• In the wake of the overthrow of Saddam Hussein and his Ba'athist regime, two main tasks have confronted the Americans and Iraqis who now hold power. One is to stabilize the country; the other is to liberalize it economically, politically, and socially. Although the requirements of stabilization have so far overshadowed progress toward liberalization, significant steps have been taken in transitioning from totalitarianism to free market democracy. Much more, however, remains to be accomplished.
• This report offers an overview of the problems and possibilities of the transitional period, analyzing the nature of the transition and the players involved and focusing in particular on the process of liberalization.
• Both stabilization and liberalization have four major elements: dismantling the old power structures; constructing a new political order; liberalizing the economy; and managing the social and institutional forces that the newfound freedom has unleashed.
• If liberalization is to succeed, the coalition and its Iraqi partners must do more to acknowledge and address three factors that together shape the unique character of contemporary Iraq: the legacy of totalitarianism, the political economy of oil rentierism, and the multiethnic and multicultural composition of Iraqi society.
• Any effective approach to nation building must be built around all-inclusive participatory mechanisms that give each of Iraq's constituencies a voice in its future.
• The CPA's record has been mixed. It has been more successful in dismantling the structures of the former regime than in replacing them. Its policy of creating a new political order on three levels (local, national, and sovereign) is sound, but these three levels are disconnected.
• By establishing the Governing Council (GC) as its Iraqi partner, the CPA effectively gave Shi'i Islamic leaders a platform from which to press for Islamization and for direct elections for Iraq's next government. While the GC provides greater opportunities for inclusion than the old regime, the successor interim government taking over on June 30 must avoid dividing Iraq along communal lines.
• Efforts to liberalize the economy have been piecemeal so far. The opportunity exists to transform the nature of the oil industry and in the process turn Iraq into a share-owning (and more equitable) society. Until the future of the oil industry has been decided, however, progress toward overcoming numerous economic problems and creating a prosperous Iraq will be halting.
• Iraqis have responded enthusiastically to their newfound freedom to engage in political debate, creating numerous new organizations and newspapers. So dynamic is the current situation that it is impossible to predict which of the social and institutional forces will survive and how they will develop. Already, though, those forces are polarized along many different lines: pro- versus anti-coalition, Islamist versus secular, federalist versus centralist, liberal versus statist, traditional versus modern, and so on.
• The future direction of the transition will largely depend on the method chosen to determine Iraq's next government and the drafters of its new constitution. Immediate direct elections would almost certainly yield a Shi'i Islamic majority, which would destroy hopes of securing a fully representative and stable democratic system. Among other options, the most promising are the promotion of a liberal-moderate bloc and the adoption of a system of provincial proportional representation.
• The June 30 date for the transfer of authority to an interim Iraqi government has a great deal of symbolic value and should be honored. Assuming it is, the next step will be the negotiation of the status of coalition forces. Discussions also remain on the nature of the transitional government, the role of the United Nations, and the direction of U.S. policies toward the region.

For the complete English version of this report, click here.