ECONOMY OVERVIEW
Iraq's economy is dominated by the oil sector, which has traditionally provided about 95% of foreign exchange earnings. Iraq's seizure of Kuwait in August 1990, subsequent international economic sanctions, and damage from military action by an international coalition beginning in January 1991 drastically reduced economic activity. Although government policies supporting large military and internal security forces and allocating resources to key supporters of the regime hurt the economy, implementation of the UN's oil-for-food program, which began in December 1996, helped improve conditions for the average Iraqi citizen. Iraq was allowed to export limited amounts of oil in exchange for food, medicine, and some infrastructure spare parts. In December 1999, the UN Security Council authorized Iraq to export under the program as much oil as required to meet humanitarian needs. The military victory of the US-led coalition in March-April 2003 resulted in the shutdown of much of the central economic administrative structure. Although a comparatively small amount of capital plant was damaged during the hostilities, looting, insurgent attacks, and sabotage have undermined efforts to rebuild the economy. Attacks on key economic facilities - especially oil pipelines and infrastructure - have prevented Iraq from reaching projected export volumes, but total government revenues have been higher than anticipated due to high oil prices. Despite political uncertainty, Iraq is making some progress in building the institutions needed to implement economic policy and has negotiated a debt reduction agreement with the Paris Club and a Standby Arrangement with the IMF. An International Compact with Iraq is being established to integrate Iraq into the regional and global economy, while recognizing the need to resolve destabilizing security and political conflicts. Additionally, the Iraqi government is seeking to pass laws to strengthen the economy; this legislation includes a hydrocarbon law to encourage contracting with foreign investors and a revenue sharing law to equitably divide oil revenues within the nation. Controlling inflation, reducing corruption, and implementing structural reforms such as bank restructuring and developing the private sector, will be key to Iraq's economic prospects.