Prime Minister Aznar, your excellencies, ladies and gentlemen. I would like to thank the Spanish authorities for hosting this gathering.
The reconstruction of Iraq is an immense challenge for us all. We are here today in Madrid because the world recognizes the scale of that challenge and is determined to meet it. I am here to assure this conference that the International Monetary Fund will work actively with the international community in the reconstruction and development of Iraq, and for the stability and prosperity of the Middle East region as a whole.
The IMF's role to date
The IMF has been engaged in Iraqi reconstruction from the outset. In common with other international agencies, our work has been marked by the dedication of our staff, which reflects both a sense of professional duty and a deep concern for the welfare of the people of Iraq.
In spite of the security setbacks, the IMF has continued to play an active part in several key areas, in close cooperation with the Governing Council and the Coalition Provisional Authority, and in co-ordination with the World Bank and the United Nations. Our staff have been heavily involved in preparations for the currency reform that is now successfully under way. IMF staff have been advising on macro-economic policy issues including bank reform and regulation, and the development of the 2004 budgetary framework.
Our contribution to Iraq's future
As the next stage of the reconstruction process gets under way, there is much more that the IMF can and wants to do. I see six major inter-related areas for our contribution.
First is economic policy advice. The IMF will help to create a stable macroeconomic framework which is essential to underpin economic revival. Such revival will reduce uncertainty, encourage private sector investment and job creation, and help curb the risk of financial crisis. But these results will not come overnight in Iraq, where the economy has been badly damaged. It will require comprehensive reforms to the economy, and the development of sound institutions and policymaking processes. And we all know that these reforms will only succeed if there is ownership by the Iraqi people.
The international community's efforts to rebuild Iraq can benefit from the experience of transition and post-conflict cases. Among the most important lessons are: (a) ensuring transparency and the observance of best practices, especially in the energy sector and in the operations and privatization of state-owned enterprises; (b) establishing the legal, institutional and regulatory frameworks for markets to work effectively; and (c) designing appropriate safety nets that contribute to social stability. Thus, Iraq will need ambitious structural reforms to achieve sustained private sector-led growth. The IMF can contribute to this effort in many important ways.
The IMF's second area of contribution is technical assistance to help the people of Iraq build up the administrative and policy-making capacity to run their country. The IMF will expand the assistance already provided on a wide range of issues. The country needs modern, unified budget and tax systems. The Central Bank needs assistance in designing and conducting monetary policy and in ensuring the proper functioning of the banking system. Iraq's statistical database needs rebuilding--reliable economic data are crucial for the formulation of appropriate and effective economic policies. As part of the wide-ranging program of technical assistance, the IMF will develop training programs for Iraqi officials. And as we have done in other cases, the IMF can help coordinate the technical assistance provided by other agencies and governments.
Third, I welcome the establishment of the International Advisory and Monitoring Board. This Board has been set up to ensure that the Development Fund for Iraq is used in a transparent manner, and that petroleum sales are made consistent with prevailing international market best practices. I will shortly appoint the Fund representative to this Board.
Fourth, the international community must help Iraq put its external debt on a sustainable footing. Initial estimates of Iraq's external debt (without reparation claims) are around $120 billion. Absent substantial debt relief, the country has no prospect of restoring its creditworthiness and of regaining access to private capital to finance future growth. The IMF is cooperating with Paris Club creditors, and has approached non-Paris Club creditors to develop reliable estimates of Iraq's external obligations. We stand ready to help in any way we can in resolving this difficult issue. We recognize, of course, that the resolution of this issue is a matter for Iraq and its creditors.
Fifth, the IMF stands ready to provide financial assistance in a phased manner and in line with our policies and procedures. The IMF could initially make available $850 million as emergency post-conflict assistance, followed by amounts between $850 million and $1.7 billion annually under its regular facilities. Total IMF assistance could range from $2.5 billion to $4.25 billion over a three-year period. This financial assistance would depend, among others, on the IMF's assessment of the balance of payments need, the development of strong economic programs, and the ability of the Iraqi authorities to effectively implement such programs.
Finally, the economic futures of Iraq and of the region as a whole are naturally very closely tied together. A virtuous circle of a growing Iraq and a vibrant Middle East region needs to be generated. We, in the IMF, believe that the integration of Iraq into the region, and the region into the world, is a key to setting in motion this virtuous cycle. For this reason, Iraq's regional partners should be closely involved in its reconstruction efforts. The IMF will contribute to developing a policy framework, in cooperation with regional institutions, for the re-integration of Iraq into the Middle East and the world economy. In this context, I will propose to the IMF Executive Board the establishment of a regional technical assistance center in the Middle East. I urge donors to support the setting up of this center.
The IMF's effectiveness in helping Iraq is naturally conditioned by the actions of the international community and the security situation. Today, security problems hamper the work of all of us. Their resolution will also aid in the recovery of economic activity as Iraq's citizens feel re-assured that they can go about their daily life in relative safety.
The rebuilding of Iraq is an immense challenge for us all. I believe it is also a historic opportunity. Iraq is, after all, a country with substantial natural and human resources and a rich record of major contributions to human civilization. I am confident that our collective efforts can help Iraq return to stability and prosperity. The IMF stands ready to do its part.