Prior to Saddam Hussein's idiotic and self-destructive
invasions of his neighbors (the first of those covertly supported
by the U.S., but not the second), the Iraqi economy
did very well and the nation had quite a high standard of living,
with one of the highest, probably THE highest standard of
living and level of freedom for women. The education and
health systems worked well. More recently the regime also
practiced religious freedom, although very repressive in many
other ways and areas. Depending on the nature of the successor
regime, many of these virtues of the former Iraqi regime may
be endangered or lost completely. These are difficult times,
and what happens now is very important for the future of both
Iraq and the region more broadly.
Barkley Rosser
----- Original Message -----
From: "Kaboub, Fadhel (UMKC-Student)" <KaboubF@xxxxxxxx>
To: "Henry C.K. Liu" <hliu@xxxxxxxxxxxxxx>; <gang8@xxxxxxxxxxxxxxx>;
<pkt@xxxxxxxxxxxxxxxx>; <a-list@xxxxxxxxxxxxxxxxxxx>;
<TheNewForum@xxxxxxxxxxxxxxx>
Sent: Monday, April 07, 2003 2:32 AM
Subject: Re: Iraq Debts Add Up to Trouble
All these people ignore the fact that Iraq is a rich country not because
of its oil resources but because of its skilled labor. Iraq might need some
external help to speed up its reconstruction but it certainly doesn't need
an army of foreign engineers and technicians. This is a myth that the US
government is selling to the world to serve the interest of several lobbying
groups in DC, some of which have government officials sitting on their board
of directors. Today we hear the US government talking about 'reforming the
Iraqi educational and healthcare system'. Look who is talking about
healthcare and education! Of course, the term 'reforming' means
'privatizing' since it is the only thing a laissez-faire government knows.
As for the debt burden. Why don't we continue the 'evil rhetoric' after
the war too? Saddam Hussein was the evil man that put Iraq in this mess,
once he's gone, why should the innocent Iraqi people pay for his misdeeds
after their 'liberation'? After all, the US wanted to 'free Iraq', maybe it
should also make it debt-free, and then rage a new war to liberate dozens of
HIPCs from their debt burden, or is it pushing the rhetoric far too much?
Maybe not!
Fadhel
-----Original Message-----
From: Henry C.K. Liu [mailto:hliu@xxxxxxxxxxxxxx]
Sent: Sunday, April 06, 2003 10:43 PM
To: gang8@xxxxxxxxxxxxxxx; pkt@xxxxxxxxxxxxxxxx;
a-list@xxxxxxxxxxxxxxxxxxx; TheNewForum@xxxxxxxxxxxxxxx
Subject: Iraq Debts Add Up to Trouble
Iraq Debts Add Up to Trouble
Economists say Bush administration officials are wrong to assume that
petroleum revenue will pay for postwar reconstruction.
By Warren Vieth
Times Staff Writer
April 4, 2003
WASHINGTON -- To hear some Bush administration officials tell it, the
reconstruction of Iraq will largely pay for itself, thanks to a postwar
gusher of petroleum revenue.
"The one thing that is certain is Iraq is a wealthy nation," White House
Press Secretary Ari Fleischer said.
A look at the national balance sheet tells a different story.
Iraq will emerge from the war a financial shambles, many economists say,
with a debt load bigger than that of Argentina, a cash flow crunch
rivaling those of Third World countries, a mountain of unresolved
compensation claims, a shaky currency, high unemployment, galloping
inflation and a crumbling infrastructure expected to sustain more damage
before the shooting stops.
And the more oil Iraq produces to pump up its earnings, the more likely
it becomes that prices will fall, leaving it no better off than before.
"Clearly, it's a basket case," said Dean Baker, co-director of the
liberal Center for Economic and Policy Research in Washington. "Once you
start talking about it, you see what an impossible situation it is. I
don't think the Bush administration is anxious to have that conversation."
Bathsheba Crocker, director of the Post-War Reconstruction Project at
the centrist Center for Strategic & International Studies, said Iraq's
oil money is not the panacea many Bush officials seem to think it is.
"It's unreasonable to think that oil is going to finance all of the
needs of the country," Crocker said. "All told, there's just not enough
money to go around."
Baker and Crocker are among a small but vocal contingent of
nongovernment economists and foreign policy analysts who say it is time
for the United States to stop pretending that life in Iraq after the war
will resemble something out of "The Beverly Hillbillies."
The reality, they say, will look more like Chapter 11. In their view,
the only satisfactory solution is an international aid and debt relief
program as ambitious as the Marshall Plan that helped Europe recover
from the ravages of World War II.
"Unless debt and reparations are dealt with properly, Iraq is basically
bankrupt," said Rubar Sandi, an Iraqi American investment banker who is
pressing administration officials to embrace a major debt relief
initiative.
"I know they might not like what I'm saying," said Sandi, whose
Washington-based Corporate Bank Business Group has investments in
several developing countries. "But I am a businessman, and it's simple
mathematics."
Although the debt write-offs would be spread far and wide, some of the
biggest hits would be taken by countries such as Russia and France,
which supplied Saddam Hussein with military gear and other goods before
the 1991 Persian Gulf War and have been staunch opponents of the current
conflict.
Even then, experts say, Iraq's oil revenue probably would fall short of
what is needed to pay for postwar reconstruction, and much of the
immediate shortfall would wind up being financed by U.S. Treasury bonds.
So far, the administration seems not to have noticed. Deputy Defense
Secretary Paul Wolfowitz told Congress last week that Iraq would be able
to pick up much of the tab for postwar rebuilding.
"We're dealing with a country that can really finance its own
reconstruction relatively soon," he said.
Office of Management and Budget Director Mitchell Daniels Jr. asserted
that oil and gas revenue and confiscated Iraqi assets would provide
abundant resources for reconstruction.
Some members of Congress agree. "I don't think it makes sense to ask
U.S. taxpayers to pay the full cost of rebuilding Iraq when the Iraqi
state has plenty of resources to do so itself," said Sen. Byron L.
Dorgan (D-N.D.), who introduced a resolution Thursday calling for the
use of oil proceeds to finance the rebuilding effort.
However, Bush administration officials have declined to make specific
estimates of the long-term costs of rebuilding Iraq.
Without question, Iraq possesses assets any country would covet.
It sits atop the world's second-biggest pool of proven oil reserves,
some 112 billion barrels, as well as huge deposits of natural gas and
petroleum yet to be discovered.
But wealth in the ground does not necessarily translate into money in
the bank, at least not immediately. Iraq's oil infrastructure has
deteriorated badly during Hussein's reign, and most experts say it would
take up to two years and $5 billion to restore production to its
pre-Gulf War level.
Estimates of Iraq's potential oil earnings during the first year or two
after the war range from about $15 billion to $20 billion, depending on
price and production assumptions.
From that income, at least $11 billion would be needed initially for
routine government spending on state employees' salaries, public health,
safety, education, agriculture and welfare programs, Sandi said.
That would leave $4 billion to $9 billion to finance repairs,
infrastructure development, humanitarian assistance, debt payments,
claim settlements and war reparations.
And that's where the numbers stop making sense.
Estimates of Iraq's reconstruction needs start at about $25 billion and
run as high as $100 billion. The Council on Foreign Relations predicts
that reconstruction will consume about $20 billion a year for several
years.
Iraq's external debt loans from foreign countries and international
creditors totals at least $60 billion and as much as $130 billion.
Sandi, who has contacted a number of governments to discuss Iraq's
financial situation, said his best estimate is about $115 billion.
At 10% interest, as low a rate as indebted countries can expect to pay,
Iraq's interest payments alone could cost more than $10 billion a year.
Iraq also faces thousands of compensation claims totaling more than $200
billion.
Nearly $100 billion is being sought by Iran as a result of the
eight-year war instigated by Hussein.
As well, many claims were filed by Kuwaiti interests in connection with
the 1990 invasion that triggered the Gulf War.
The United Nations, which is arbitrating a portion of the claims,
already is deducting about $4 billion a year from Iraq's oil revenue to
pay claimants. If the rest of the pending claims were resolved, the
payments could increase substantially.
In addition, Russia, France, China and several other countries have
signed contracts with Iraq totaling about $60 billion. Russia, in
particular, is insisting that a new Iraqi government must honor those
deals.
Iraq's debt burden is several times the size of its entire economy,
which means it is more heavily leveraged than most of the countries
qualifying for the World Bank's Third World debt relief program. Its
financial obligations amount to more than $16,000 for every man, woman
and child in Iraq, a country whose per capita gross domestic product has
fallen to $2,500.
A number of economists say the only practical solution is for creditor
countries and commercial lenders to write off a substantial portion of
the debt, perhaps as much as 80%, and to allow a moratorium on all
payments and reparations for five years or so after the war. The United
States and other members of the Paris Club creditor group did that for
Yugoslavia after the war in Kosovo in 2001.
"There's a very good argument for a massive restructuring or writing off
of debt," said Crocker, of the Center for Strategic & International
Studies. "The international community has certainly done that in the
past. The problem is, it needs to be dealt with now. This is not a
longer-term issue. The minute Saddam is gone, people are going to start
demanding the money."
The United States may be reluctant to take the lead on debt relief.
Not only would it focus attention on the substantial costs associated
with the war effort, it would require asking Russia, France, Saudi
Arabia and other war skeptics to swallow a disproportionately large
share of the debt forgiveness.
"It's going to be hard for them to say, 'OK, Iraq, you don't have to pay
your debts,' especially when they're insisting that everyone else has to
pay all their debts all of the time," said Baker, of the Center for
Economic and Policy Research.
Philip K. Verleger Jr., an energy economist and senior fellow at the
Council on Foreign Relations, said Iraq's postwar financial stability
and the United States' future expense tab would depend in large part on
the Saudis, who hold $25 billion of Iraq's external debt.
Any increase in Iraqi oil output is likely to drive down oil prices,
currently about $29 a barrel, unless the Saudis are willing to throttle
back their own production to keep supply and demand in sync, Verleger
said. Whether they would be willing to do so is an open question.
"Most calculations suggest that if Saudi Arabia does not cut production
and we put the Iraqi oil back in the market, we're going to be dealing
with a price back in the teens," Verleger said. "If the Saudis so
choose, they can make life very, very difficult and very, very expensive
for the United States."
But Sandi, the investment banker, said it is only fair for foreign
creditors to wipe the slate clean so Iraq doesn't suffer the same
financial fate as Germany after World War I, when crushing debts and
hyper-inflation helped set the stage for World War II.
"The whole world knows they gave that money to Saddam. The international
community has to come together and discharge Iraq's debt, if not all of
it, then at least a portion," said Sandi, who is circulating a "Phoenix
Plan" for repairing Iraq's economy.
"Why? To have a good neighbor, a peaceful neighbor, a stable neighbor.
It's a good price to pay, I think."
Times staff writer Richard Simon contributed to this report.