Iraq's Odious Debts

FT briefing: Iraq donors’ conference

Fion Symon
Financial Times
October 21, 2003

Organisers of the Iraq donors’ conference, being held October 23-24 2003, expect $2bn to be committed to rebuilding the country – a figure far short of the country’s estimated needs for 2004.

The World Bank and the United Nations have estimated Iraq’s reconstruction needs at around $36bn for 2004-2007, not taking into account the additional $20bn the US will spend during the period.

The US will discuss Iraq debt forgiveness with several countries on the fringes of the conference. The Paris Club estimates Iraq’s existing debts at $21bn.

The conference, co-organised by the European Union, the US, the UN, Japan, the United Arab Emirates and the International Monetary Fund, will be attended by over 200 delegates from 78 countries, 19 international organisations and 11 non-governmental organisations.

But in spite of the recent UN Security Council resolution that went some way towards reconciling the US with those countries that opposed the war in Iraq , President Bush has struggled to obtain commitments from donor countries in advance of the conference.

The Coalition Provisional Authority has come in for increasing criticism over lack of accountability for the funds it has already received.

But attitudes could be changed by a new fund being devised by the World Bank and the UN that will be independent of the US-led civil administration.

The Bush administration has agreed that the new agency – to be announced at the Madrid conference – will determine how international contributions to reconstruction in Iraq will be spent. The new agency will be run by the World Bank and the United Nations.

The change effectively establishes some of the international control over Iraq that the US opposed during the drafting of the UN Security Council resolution.

US contribution

On October 17, both chambers of Congress passed most of President Bush’s $87bn emergency spending request for military and reconstruction efforts in Iraq and Afghanistan. But the Senate dealt a blow to the administration, however, by converting half of the $20.3bn Iraq reconstruction package from grants to loans.

The White House opposes the loan idea, arguing Iraq should not be saddled with additional debt, and that a loan would undermine US efforts to get more international assistance in Iraq.

Further undermining international support for US reconstruction efforts is the fact that most of the US contribution is likely to be in the form of “bilateral aid”. Under the “tied aid” rules of the US Agency for International Development, which have repeatedly been criticised as unfair and inefficient by most development experts, bilateral aid is reserved for US contracts.

A much smaller amount will go to the trust fund set up at the insistence of other donors, which will have open tendering.

International contributions

The World Bank has said it will contribute between $3bn and $5bn over the next five years to the newly established trust funds for Iraq that are to be managed by the World Bank and UN.

The biggest pledge from a single country has come from Japan, which will provide $1.5bn in grants next year towards the reconstruction of Iraq, making it the second largest Iraq donor after the US. Japan is also reported to be considering announcing loans – up to $5bn over four years at the conference.

The UK has agreed to provide £550m ($919m) over three years.

The EU has pledged €200m ($235m) next year.

Canada has pledged about $200 million for 2004.

South Korea has agreed to$200 million for 2004.

Spain has promised €90m ($105m) for 2004 and €270 ($300m) to 2007.

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