in place a modern and effective judiciary, which didn't exist. This is also a Herculean task. Number one, to find the people who are qualified, and to train them, and to develop the institutions and protocols for a judiciary is a very long and arduous process, but it is happening and it will continue to happen.

In the area of democratic institutions, the coalition has been out at the grassroots level, for example, developing PTAs and town hall meetings and all the things that teach people and serve as the foundation for democratic principles - to teach people how representative government works. These things are happening every day, but they aren't being reported. And at a much higher level, I think the governance team in Iraq has done an outstanding effort of assisting the Iraqis and developing themes for a constitutional framework for their government and this temporary administrative law. All of these efforts are changing the way the Iraqis think, and will definitely influence the eventual sovereign government that they inherit.

In the area of the expanding economy, I'm not going to grade us because it was actually my area of responsibility. I learned that grade inflation results very rapidly when people are asked to grade themselves, so I won't give us a grade. But the economy is actually doing quite well, and this is also an area that's not reported.

One of the big problems in Iraq is that it was a totalitarian socialist state and the public sector was quite large. It was far too large for the private sector to be able to develop the types of job growth that are going to be necessary for the economy to do what it needs to do. We prepared and presented a plan for reducing the size of the public sector, and we're confident that that will help the new sovereign government accelerate the efforts to shrink the public sector and grow the private sector. We also, with the help of the Ex Im Bank and many others, have done a lot to provide credit and other resources into the marketplace that are going to enable the private sector to grow more quickly than they would have been able otherwise.

We also liberated the rules relating to foreign trade and foreign investment, which is unique in the region. The region tends to restrict foreign investment, but Iraq needs the capital and the technology that foreign investment will bring, and we didn't want to have any restrictions or impediments to that because for the job growth it will be absolutely mandatory. So, a lot of good things are going on in the economy, and the evidence is the bustling commerce that one would witness traveling around in Iraq in Baghdad. In the Karrada district [correct spelling of name?], the large commercial district - satellite dishes, refrigerators, cell phones are literally falling into the streets off the sidewalks. They sell so quickly, they don't have time to even take them into the stores and put them on the shelves. This is coming from repatriated funds. There has been a rise in the income levels of civil servants, which the CPA initiated, and a number of other things.

Unemployment rates have come down from over 50 percent last summer to about 25 percent in January, and we presume lower now. And, when the supplemental funds come and have begun being spent, they should create upwards of a million new jobs that should bring the unemployment rate down into the low teens.

So, there's a lot of good news there, and all of this portends well for moving quickly toward that $5,000 per capita income level. Currently in Iraq, per capita incomes are at about $1,500 to $2,000 a year. But in the past, they have been over $5,000 a year, and to get back there is going to be easier than to get there for the first time. So I'm quite confident that within several years that goal can be achieved.

The final one is changing attitudes. You almost would have had to have been in Iraq to understand how different some attitudes are there. I've picked three just as examples of attitudes that need to change before Iraq can really embrace democratic institutions and modern economic performance. One is trust. We don't realize how important trust is to how our society works. There needs to be a threshold level of trust for democratic institutions to work and for economies to work efficiently. In Iraq, nobody trusts anybody, and there are a lot of good reasons for that. But trust needs to be built back up so that people can assume that people are going to behave in a certain way and behave responsibly in economic transactions and in positions of responsibility in a democratic government.

The second attitude that needs to change - and this is primarily among public sector employees - they perceive their role as a gatekeeper or a permission giver rather than a service provider. This is typical of socialist states. It's still typical in a lot of modern economies, even in Western Europe. We in the States, I think, are leaders in this area of developing attitudes among our civil servants where they are actually service providers and work for private sector enterprise. And that needs to come a long way in Iraq. It acts as a huge break on economic activity.

And the third is what I charitably call "tribalism." Many people call it "corruption," but really if you're over there, you understand that it's more like tribalism where in tribal cultures when somebody acquired a position of power, it was legitimately seen as an opportunity to enrich oneself and take care of one's family and friends. This is pervasive in Iraq and in most parts of the Middle East.

It is our society that has developed a notion that positions of power come with a responsibility to everyone, that to enrich oneself is a conflict of interest, and if you want to do that, you need to go into the private sector and pursue business or other opportunities. There is a need to move in that direction in Iraq and elsewhere where this exists for true democracy and responsible government to take hold. These will take time. You can't spend money to change attitudes. It's done by good leadership. It's done by integrating Iraq and the Iraqi people within the global community, and by helping them understand and witness how other people see and handle these issues.

All in all, we are making very solid progress in most areas over in Iraq, but we must solve the security problem because until the security problem is solved, it will be difficult to make rapid progress in the other areas. I would give the coalition forces at least a B plus or better for the progress that they have made. If you were to go over there and see the number of people there and the effort going on every day in these areas, you'd be amazed at the scale of the effort and the activities that are going on outside of what's being reported in the press.

Another challenge that we're going to have is the time frame that this is going to take. It will take, in my estimation, at least five-to-ten years to achieve the objective that I think we have there. And it's not clear that the political attention spans in this country and in European democracies fit well into that sort of a time frame. It's going to require a very effective leadership to keep the American people and the world focused on continuing to commit the resources and undertake the efforts that are going to be required to complete the task over there.

I'm quite confident that it will be done because it is so important. And, I believe that despite the problems with people understanding accurately what's going on there and what the mission is and what progress we're making, I think it will be achieved. And I think it will result in Iraq becoming part of the modern world, Iraqi lives being substantially improved as a result of our efforts over there, and Iraq becoming integrated into the global community and making the world a much safer place. And, although very expensive both in terms of lives and money, I believe our children and their children will believe that our intervention in Iraq was a very wise and worthwhile investment in everyone's future. Thank you very much.

APRIL FOLEY: Thank you, Tom. Tom has very generously agreed to take some questions. In the middle aisles are microphones, but the press please hold your questions until later because I think Tom is going to address you separately. So, any questions? Someone must have a question.

TOM FOLEY: Does anyone want to ask the second question?

AUDIENCE QUESTION: How do you see the change in the June 30th removal of the interim council?

TOM FOLEY: I think the only thing that is really certain on June 30th is that the CPA will dissolve and the embassy will take over. I think that the handing over of sovereignty, even though it will legally happen on July 1st, I think it will be more of a gradual transition as whatever entity is stood up to take over that responsibility begins to accept and implement the requirements of sovereignty. I think it will be less of an event than people anticipate. With our armed services over there providing security, there's not going to be any change there. I believe that the new sovereign government is going to want to cooperate quite closely with the U.S. government, the embassy there and the armed services to make sure that security is preserved, which, as I said, is a very important element of succeeding over there. So I believe it will be a gradual transition, and I think that some of the recommendations that the U.N. have had about how that sovereign entity should perform are well-informed and will work well. Yes, ma'am?

AUDIENCE QUESTION: What do you think should happen to Saddam, and what do you think will happen to him? And, where are Saddam and the other 50 guys that we have? Where are they now located?

TOM FOLEY: The question was what should happen to Saddam, and whatever happens, when will it happen. Saddam was a very mean-spirited and evil person. And, if you had spent the time I had in Iraq and had the time to go around to the palaces and see what Saddam and his family did to the people of Iraq, you'd be appalled. It's even worse than you can imagine based on what you've been able to learn over here.

But, it doesn't really matter what I think should happen to him. What matters is what the Iraqi people think should happen to him, and that should drive what happens to him. I believe that he should be tried in a very public hearing and give the Iraqi people the opportunity to make their own judgment about who he was and what he did, and to determine what a suitable punishment is for him. I have no idea what the time frame will be for that. I think it will depend on when the global community, probably, and the Iraqi government believe that they can conduct a fair and secure trial of Saddam, and that may take some time.

AUDIENCE QUESTION: I have a question - first a statement, then a brief question. One, sustainability for every family is based on that family being able to participate in a local economy in two roles: one as a consumer, and one as a producer. What plans are underway to enable the citizens of Iraq to participate in a new economy as producers and consumers?

TOM FOLEY: Thank you. That's right down the area that I was responsible for in private sector development because I saw my primary responsibility as creating jobs. And job creations have been shown time and time again in transition economies really only comes through the private sector. So we were trying to develop plans and take actions, some of which I covered, that would create jobs. And foreign investment and foreign trade will be the greatest engine of job creation in Iraq in the short term. As far as consumer opportunities to consume, again it's jobs. People need income to consume. So, if you can get them jobs, they'll have the income that they can use to acquire goods.

And, there in the Karrada district in Baghdad, the people who have incomes are certainly doing that in ways that they weren't able to do under the prior regime because a lot of consumer items were prohibited by the regime. The regime thought all the money available for consumption should go into the military industrial complex, and to the regime's families and friends. So I think that all of the things that we're doing over there will result in people having jobs and people having incomes, and therefore the ability to consume.

AUDIENCE QUESTION: Recognizing the importance of jobs, I submit that that's not enough. People need jobs, but they need capital ownership. They need to own something. And if you own something, you are more secure and sustainable than just having a job. And, as we say, investments generate jobs as their primary function. I submit that in addition, investments should be structured in such a way that they generate capital ownership on the part of citizens to generate a middle income in the particular country. This is what has built the United States.

TOM FOLEY: I couldn't agree with you more. A number of the things we're doing I think will promote entrepreneurialism in business ownership from the lowest levels where we have a very aggressive micro lending program there to liberalizing the laws of that company's ownership. Until recently, the average Iraqi citizen couldn't go and form a company. You could only do that if you were a civil service employee or a friend of the regime. The liberalization of the markets over there will promote unrestricted ownership of companies. We are trying to develop equity funds, for example, to come over and invest in private business, including start-ups. So I think a number of the things that we're doing over there will result in this happening. And I have no doubt that the Iraqi people will respond because they are a very entrepreneurial and commercially talented group of people. I believe that this will be one of the outcomes of our efforts. Yes, sir?

AUDIENCE QUESTION: A number of our clients have asked us what's going to happen in Iraq? I guess two questions, quickly. What kind of - infrastructure is where we're going to be beginning here - but what kinds of industries are really relevant now to enter into and how can businesses start to access this kind of market?

TOM FOLEY: Okay. Thanks for the question. The question was what are the businesses that are most likely to be attractive opportunities in Iraq - anything relating to consumer products because there is a tremendous amount of pent-up consumer demand in Iraq. As I said, the regime limited the availability of consumer goods, particularly foreign consumer goods. Financial services and banking services - there have been a number of charters opened up, and there have been three foreign banks approved for charters to come in and provide lending and other financial services that are badly needed. The agricultural sector in Iraq is very rich with great potential but has been neglected because the "Oil-for-Food" program tended to focus on imported food. So we see big opportunities for ag equipment and anything related to improving the agricultural infrastructure.

All the information and communications work, anything related to improving infrastructure - there are huge needs for improvement in infrastructure of all kinds there, and consumer packaged goods such as beverage and food processing. For example, Pepsi has just come over there and reinvigorated a bottling plant. Nestle wants to come over and open a bottled water plant. All the types of things that you see in modern, Western economies that aren't present in Iraq I think in ten years will be present, and somebody's going to get that business. And I think the opportunities are very good, and the people should be getting over there and taking advantage of them now.

AUDIENCE QUESTION: I'm Jack Barrone from Macon, Georgia. Every morning I glean the newspaper looking for what you told us. I think that the government needs to spend some time explaining to us that we're getting our money's worth. And, you've done that this morning, and I think that we need more of that.

TOM FOLEY: Thank you for the confidence. And I'd also like to mention that I used to own a house in Macon, Georgia, so I know where you're from. Thank you very much. You've been a very kind audience. I've enjoyed being with you.

APRIL FOLEY: Thank you, Tom. Now we have our concurrent workshops. For those of you who want to continue the Iraq dialogue, we're going to have an Iraq finance session followed by an Iraq procurement session. We also have some nuts and bolt sessions and some more consultation sessions. Thank you.