Iraq's Odious Debts

A question of despots and debts

Jerry Heaster
Kansas City Star, MO
April 18, 2003

There is a moral dimension to the Iraqi debt issue that deserves a good deal more discussion than it has gotten so far.

Should those who lend money to despots expect to get their money back if the despot is toppled?

The Bush administration has signaled a desire to have the Iraqi debt canceled or sharply reduced. Not surprisingly, those from whom Saddam Hussein borrowed scads of money disagree.

As CNBC Washington bureau chief Alan Murray said in a recent Wall Street Journal column, those who want their money back complain the United States is biased because it has no Iraqi debt. This is a silly argument, though, given U.S. willingness to spend lives and treasure to oust Hussein and help rebuild Iraq. The cost to American taxpayers of Iraq’s liberation and rehab is likely to amount to a good deal more than the country’s considerable debt.

When Hussein took power, Iraq was an estimated $35 billion in the black. After nearly a quarter of a century of his spending on war and self-aggrandizement, Iraq is estimated to owe foreign debtors about $100 billion. The overwhelming majority of Iraqis who suffered under Hussein’s reign of terror realized no benefit whatsoever from this exercise in profligacy.

Most Iraqis, in fact, were victims of the lenders as well as Hussein. Without foreign financial help, Hussein wouldn’t have been able to sustain his police state and military dictatorship.

The irony is that perverted uses of the money borrowed by Hussein in Iraq’s name helped destroy the country’s capacity for growth and prosperity. Among the oil-rich states, Iraq is highly unusual in its failure to have used at least part of its natural wealth to improve the lot of its people.

Hussein’s record shows him to be as much a financial criminal as a cruel despot. Creditors insist on being repaid by a new regime but keep mum about how Hussein stiffed them. As Murray noted, Iraq hadn’t made a debt payment in many years and wasn’t likely to as long as Hussein was in power.

In the realm of international finance, a frequent source of problems confronting beleaguered creditors is a failure to have exercised sound moral judgment. This is why they prefer to hold countries rather than regimes responsible for debts.

While there is a good deal of historical precedent to support this position, James Surowiecki recently explored a competing principle in The New Yorker. It’s called “the doctrine of odious debts,” which holds that a country is not responsible for debts incurred by a “despotic regime.”

Given lenders’ reluctance to make moral judgments, proponents of the “odious debt” doctrine would like to see the creation of an international entity with the authority to declare debts odious when necessary.

How all this will play out remains to be seen, but the immediate concern should be the lack of serious discussion about the legitimacy of debt incurred by Saddam Hussein. Saddling Iraq with repaying that debt would cripple it for another generation and extend Hussein’s victimization of Iraq.

The United States holds the high ground in this debate and thus has earned the right and obligation to exert its will in favor of the downtrodden Iraqis.

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