Bertus Hendriks and Theo Tamis
Radio Netherlands
October 24, 2003

Iraq and the countries of the US-led coalition may not have raked in as many billions as they had bargained for ahead of the international donors’ conference in Madrid, but the outcome will go a long way towards meeting the reconstruction needs of the shattered, oil-rich country.

Prior to the Madrid gathering, Secretary of State Colin Powell tried to cover himself against a possible failure by lowering expectations of its financial yield. But during the course of proceedings, his mood became slightly more upbeat as more and more wealthy nations gave way to the behind-the-scenes pressure he was exerting.

Secretary Powell set the tone by telling France and Germany that they “would have better served the international community if they had accepted to make additional financial contributions”. But the two key European powers, fierce opponents to the war on Iraq, continued to hold back on extra funds as long as there is no sovereign government in Iraq and as long as the US has the final say over everything that happens in the country.

Wealthy nations The secretary’s clarion call was more successful in winning over countries like Japan, which offered another 700 to 800 million dollars on top of the 1.5 billion already pledged. Hosting the conference and determined to turn it into a success, Spain also contributed a sizeable amount. But all eyes were focused on rich Arab Gulf states, like Kuwait and Saudi Arabia, who as neighbours have a great deal of interest in stabilizing Iraq.

While pledging one billion dollars, the Saudi government reiterated that it would only reschedule, not write off, the 28 billion dollars owed to it by Iraq. Indeed, Baghdad’s debt mountain is one of the main obstacles to the reconstruction effort. Estimates range between 100 and well over 200 billion dollars. Compare that to the 56 billion dollars required for the rebuilding effort over the next four years and you have some idea about the extent of the problem.

Oil revenue to pay off debts The reconstruction effort needs to be financed not only through the combination of the gifts and loans pledged in Madrid, but also increasingly by the revenue generated from Iraqi oil production. But using the oil revenue to pay off Iraqi debts means that the Madrid donors will indirectly help creditors get their money back. And among the biggest of those creditors are France, Russia and Germany, the same countries that used to supply Saddam Hussein with large amounts of weaponry.

For this reason, the US Congress wants half the 20 billion dollars US President George Bush is seeking towards Iraqi reconstruction to be in the form of loans instead of outright grants. It’s to prevent US taxpayers´ money ending up in the coffers of countries fiercely opposed to the war. President Bush may have rejected the position adopted by Congress, but it remains a sensitive issue.

Saudi Arabia, France, Russia and Germany are not the only countries refusing to set a precedent by writing off Iraq’s debts. Why cancel Saddam’s debts and not those accumulated by former Congolese dictator Mobutu Sese Seko, to name just one notorious example. The US administration isn’t in favour of a blanket write-off either, but would like to see one in the case of Iraq.