d other large enterprises, village agriculture,
and small-scale private trading and service ventures. President
KHATAMI has continued to follow the market reform plans of former
President RAFSANJANI and has indicated that he will pursue
diversification of Iran's oil-reliant economy although he has made
little progress toward that goal. The strong oil market in 1996
helped ease financial pressures on Iran and allowed for Tehran's
timely debt service payments. Iran's financial situation tightened
in 1997 and deteriorated further in 1998 because of lower oil
prices. The subsequent zoom in oil prices in 1999-2000 afforded Iran
fiscal breathing room but does not solve Iran's structural economic
problems, including the encouragement of foreign investment.

Iraq:
Iraq's economy is dominated by the oil sector, which has
traditionally provided about 95% of foreign exchange earnings. In
the 1980s, financial problems caused by massive expenditures in the
eight-year war with Iran and damage to oil export facilities by Iran
led the government to implement austerity measures, borrow heavily,
and later reschedule foreign debt payments; Iraq suffered economic
losses of at least $100 billion from the war. After the end of
hostilities in 1988, oil exports gradually increased with the
construction of new pipelines and restoration of damaged facilities.
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 have hurt the economy,
implementation of the UN's oil-for-food program in December 1996 has
helped improve conditions for the average Iraqi citizen. For the
first six, six-month phases of the program, 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. Oil exports are now more than
three-quarters their prewar level. Per capita food imports have
increased significantly, while medical supplies and health care
services are steadily improving. Per capita output and living