Iraq's Odious Debts

De novo in Iraq

Jack Kemp
Frontpage Magazine
April 22, 2003

Let’s get one thing straight from the outset about Iraq. The Iraqi people need wait upon no one – military general, foreign government or international organization – to govern themselves, engage in commerce domestically and sell their property on world markets. Sovereignty resides in the Iraqi people and cannot be conferred by any outside entity or authority.

It will not be the United Nations that confers legitimacy on the new Iraqi government; formal diplomatic recognition will come about the old-fashioned way – one nation at a time as the new Iraqi government exchanges ambassadors, signs treaties and engages in commerce and trade on a bilateral basis with individual countries around the world.

As President Bush has said repeatedly, the natural resources of Iraq belong to the people of Iraq, and no authority to consume them or sell them can or need be granted by any outside entity. Moreover, there is a cacophony of misguided talk about “lifting” the sanctions, “forgiving” debt and “honoring” contracts that were imposed upon and executed by the odious and now defunct Baathist dictatorship of Saddam Hussein. The legal and moral basis of those sanctions, debts and contracts went the way of the Hussein regime – they are moot, null and void.

Two stringent conditions must be met before any foreign government, international organization or private enterprise can claim the legal or moral standing to enforce holdover sanctions on the Iraqi people or force them to comply with contracts signed by or repay debt incurred by the Hussein regime. The government, organization or enterprise must demonstrate that the action taken by the Hussein regime that gave rise to the sanctions, contract or loan was taken both with the consent of and for the benefit of the Iraqi people. Otherwise, the Iraqi people may not be made to suffer under sanctions nor compelled to recognize and comply with contractual claims against Hussein’s regime. The burden of proof, extremely heavy in this case, is upon those who would press the claims against the Iraqi people.

Bankruptcy is a fundamental concept of capitalism that wipes the contractual slate clean. There is a political analogy to bankruptcy – today it’s called “regime change” – in which the country begins de novo. It occurred in Nazi Germany, imperial Japan, Soviet Russia and Warsaw Pact Europe. It has now occurred in Iraq. Tabula rasa: The slate has been wiped clean; things begin de novo.

A new birth is under way in the cradle of civilization between the Tigris and Euphrates rivers. Although analogies are tricky, the rebirth analogy is apt here because it helps define the role the United States must play in this glorious but messy and painful process – midwife, temporary guardian and trustee. That’s why a number of us are working feverishly and unofficially to put together a bipartisan 21st century Marshall Plan for Iraq, Afghanistan and the region.

While governments and international organizations may attempt to use Iraq as a pawn in their endless maneuverings for position and power in the global arena, the United States must take immediate steps, even while it is in the process of restoring and maintaining order in Iraq, to revive trade and commerce, especially oil production and sales. For starters, the president could demonstrate the U.S. conviction that the case for sanctions against the defunct regime is moot by immediately revoking Executive Order 12724, which prohibits U.S. companies from engaging in trade and commerce with Iraq.

Iraq doesn’t need International Monetary Fund loans and World Bank grants conditioned on an austerity program. The country has the expertise and the personnel to restart oil production, begin generating revenue immediately and make the repairs and capital improvements necessary to maximize production within a three- to five-year time frame. What Iraq needs is a functioning oil company (and eventually several private Iraqi oil companies with Iraqi CEOs and boards of directors comprised of Iraqis, the stock of which is owned by every Iraqi citizen). Such companies would be able to borrow money and sign contractual agreements with oil service companies and exploration companies of their own choosing to get the oil flowing again.

Oil operations should be turned over to the Iraqis immediately. There has been some speculation that potential purchasers might be reluctant to buy Iraq’s oil right now, fearing that their title to the oil might be challenged on the grounds that the entity selling the oil does not have the legal authority to do so. The United States could alleviate that uncertainty by underwriting insurance guaranteeing the purchasers that they would not be liable for lawsuits challenging their title to the oil they purchase.

None of this necessitates foreign management of Iraqi oil operations; it simply calls for temporary guarantees, which the United States could provide, to assure purchasers and lenders that the contracts will, in fact, be honored, the oil will be delivered under the terms of the contract and payment will be made as promised.

Until the political situation stabilizes, oil proceeds could be placed temporarily in trust for the Iraqi people and expenditures from an escrow account authorized only for the benefit of the Iraqi people. All the United States really needs to do is monitor the process and act in the role of an “inspector general” to prevent graft and other corrupt practices.

Now is the time for Iraqi interim administrator Gen. Jay Garner to follow the sage advice of Gen. Douglas MacArthur: “In order to establish authority, precipitate action immediately.”

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