Gaining control of Iraq's shadow economy

Abstract

Four and a half years after freeing Iraqi citizens from a ruthless dictatorship, the country is still mired in poverty, corruption and insurgent violence. These conditions fuel a sprawling, decades-old shadow economy manipulated by elements of organized crime, militias, and insurgents to fund attacks on Coalition forces, infrastructure and innocent Iraqi civilians. The shadow economy is also used extensively by the poor and women for subsistence living. The combined effect for Iraqi citizens is they have to survive in a country without adequate institutions and poor governance. The extensive shadow economy diverts funds from legitimate uses by the government such as taxes, funds for reconstruction projects, social protection, social insurance, etc. Numerous agencies are deeply committed to helping the Iraqi government rebuild and formalize the shadow economy. In this thesis I examine the challenges involved in formalizing a shadow economy in the midst of war and the strategies undertaken. I analyze similar efforts to restore peace and stability in Afghanistan with its burgeoning opium trade searching for successful approaches with applicability in Iraq.