ROBERT SIEGEL, HOST:
In the rugged mountains of northern Iraq, there are some gleaming new high-rises. They reflect bright sun and also big Kurdish ambitions. The Kurds largely run their own affairs, but their insistence on selling oil without the central government's permission has prompted Baghdad to strike back. The government cut off federal money to the Kurds. NPR's Alice Fordham visited a newly opened five-star hotel in the city of Sulaymaniyah.
ALICE FORDHAM, BYLINE: You know, even the white grand piano is brand new here in the lobby of the (unintelligible) hotel. There's a soaring white ceiling, a flashy fountain and there's flowers everywhere. The (unintelligible) here in Sulaymaniyah, Iraq has been open exactly three days and it's pristine, luxurious and expensive. I hear that the rotating restaurant on the top floor is now Iraq's highest eatery.
HEIMER LICAB: It's definitely true. It's tallest building in Iraq and I think it's also the most prestigious hotel in the country and when we get over our initial (unintelligible) of opening a hotel, I think we will position ourselves as one of the top and leading hotels within the Middle East.
FORDHAM: That's Heimer Licab(ph), an affable Austrian and the general manager here. He masterminded the grand opening with a colossal fireworks display and says the owners wanted to create an icon here in this northern Iraqi city.
LICAB: Of course, they want to make Sulaymaniyah as a famous place where their company is, where their headquarter is and they build the hotel for the city, for the people in Sulaymaniyah and they have an icon to look at.
FORDHAM: In the five years since I first visited, Iraqi Kurdistan has changed. New shops, restaurants and companies are opening. Although this enclave can feel very independent, it is still part of Iraq. Crucially, it receives almost all its annual income in an allowance from Baghdad. But in January, Baghdad stopped paying.
The central government, dominated by Iraq's Arab majority, was punishing Kurdish leaders for exporting oil without Baghdad's permission. With few reserves in Kurdish banks, the impact was immediate.
DENISE NATALI: While the buildings are going up, people aren't getting paid.
FORDHAM: Denise Natali there, who used to be a professor at the American University in Sulaymaniyah.
NATALI: Civil servants aren't getting paid, those working in the utility sectors. If this continues over the long term, or even now, even three months, to me that shows a vulnerability of the economy.
FORDHAM: To see how this is affecting people, I head to the bazaar, a maze of narrow streets where men hawk piles of pomegranates, gold for dowries and the glittery outfits Kurdish girls wear for parties. On the way, my cab driver says he's really a soldier who hasn't been paid in months. He sold his car to buy this taxi.
Down here in the heart of the Bazaar, people are shopping for (unintelligible) or New Year celebrations, later this month. I meet Sergirl(ph), a mother of three with a vivid green headscarf that matches her eyes. Her husband's a peshmerga(ph), a soldier, who hasn't been paid since January.
SERGIRL: (Through translator) Yes, everyone is affected. Now, the meruz(ph) is around the corner. It's so close and the children ask for gifts and everything. Now I came to the bazaar and I sold my necklace, which was gold. I sold it to buy some stuff for my children.
FORDHAM: And just a little bit further down the road, Hamids(ph) runs an electronic shop. He says that since people aren't building houses, business has been really slow. He is not too impressed with the gigantic hotel that's been built on the hill, either.
HAMIDS: We don't need hotels. Why do they not building factories. Five stars? What I do by the five stars?
FORDHAM: There's an election coming up in Iraq. Optimists hope that Baghdad cutting off the Kurdish budget is just political grandstanding but others point out, though, the Kurdish region hasn't coped well after just three month without Baghdad's fiscal umbilical cord. Suddenly, the boasts of independent prosperity here seem just a bit hollow. Alice Fordham, NPR News, Northern Iraq. Transcript provided by NPR, Copyright NPR.