Simon Kennedy
Bloomberg News
June 5, 2003

U. S. senators criticized the Bush administration for not having calculated the cost of rebuilding Iraq, even as international finance ministries begin discussing how to fund the reconstruction.

Policy makers from the Group of Seven nations and other countries, as well as representatives of the United Nations, International Monetary Fund and World Bank, will convene June 24 in New York for talks on aiding Iraq. The meeting is to lay the groundwork for a September donor conference of finance ministers.

While private estimates suggest the costs may reach $500 billion, officials from the Treasury, State and Defense departments were unable to tell lawmakers in Washington what price tag the administration attaches to the effort and how much the United States plans to contribute.

“This is a complicated question with a number of component parts,” Alan Larson, undersecretary of state for economic affairs, told the Senate Foreign Relations Committee. “I cannot give you a figure on how much it will cost to rebuild Iraq.”

That brought rebuke from senators from both parties. “I don’t know what the mystery is and why it’s taking so long for assessments,” said Senator Chuck Hagel, a Nebraska Republican. “By September the world is going to change considerably in Iraq and all the crack planning is missing that.”

Senator Russ Feingold, a Wisconsin Democrat, said the American people “deserve to know what will be asked of them in terms of the costs of reconstruction.”

John Taylor, undersecretary of Treasury for international affairs, told reporters after the hearing that the cost calculations would likely be ready by the September summit. The government can’t make an estimate until international financial institutions had completed their research, he said.

The IMF, World Bank and U.N. have agreed to compile studies of the damage to Iraq’s government, economy, and health-care systems, and they began to send experts to Baghdad this week. The U.S. Treasury already has around 20 officials in Iraq’s capital city assessing the country’s economy and its financial institutions.

The Center for Strategic and Budgetary Assessments, a research institute that specializes in defense issues, has put the bill for rebuilding Iraq between $105 billion and $498 billion. William Nordhaus, an economist at Yale University, calculated in December that reconstruction costs alone would be between $30 billion and $105 billion.

The United States is currently financing the restructuring with funds from the $1.7 billion in Iraqi assets it began freezing in 1991 and has since seized. The United States will soon deliver $358 million of that to the country, Taylor said. The administration plans to eventually use Iraq’s oil revenues, which could reach $15 billion next year depending on certain assumptions over price and demand, to help cover reconstruction costs, Larson said.

The challenge of resuscitating Iraq follows criticism of the U.S.-led war and Bush administration efforts to persuade more than a dozen creditor countries, including France and Russia, to forgive $127 billion of Iraq debt. Larson said key donors had agreed their loans won’t be serviced until at least the end of 2004 and that “when the time comes it will be necessary to give substantial debt relief.”

Even with the diplomatic difference, the U.S. officials predicted global cooperation on Iraq similar to that arranged for Afghanistan at a Tokyo conference last year. Nations led by the United States, Japan and the 15-member European Union pledged to spend more than $4.5 billion through 2005 to help rebuild that country.

“Contributions from the international community — both cash and in kind — will be critical to recovery in Iraq,” said Pentagon Comptroller Dov Zakheim. Larson said last weekend’s meeting in Evian, France of leaders from the Group of Eight leaders signaled “significant” support would be extended.

The U.S. “objective is to solicit as much as we can overseas,” Zakheim said, although the administration hasn’t set percentage goals for other countries’ contributions. While that drew additional criticism from lawmakers, Larsen said setting specific aims might scare countries from donating.