-Caveat Lector- -------------------------------------------------------------------------------- http://www.latimes.com/news/nationworld/world/la-war-iraqdebt4apr04010421,1,3763 271.story?coll=la%2Dheadlines%2Dworld%2Dmanual WAR WITH IRAQ Iraq Debts Could Add Up to Trouble By Warren Vieth Times Staff Writer
April 4, 2003 WASHINGTON -- To hear some Bush administration officials tell it, the reconstruction of Iraq will largely pay for itself, thanks to a postwar gusher of petroleum revenue. "The one thing that is certain is Iraq is a wealthy nation," White House Press Secretary Ari Fleischer said. A look at the national balance sheet tells a different story. Iraq will emerge from the war a financial shambles, many economists say, with a debt load bigger than that of Argentina, a cash flow crunch rivaling those of Third World countries, a mountain of unresolved compensation claims, a shaky currency, high unemployment, galloping inflation and a crumbling infrastructure expected to sustain more damage before the shooting stops. And the more oil Iraq produces to pump up its earnings, the more likely it becomes that prices will fall, leaving it no better off than before. "Clearly, it's a basket case," said Dean Baker, co-director of the liberal Center for Economic and Policy Research in Washington. "Once you start talking about it, you see what an impossible situation it is. I don't think the Bush administration is anxious to have that conversation." Bathsheba Crocker, director of the Post-War Reconstruction Project at the centrist Center for Strategic & International Studies, said Iraq's oil money is not the panacea many Bush officials seem to think it is. "It's unreasonable to think that oil is going to finance all of the needs of the country," Crocker said. "All told, there's just not enough money to go around." Baker and Crocker are among a small but vocal contingent of nongovernment economists and foreign policy analysts who say it is time for the United States to stop pretending that life in Iraq after the war will resemble something out of "The Beverly Hillbillies." The reality, they say, will look more like Chapter 11. In their view, the only satisfactory solution is an international aid and debt relief program as ambitious as the Marshall Plan that helped Europe recover from the ravages of World War II. "Unless debt and reparations are dealt with properly, Iraq is basically bankrupt," said Rubar Sandi, an Iraqi American investment banker who is pressing administration officials to embrace a major debt relief initiative. "I know they might not like what I'm saying," said Sandi, whose Washington-based Corporate Bank Business Group has investments in several developing countries. "But I am a businessman, and it's simple mathematics." Although the debt write-offs would be spread far and wide, some of the biggest hits would be taken by countries such as Russia and France, which supplied Saddam Hussein with military gear and other goods before the 1991 Persian Gulf War and have been staunch opponents of the current conflict. Even then, experts say, Iraq's oil revenue probably would fall short of what is needed to pay for postwar reconstruction, and much of the immediate shortfall would wind up being financed by U.S. Treasury bonds. So far, the administration seems not to have noticed. Deputy Defense Secretary Paul Wolfowitz told Congress last week that Iraq would be able to pick up much of the tab for postwar rebuilding. "We're dealing with a country that can really finance its own reconstruction relatively soon," he said. Office of Management and Budget Director Mitchell Daniels Jr. asserted that oil and gas revenue and confiscated Iraqi assets would provide abundant resources for reconstruction. Some members of Congress agree. "I don't think it makes sense to ask U.S. taxpayers to pay the full cost of rebuilding Iraq when the Iraqi state has plenty of resources to do so itself," said Sen. Byron L. Dorgan (D-N.D.), who introduced a resolution Thursday calling for the use of oil proceeds to finance the rebuilding effort. However, Bush administration officials have declined to make specific estimates of the long-term costs of rebuilding Iraq. Without question, Iraq possesses assets any country would covet. It sits atop the world's second-biggest pool of proven oil reserves, some 112 billion barrels, as well as huge deposits of natural gas and petroleum yet to be discovered. But wealth in the ground does not necessarily translate into money in the bank, at least not immediately. Iraq's oil infrastructure has deteriorated badly during Hussein's reign, and most experts say it would take up to two years and $5 billion to restore production to its pre-Gulf War level. Estimates of Iraq's potential oil earnings during the first year or two after the war range from about $15 billion to $20 billion, depending on price and production assumptions. >From that income, at least $11 billion would be needed initially for routine government spending on state employees' salaries, public health, safety, education, agriculture and welfare programs, Sandi said. That would leave $4 billion to $9 billion to finance repairs, infrastructure development, humanitarian assistance, debt payments, claim settlements and war reparations. And that's where the numbers stop making sense. Estimates of Iraq's reconstruction needs start at about $25 billion and run as high as $100 billion. The Council on Foreign Relations predicts that reconstruction will consume about $20 billion a year for several years. Iraq's external debt -- loans from foreign countries and international creditors -- totals at least $60 billion and as much as $130 billion. Sandi, who has contacted a number of governments to discuss Iraq's financial situation, said his best estimate is about $115 billion. At 10% interest, as low a rate as indebted countries can expect to pay, Iraq's interest payments alone could cost more than $10 billion a year. Iraq also faces thousands of compensation claims totaling more than $200 billion. Nearly $100 billion is being sought by Iran as a result of the eight-year war instigated by Hussein. As well, many claims were filed by Kuwaiti interests in connection with the 1990 invasion that triggered the Gulf War. The United Nations, which is arbitrating a portion of the claims, already is deducting about $4 billion a year from Iraq's oil revenue to pay claimants. If the rest of the pending claims were resolved, the payments could increase substantially. In addition, Russia, France, China and several other countries have signed contracts with Iraq totaling about $60 billion. Russia, in particular, is insisting that a new Iraqi government must honor those deals. Iraq's debt burden is several times the size of its entire economy, which means it is more heavily leveraged than most of the countries qualifying for the World Bank's Third World debt relief program. Its financial obligations amount to more than $16,000 for every man, woman and child in Iraq, a country whose per capita gross domestic product has fallen to $2,500. A number of economists say the only practical solution is for creditor countries and commercial lenders to write off a substantial portion of the debt, perhaps as much as 80%, and to allow a moratorium on all payments and reparations for five years or so after the war. The United States and other members of the Paris Club creditor group did that for Yugoslavia after the war in Kosovo in 2001. "There's a very good argument for a massive restructuring or writing off of debt," said Crocker, of the Center for Strategic & International Studies. "The international community has certainly done that in the past. The problem is, it needs to be dealt with now. This is not a longer-term issue. The minute Saddam is gone, people are going to start demanding the money." The United States may be reluctant to take the lead on debt relief. Not only would it focus attention on the substantial costs associated with the war effort, it would require asking Russia, France, Saudi Arabia and other war skeptics to swallow a disproportionately large share of the debt forgiveness. "It's going to be hard for them to say, 'OK, Iraq, you don't have to pay your debts,' especially when they're insisting that everyone else has to pay all their debts all of the time," said Baker, of the Center for Economic and Policy Research. Philip K. Verleger Jr., an energy economist and senior fellow at the Council on Foreign Relations, said Iraq's postwar financial stability -- and the United States' future expense tab -- would depend in large part on the Saudis, who hold $25 billion of Iraq's external debt. Any increase in Iraqi oil output is likely to drive down oil prices, currently about $29 a barrel, unless the Saudis are willing to throttle back their own production to keep supply and demand in sync, Verleger said. Whether they would be willing to do so is an open question. "Most calculations suggest that if Saudi Arabia does not cut production and we put the Iraqi oil back in the market, we're going to be dealing with a price back in the teens," Verleger said. "If the Saudis so choose, they can make life very, very difficult and very, very expensive for the United States." But Sandi, the investment banker, said it is only fair for foreign creditors to wipe the slate clean so Iraq doesn't suffer the same financial fate as Germany after World War I, when crushing debts and hyper-inflation helped set the stage for World War II. "The whole world knows they gave that money to Saddam. The international community has to come together and discharge Iraq's debt, if not all of it, then at least a portion," said Sandi, who is circulating a "Phoenix Plan" for repairing Iraq's economy. "Why? To have a good neighbor, a peaceful neighbor, a stable neighbor. It's a good price to pay, I think." * Times staff writer Richard Simon contributed to this report. Copyright 2003 Los Angeles Times <A HREF="http://www.ctrl.org/";>www.ctrl.org</A> DECLARATION & DISCLAIMER ========== CTRL is a discussion & informational exchange list. Proselytizing propagandic screeds are unwelcomed. Substance—not soap-boxing—please! These are sordid matters and 'conspiracy theory'—with its many half-truths, mis- directions and outright frauds—is used politically by different groups with major and minor effects spread throughout the spectrum of time and thought. That being said, CTRLgives no endorsement to the validity of posts, and always suggests to readers; be wary of what you read. CTRL gives no credence to Holocaust denial and nazi's need not apply. Let us please be civil and as always, Caveat Lector. ======================================================================== Archives Available at: http://peach.ease.lsoft.com/archives/ctrl.html <A HREF="http://peach.ease.lsoft.com/archives/ctrl.html";>Archives of [EMAIL PROTECTED]</A> http://archive.jab.org/[EMAIL PROTECTED]/ <A HREF="http://archive.jab.org/[EMAIL PROTECTED]/">ctrl</A> ======================================================================== To subscribe to Conspiracy Theory Research List[CTRL] send email: SUBSCRIBE CTRL [to:] [EMAIL PROTECTED] To UNsubscribe to Conspiracy Theory Research List[CTRL] send email: SIGNOFF CTRL [to:] [EMAIL PROTECTED] Om
