Iraq's Odious Debts

US and Iraq: Who owes whom?

Pratap Ravindran
The Hindu Business Line
February 7, 2005

So why is Bush so concerned that “the future of the Iraqi people should not be mortgaged to the enormous burden of debt?” Because it is taking money from ‘reconstruction,’ which could go to Halliburton, Bechtel, Exxon and Boeing. It has become popular to claim that the White House has been hijacked by neo-conservative ideologues in love with free-market dogma. I am not convinced. If there is one thing the Wolfowitz/Baker dust-ups make clear, it is that the ideology of the Bush White House is not neo-conservatism, it is old-fashioned greed. There is only one rule that appears to matter: If it helps our friends get even richer, do it.

    “Why the US wants Iraq’s debts cancelled – and Argentina’s paid in full.” – Naomi Klein, Guardian, December 23, 2003.

    (The Paris Club agreement) is “a second liberation after the fall of Saddam Hussein.” – The Iraqi Finance Minister, Mr Adil Abdul Al-Mahdi, December 17, 2004.

As the calendar wound down on 2004, a year in which US excesses in Iraq dominated the news, the US Departments of State and Treasury announced the dissolution of all outstanding debt they previously claimed Iraq owed Washington in consonance with a plan worked out at a November meeting of the top industrialised nations. In exchange, Iraq would surrender its economic sovereignty to global financial institutions, provide foreign investors enhanced access to its natural resources, and increase investment opportunities for multinational corporations.

It may be recalled that according to the three-stage agreement reached during the November meeting of the Paris Club – an organisation comprising representatives of 19 economic powers, including the US, Japan, Russia and various European countries – 30 per cent of Iraq’s estimated $40-billion debt to those nations collectively was to be relieved outright with no strings attached. The next 30 per cent of the debt was to be scheduled for relief as Iraq approved an arrangement with the International Monetary Fund (IMF), allowing it to design “structural adjustment” programmes to ‘revive’ Iraq’s moribund economy by privatising industries and services run by the government as well as opening various investment opportunities up to foreign capital. The Paris Club nations had pledged to relieve another 20 per cent of Iraq’s debt to them when it had fulfilled its obligations under the IMF arrangement, leaving just 20 per cent – about $8 billion or so – to be paid back.

And so, on December 17, the US Secretary of State, Mr Colin Powell, and the Treasury Secretary, Mr John Snow, announced the cancellation of Iraq’s debt to the US at a signing ceremony attended by the Iraqi Finance Minister, Mr Adil Abdul Al-Mahdi, and the Governor of the Central Bank of Iraq, Mr Sinan Shabibi. Both these worthies, incidentally, had represented Iraq during negotiations with the US, the Paris Club and the IMF. At the end of the signing ceremony, Iraq stood relieved of debt totalling about $4.1 billion, reduced from $4.5 billion by a prior reallocation of taxpayer funds originally intended for Iraqi reconstruction but ‘reprogrammed’ to pay off a portion of Iraq’s debt to the US in September.

At the ceremony, Mr Snow, with a perfectly straight face, said that the historic debt cancellation demonstrated America’s “unwavering commitment to the Iraqi people and to their efforts to achieve sustainable reforms and stability for their country.” Mr Powell, with an equally straight face, hailed the debt relief, saying that “rather than financing the vices of the old tyrant (Mr Saddam Hussein), Iraq’s treasures and resources are being used to bolster security and build infrastructure, to care for the nation’s elderly and to educate its young people.”

To understand the sheer foolishness of what was said on that day, one must go back to the June 2004 meeting of the leaders of the Group of Eight industrialised countries (Canada, the US, Japan, Germany, France, Italy, Britain and Russia) in the picturesque beach resort of Sea Island with a delegation of African leaders who were asking for their help in dealing with the region’s chief problems of war, disease and poverty.

The African leaders wanted not just debt relief, but debt cancellation. The G8 leaders, however, declined to help them out and offered instead a two-year extension of the so-called “heavily indebted poor countries initiative” (HIPC). They also made some noises about “topping up where appropriate” HIPC, without specifying a sum, and offered to “consider measures that can further help the poorest countries address the sustainability of their debt.”

Created in 1996, HIPC’s goal is to wipe out $100-billion in debt for countries which could demonstrate that they were capable of managing their finances. Even at the time of its creation, the HIPC did not make much sense. As the Nigerian President, Mr Olusegun Obasanjo, told the press after the Sea Island meeting, “All African debt needs to have relief, otherwise whatever we do in other areas will amount to eroding from what we need to have in terms of a flow of resources to be able to move Africa forward.”

In short, as Mr Irungu Houghout, a policy adviser with Oxfam International, put it, the G8 leaders had spent “way too much attention on Iraq” and devoted just a couple of hours for Africa – as “an afterthought.”

He had a point. In a statement delineating their reform proposal for West Asia, the G8 leaders said they would work with governments, business and grassroots groups in West Asia and North Africa “to strengthen freedom, democracy and prosperity for all.” They piously added that “successful reform depends on the countries in the region, and change should not and cannot be imposed from outside.”

Many Iraqis will, in all likelihood, find this sentiment hilarious.

Rewind to October 2004. On October 1, finance ministers from the world’s richest nations indicated their intention to delay a plan to write off 100 per cent of debts owed by the planet’s poorest countries, effectively putting paid to their hopes that they would be able to start spending more on poverty alleviation, health and education.

In a press release after a meeting on the same day, representatives of the Group of Seven (G7) countries (the US, Canada, Germany, France, Italy, Japan, and the UK which control Third World debt by dominating the executive boards of public lenders such as the IMF and the World Bank) said the issue needs further discussions and that they would report on those talks by the end of the year. The following day, the international monetary and financial committee, the policy making body of the International Monetary Fund (IMF) said it would continue to examine the issue, but declined to give a timeframe.

In the case of Iraq, it is important to bear in mind that that nearly all debt that creditor nations say is owed to them is illegitimate, or ‘odious’ as debt incurred by a despotic regime for personal use as against public benefit [ . . .] The US and western countries had lent funds to the Saddam Hussein regime, fully aware of the fact that the funds would be used to buy weapons for illegal wars or simply personal enrichment. In short, the regime used the bulk of the monies it had borrowed to buy war material from the lending countries.

It is also important to be aware that Kuwait and Saudi Arabia, two of Mr Saddam Hussein’s biggest creditors, have not thought it necessary to follow the example of the US [and] the Paris Club and are, in fact, trying to delay as much as possible any negotiations with Iraq on debt relief.

Finally, it is intriguing that nobody seems to have worked out how much the US and its allies owe the people of Iraq for having caused, according to none other than the United Nations (UN), the deaths of several hundred thousand Iraqis through the imposition of extremely harsh sanctions for more than 12 years. If one knew this, one could figure out who owes whom.

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