Carlo Invernizzi
Oxford Student, UK
May 22, 2003

The Anglo-American coalition has won the war in Iraq. Now it is a question of winning the peace; and one of the most important issues that must be confronted in this respect is that of the country’s external debt.

Over the years Saddam Hussein’s regime accumulated an enormous amount of liabilities to creditors around the world. Some of the most conservative estimates near 380 billion dollars, including 180 billion in loans and 200 billion in reparations. Most of the contractual obligations come from the sales of weapons to Iraq. On the other hand, reparations are claimed by bordering states for the eight-year war against Iran and the first gulf war involving Kuwait as well as various other border clashes.

Now, given that Saddam Hussein’s regime is gone, the question is whether the country should still be held liable to repay those debts.

If the Iraqi people are held liable, will owe $15,000 per person, which is about five times what they earn, on average, in a year. It has also been estimated that even if 50% of Iraq’s future export income were diverted to servicing these obligations, it would still take more than 35 years for Iraq to pay the full amount.

Most people around the world, including many in the US government, are in favour of a cancellation of the debt. The arguments for this position are basically three:

The first relates to the legal concept of “odious debt,” formally defined by the Russian legal theorist Alexander Nahum Sack as a debt incurred by a State “not for the needs or in the interest of the State, but to strengthen its despotic regime or to repress the population that fights against it.” The basic argument, as formulated by Sack himself, then is that “odious debts do not provide an obligation for the nation: odious debts are a regime’s debts, personal debts of the power that has incurred them and consequently they fall with the fall of this power.”

The second argument for the cancellation of Iraq’s debt is more practical and relates to the fact that such an enormous debt would provide a formidable obstacle to a successful post-war recovery. Not only would it divert important resources that could be used for domestic investment, but it may also lead to a loss of confidence in the international market over the country’s ability to cope, which would be deleterious both in terms of foreign direct investment and in terms of currency regulation.

Thirdly, it has also been argued that a case for the cancellation of Iraq’s debt can also be made on the grounds that it would offer a disincentive for creditors to lend money to despotic regimes in the future.

The only voices that oppose a cancellation of Iraq’s debt seem to come from the creditors, which include primarily France and Russia (both owed 8 billion dollars) and Gulf states such as Iran and Kuwait. For this reason ‘Jubilee Iraq’ a non-governmental organisation campaigning for the cancellation of Iraq’s debt has called on creditors to demonstrate the legitimacy of their liabilities or otherwise drop their claims.

A definitive decision on the matter will have to be taken shortly either by the Iraqi governing body or by the UNHI as the relevant body in the United Nations.

The Worldview

“We talk of liberating the people of Iraq from Saddam, but it is also important to liberate the people of Iraq from his debt.” – Human Rights Observer Jo Wilding, speaking in Oxford.

“We would like to think that, when sanctions are lifted, the post war Iraqi authorities will observe the principles of international law.” – Russian Finance Minister Alexei Kudrin

“It seems that after the US prosecutes a nearly unilateral war to take over a devastated, indebted country, it suddenly sees the logic of eliminating illegitimate debts.” – Njoki Njoroge Njehu, director of the 50 Years Is Enough Network

“The Iraqi people cannot bear the burden of current debt levels.” – US Treasury Secretary John W. Snow

“We do not only expect to get our money back, we will get our money back.” – German Finance Minister Hans Eichal

“The hon. Gentleman would have to ask a better lawyer than me . . .” – Jack Straw on being questioned on potential liabilities regarding Iraq’s post-war debt.