October 31, 2003
Three cheers for the United States Congress, key members of which on Wednesday approved US$18.4-billion in grants to help rebuild Iraq. Previously, the Senate had voted to deliver some of the reconstruction funds in the form of loans, a proposal that would have added to Iraq’s already stunning debt load, and turned off the many other nations the United States is looking to for help sharing the financial burden.
Of course, ordinary Iraqis have other things on their mind – like the continuing campaign of terrorism being waged by Saddam Hussein loyalists and foreign jihadis. But in the long run, the new funding is good news. Combine this US$18-billion with the US$13- to US$18-billion in loans and grants promised by international donors at last week’s donors conference in Madrid, and Iraq just got a US$30-billion-plus shot in the arm. That’s the equivalent of almost three years worth of Iraqi oil production, and more than half of the US$55-billion it is estimated the country will need over the next five years to rebuild its infrastructure.
But Iraq’s reconstruction may be hobbled by another problem that has received comparatively scant treatment: the massive debt accumulated under Saddam’s rule. According to a U.S. Defence Department official, Iraq owes foreign creditors somewhere around US$120-billion, several times its annual gross domestic product.
There is a serious case to be made for cancellation of this debt, or at least its substantial reduction and renegotiation. As The Wall Street Journal noted in a recent editorial, Iraq is a good candidate for application of the economic doctrine known as “odious debt.” According to this principle, debt that is incurred by a dictatorial regime without the consent of the governed, and for purposes that violate the population’s own interests – such as, say, the purchase of weapons of mass destruction or a series of ostentatious palaces – should not be transferable to a democratic, successor regime.
Cancelling Iraq’s obligations entirely would be difficult. Major lenders that opposed the war in the first place, such as France, would surely balk. And financial markets might plummet at news that a 12-figure debt was wiped off the books at a single stroke. But clearly, some form of major relief for Iraq should be granted. Saddling the country with a burdensome debt is no way to get the first genuine Arab democracy off the ground.