Iraq's Odious Debts

Dealing with debt – problem or opportunity?

Hussain Hindawi and John R. Thomson
National Review Online, USA
May 6, 2003

Iraq’s $350 — 500 billion debt burden can be an enormous problem … or opportunity. Reducing and managing it will not be easy, but it can be done, given a long view and reasonable goodwill. The overwhelming amount — as much as $325 billion — constitutes war claims and reparations levied by Iran, Kuwait, Saudi Arabia, and other Arab belligerents following Saddam’s assaults on Iran [1980-88] and Kuwait [1990-91, the first Gulf conflict]. The likelihood of these huge debts ever being paid has always been low to nil, although interest and minimal principal payments have flowed from the oil-for-food program, from which 25 percent of oil proceeds have been mandated to repayments.

It will be argued that, following the collapse of the late unlamented Soviet Union, Russia accepted the old regime’s foreign liabilities and assets, and that Iraq should do no less. Russia’s debt assumption, however, totaled “only” $80 billion. The response is twofold: [1] Iraq can never repay what is claimed, short of remaining a totally impoverished land; moreover, [2] it is in the interest of the entire world community of nations to do everything possible to put this bell-weather Middle East country on the road to democratic stability.

Support of a stable and rationalized regime in Baghdad is undeniably in the interests of Iraq’s brotherly Arab governments, neighboring Iran, indeed every country from Argentina to Zambia. Thus, those governments with outstanding war claims and reparations — including from the just ended conflict — should be prevailed upon to forgive most if not all the amounts in question.

Much of Iraq’s remaining debt, $15-25 billion, is owed to Russia and to France. It is abundantly clear that an important factor in Vladimir Putin’s and Jacques Chirac’s opposition to regime change in Baghdad was agreements for Russian and French companies to develop Iraqi oilfields. Thus, the solution: Honor those commercial agreements that are legitimate and fair to Iraq, allowing U.S. and British firms to “farm in” to such projects as major participants. Moreover, new projects negotiated by U.S. and British petro-powers should bring the viable Russian and French companies into their consortia.

Forget any retribution for their failure to support Operation Iraqi Freedom: now is the time to do everything reasonable to put Iraq on a path to recovery and democratic growth. Essential to such a proposed trade-off, will be Moscow and Paris dropping obstructionist tactics in the United Nations and forgiving all debts and claims incurred during Saddam’s reign. Such a reasonable, bygones-be-bygones course would also mark an important rapprochement between the Coalition of the willing and two of their foremost opponents during the run-up to war.

There is ample precedent for debt forgiveness: in 1898, the United States cancelled Cuba’s debt, to give the newly independent Spanish colony a fresh financial start. More recently, the IMF and World Bank have championed debt rescheduling and outright forgiveness for scores of African and Latin American nations, with governments including the United States, France, Germany, Great Britain, and Japan agreeing to forgive hundreds of billions of dollars. Iraq’s case is as persuasive as any.

Not only is it sensible foreign policy for the United States and Great Britain to seize the opportunity for rapprochement by bringing Russia and France back to the Iraqi oil patch. Support by Moscow and Paris for speedy action to rescind the outdated and discredited oil-for-food program will position the U.N. to take on its appropriate role of coordinating humanitarian relief.

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