Justin Alexander
Iraq Today
October 6, 2003

A widely believed fantasy is that Iraq’s black gold will quickly wipe away 35 years of Ba’ath rule, three wars and thirteen years of sanctions. In fact the oil is not pumping as fast as was hoped and, even if production increases in line with the most optimistic predictions, it cannot overcome a basic reality: Iraq today is the most indebted country on the planet.

Many African countries struggle to meet the basic needs of their people while paying debts equal to twice their export earnings. Iraq’s debt is currently higher than twenty times exports and, even if exports reach the CPA’s projection of $20bn in 2005, they will still only be a tenth the size of the foreign debt and reparations, which Paul Bremer recently told the Senate Appropriations committee was around $200 bn.

Six months after the Baath regime fell, not a single country decided yet to hold the Iraqi people responsible for money which it lent to Saddam. On the contrary, after 13 years of sanctions during which no debts were serviced, many countries are pressing for payment. Germany’s Foreign Minister Han Eichel has said “we not only expect to get our money back, we will get it back!” Kuwait’s Information Minister reasserted on October 28th that the reparation payments are “non-negotiable”. Even the Coalition members, who have a very clear interest in seeing Iraq succeed economically, have not yet written off their debt claims. Indeed, Britain and America are currently receiving part of the 5% of oil revenues which Resolution 1483 has committed to reparation payments.

If there was ever an occasion to question the myth of sovereign debt succession, Iraq must be it. Arguably, every cent being claimed is a result of Saddam’s economic mismanagement and warmongering, which not only failed to benefit the Iraqi people but also caused them great suffering. In 1980 Iraq was approaching European living standards, had no long term debt and a cash pile of over $36bn. Then came the Iran-Iraq war, during which, according to current Central Bank Governor Sinan Al Shabibi, military spending constituted up to three quarters of GDP. Economist Wajeeh Elali calculates that in the first five years of the war, military spending was $120bn – almost two and a half times oil revenues. This huge military effort was only possible thanks to external financing. Luckily for Saddam, many countries were sufficiently afraid of Khomeni’s Iran that they were willing to provide him with vast sums. And both the West and the Soviet Bloc channelled equipment and funds to Saddam, as did the Gulf countries. Hard cash from the Gulf countries and weapons, particularly from Russia and France, were obviously important. At the same time civilian imports on credit, from Japan, American and others, were also critical by freeing up every petrodollar for the military providing Ba’ath members with the luxuries which ensured their loyalty.

By 1990 the debt was already costing $3bn a year to service. This was a huge financial drain on Iraq which then, as now, was attempting a reconstruction program. There were a myriad of reasons for the invasion of Kuwait, but the issue of debt was certainly one of the most explicit grievances raised by Saddam during his sabre rattling in July 1990. Hence the debt burden was arguably the spark which lit the second Gulf War and caused Iraqis yet more suffering from war and the thirteen years of sanctions which followed. Over those thirteen years when Iraq was unable to pay debt service, interest has been accumulating on the debt and, added to the reparations awarded to Kuwait and 44 other countries, this has pushed the total burden from about $70bn in 1990 to around $200bn today.

    A surprising coalition has sprung up calling for the elimination of Iraq’s debts, based on a powerful principle in international law: debts accumulated by an oppressive regime for purposes which did not benefit the population are not legally enforceable. This “doctrine of odious debt” has been championed by debt campaigners in the global Jubilee movement for over a decade, and has been successfully applied in countries such as Cuba, Costa Rica and Poland. The idea can be traced back to principles in ancient writings such as Aristotle and the Prophet Musa (PBUH). The case for Iraq is so strong that even unlikely voices like those of Paul Wolfowitz and the Republican think-tank The Heritage Foundation have joined the call for debt justice.

Since Iraq cannot possibly pay even the annual interest on $200 billion, the total will be reduced. The question is whether the reduction will be sufficient and negotiated in a fair way. What generally happens to indebted countries is that the Paris Club, a cartel of the major creditors countries, decides on a level of payments which they think can be sustained indefinitely, and requires debtor countries to submit to economic policies designed by the IMF. The Paris Club, despite dealing with the debt of countries such as Indonesia, Congo and the Philippines – all of which inherited debt from brutal dictatorships – has never admitted that any of its members’ debt claims might be odious, and there is no reason to expect it will make an exception of Iraq. Jubilee Iraq (www.jubileeiraq.org), an NGO combining Western and Iraqi campaigners across the political spectrum, has been calling for a fairer process of debt negotiation than the Paris Club, which gives Iraqis a strong voice and questions the legality debt claims which are odious. Meetings during the first of three weeks of consultations have confirmed that most Iraqis are united in insisting that they have suffered enough from Saddam and should not pay his bills. Unity on this issue is essential if Iraq is to assert herself and break free of Saddam’s financial legacy of debt, which hangs like a sword over Iraq’s economic future.

Justin Alexander is the U.K. coordinator of Jubilee Iraq. Reach him at Justin@jubileeiraq.org.