Iraq's Reconstruction - Payback Time

By: Dr. Sam Vaknin

I. Oil for Food Revisited

II. Iraq's Middle Class

III. Iraq's Revenant Sons

IV. Forgiving Iraq's Debts

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March 23, 2003

Oil for Food Revisited

Also published by United Press International (UPI)

It is payback time. The United States has every intention of sidelining France, Germany and Russia in the lucrative reconstruction of a war-ravaged Iraq.  U.S. Ambassador to the United Nations, John Negroponte, said, last Wednesday, that  Washington is bent on "streamlining" the 8 years old U.N. oil-for-food program, now on hold since last Monday.

Money from Iraqi oil sales currently flows to an escrow account, co-managed by the Security Council's Office of the Iraq Program (OIP) and the Iraqi government. More than $42 billion worth of contracts for humanitarian supplies and equipment have been signed since December 1996.

The U.N. states that "supplies and equipment worth almost $26 billion have been delivered to Iraq, while another $11.2 billion worth of humanitarian supplies and equipment are in the production and delivery pipeline". Of these, reports the Washington Post, $8.9 billion in humanitarian goods, including $2.4 billion worth of food, are "ready to be imported into Iraq". The program's budget is c. $10 billion a year.

America and Britain wish to make Kofi Annan, the Secretary General of the United Nations, the sole custodian of the program, exclusively empowered to approve applications and disburse funds - as he has hitherto been doing in north Iraq. According to their proposals and the Secretary General's 8-page letter, the program's remit will be extended to cover war refugees as well.

Other novelties: Annan would be authorized to renegotiate contracts - for instance, with Russian, French and Chinese energy behemoths - and prioritize purchases. Additional routes and sites - both inside and outside the besieged country - would be approved for Iraq's energy exports and for the delivery and inspection of humanitarian supplies.

Stratfor, the strategic forecasting consultancy, explains why this stratagem is anti-Russian and, more so, anti-French:

"The process would greatly speed up the aid disbursement process and cut out the middlemen who profit from the contractual go-betweens ... (which) have been almost exclusively French and Russian companies ... French and Russian banks usually have channeled the funds to the appropriate places ... The contracts were bribes to Paris and Moscow to secure French and Russian support for Iraq within the United Nations."

The non-disbursed portion of the fund has now ballooned to equal 2-3 years of Iraqi oil revenues, or more than $40 billion. Iraqi Vice President, Taha Yassin Ramadan, scathingly criticized Annan yesterday for seeking to expand the exclusive role of the U.N. in administering the oil-for-food program. He said the proposal was "based on a colonialist, racist and despicable illusion that pushes the despot oppressors in Washington and London towards eliminating the state of Iraq from existence".

The increasingly cantankerous Mohammed Al-Douri, Iraq's disheveled Ambassador to the U.N., invoked the inevitable conspiracy theory. Iraq, he seethed, is to be eliminated and transformed "into colonies under the control of the world American and Zionist oil mafia". It is "a great insult to the United Nations". Annan's scheme "calls for the forfeiting of the oil of the Iraqi state and implementing the colonial illusion of the removal of the State of Iraq." - he thundered.

The Washington Post quotes a "confidential U.N. paper" as saying that "the U.N. image is already tarnished among the Iraqi people. It will be further damaged if the question of Iraq's oil resources is not managed in a transparent manner that clearly brings benefit to the Iraqi people."

The stalemate costs the under-nourished and disease-plagued people of Iraq dearly. More than three fifths of them - some 14 million souls - rely on the program for daily necessities. Over the weekend, experts from the 15 members of the Council, presided over by Germany, met to iron out the details. They were aided by Deputy Secretary-General Louise Fréchette, Benon Sevan, Executive Director of the OIP, UN Legal Counsel Hans Corell and Under-Secretary-General for Humanitarian Affairs Kenzo Oshima.

Negroponte reiterated Washington's mantra that the United States "will ensure that Iraq's natural resources, including its oil, are used entirely for the benefit of the Iraqi people". But Annan did not sound convinced when he exhorted the USA and the United Kingdom in the letter he delivered last week to the Security Council:

"The primary responsibility for ensuring that the Iraqi population is provided with adequate medicine, health supplies, foodstuffs and materials and supplies for essential civilian needs will rest with the authority exercising effective control in the country ... (But) without in any way assuming or diminishing that ultimate responsibility, we, in the United Nations, will do whatever we can to help."

Thus, continues Annan's missive, money in the U.N. account, originally earmarked for equipment and infrastructure, would be diverted to purchase food and medicine "on a reimbursable basis". Who would reimburse the fund he left unsaid. Nor did he limit the newfangled "interim" oil-for-food regime in time.

Whatever the outcome of the recent tussle, the U.N. would still have to rely on the Iraqi government to distribute goods and provide services in the southern and central parts of this California-sized polity. The United Nations' own staff has been withdrawn upon the commencement of hostilities. Annan already conceded that "the Iraqi State Oil Marketing Organization should be allowed to continue to retain ... the authority to conclude oil contracts with national purchasers".

But Saddam Hussein's regime fails to see the urgency. Baghdad said last Monday that it had distributed food to the populace to last them through August. Even non-governmental organizations in the field claim that no shortages are to be expected until May. So, what's the hurry? - wonder the authorities aloud, as they cower in their offices, awaiting the next, inevitable, blast.

March 30, 2003

Iraq's Middle Class

Also published by United Press International (UPI)

Iraq had no middle class to speak of until the oil boom of the 1960s-1970s. At the turn of the previous century, Baghdad sprawled across a mere tenth of its current area. However, since then and as late as 1987, the Iraqi capital was renowned throughout the Arab realm for its superior infrastructure, functioning services, splendor, conspicuous consumption and educated populace. "Baghdadi" in many Arab dialects meant "big spender".

Two thirds of all Iraqi children attended secondary school, thousands studied abroad, women actively participated in the workforce. The oil wealth attracted hundreds of thousands of menial laborers from Africa and Asia. It was Saddam Hussein, the country's tyrant, who rattled the moribund and tradition-bound entrenched interests and ratcheted up living standards by imposing land reform, increasing the minimum wage and expanding healthcare.

Even the Iran-Iraq war which decimated tens of thousands of intellectuals and professionals barely dented this existence. Rather, the - mostly Sunni - middle class was done in by the sanctions imposed on Iraq, the aggressor in the first Gulf War, after 1991.

Iraq's relatively affluent and well-traveled urban denizens had access to all the amenities and consumer goods - now proffered by the impoverished owners in improvised curb markets. As wages and the dinar plummeted, once-proud Iraqis were reduced to agonizing, humiliating and sometimes life-threatening penury.

Prostitution, street kids and homelessness have flourished. Divorce and crime rates are sharply up. Young couples cannot afford to marry, so promiscuity and abortions are in vogue. On the other extreme, Islam - both moderate and fundamentalist - is making headway into a hitherto devoutly secular society. Headscarved women are not a rarity anymore.

Official unemployment is c. 20 percent but, in reality, it is at least double that. Polyglot professionals with impressive resumes drive taxis, moonlight as waiters, or sell vegetables from rickety stalls.

According to Humam Al Shamaa, professor of economy and finance at Baghdad University, quoted by the Asia Times, one in every two Iraqis are currently employed in agriculture - most of it subsistence farming, raising cattle and poultry. Many an urbane urbanite now tend to tiny plots, trying to eke a living out of the fertile banks of the Two Rivers - the Euphrates and the Tigris. Industry - cement, petrochemicals - is at a standstill due to the dearth of raw materials oft-proscribed by the ponderous sanctions committee.

The Boston Globe recounts the tale of an Iraqi Airlines pilot whose monthly earnings plunged from $1500 to $2.50. Malnutrition and disease prey on the traumatized and destitute remnants of the bourgeoisie, the erstwhile nobility of the Arab world. The virtual elimination of the purchasing power of one of the richest Middle Eastern countries has had a profound impact on neighbors and trade partners across the region.

The UN Human Development Index has chronicled the precipitous decline of Iraq's ranking to its 127th rung. The New York-based Centre for Economic and Social Rights says that "Iraqis have been extremely isolated from the outside world for 12 years. The mental, physical and educational development of an entire generation has been affected adversely by the extraordinary trauma of war and sanctions".

Public services - from primary healthcare through electricity generation to drinking water - were roughly halved in the past 12 years. Quality has also suffered. Iraq's gross domestic product plunged by four fifths. With infectious diseases on the rampage and a debilitating stress load, life expectancy dropped - men now survive to the ripe old age of 57.

Infant mortality, at 93 in 1000 live births, soared. Three fifths of the population depend on an efficient system of government handouts. An exit tax of more than $350 virtually fenced in all but the most well-heeled Iraqis.

The American administration, in the throes of preparations for the reconstruction of a postbellum Iraq, acknowledges that the rehabilitation of the war-torn country's middle class is the cornerstone of any hoped-for economic revival.

But income inequality and a criminalized regime led to huge wealth disparities. The tiny, fabulously rich elite beholden to Saddam (the "war rats") are removed from the indigent masses. They make the bulk of their ill-gotten gains by maintaining Saddam-blessed import monopolies on every manner of contraband from building materials and machine spare parts to cars, televisions and beauty products. The United States estimates that the dictator and his close, clannish circle have secreted away more than $6 billion in illicit commissions on oil sales alone.

But the proceeds of smuggling and intellectual property piracy have trickled down to a growing circle of traders and merchants. So has the $30 billion influx from the oil-for-food scheme, now in its eighth year - though, as Hans von Sponeck, head of the program between 1998-2000, observed in the Toronto Globe and Mail:

"Until May of 2002, the total value of all food, medicines, education, sanitation, agricultural and infrastructure supplies that have arrived in Iraq has amounted to $175 per person a year, or less than 49 cents a day ... This has made postwar reconstruction impossible, and ensured mass unemployment and continuing deterioration of schools, health centers and transportation. 'Smuggled' oil revenues represent only a small fraction of oil-for-food funds. Even here, an estimated three-quarters of these funds have been directed to social services."

Still, Iraq's economy has been partly remonetized and is less insulated than it was in 1996. Even the stock exchange has revived.

Whatever the length of the war, its outcome is said to be guaranteed - the ignominious demise of the hideous terror regime of Saddam Hussein. Then, the scenario goes, the American and British "liberators" will switch from regime-change mode to the nation-building phase. Iraq will once again become the economic locomotive of the entire region, prosperous and secure.

But the bombed and starved denizens of Iraq may be holding a different viewpoint. Quoted in The Californian, Terry Burke and Alan Richards, professors at the University of California, Santa Cruz, noted that "the invasion and air attacks are forging intense hatred against the United States that will undermine any hope of gracefully replacing Saddam Hussein's dictatorship".

It would be instructive to remember that the 1958 overthrow of the monarchy by the Free Officers, followed by the Ba'ath party in 1968 and, later on, by Saddam Hussein, represented the interests of the lower middle class and the petty bourgeoisie: shopkeepers, low and mid-ranking officials and graduates of training schools, law schools, and military academies.

The most important economic policies in the past four decades - the agrarian reform and the nationalization of oil - catered to the needs and aspirations of these socio-economic strata. The backbone of Saddam Hussein's regime is comprised of bureaucrats and technocrats - not of raving rapists and torture-hungry sadists, as Western propaganda has it.

Saddam's days may well be numbered. But the levers of power, based on tribal affiliation, regional location, religious denomination and sectarian interests - will survive intact. If the West really aspires to resuscitate a stable Iraq - it has no choice but to collaborate with the social structures spawned by the country's long and erratic history. The Ottomans did, the British did - the Americans will do to.

April 2, 2003

Iraq's Revenant Sons

Also published by United Press International (UPI)

Iraqi Jews - a quarter of a million strong - are known in Israel for their haughtiness and broad education, the latter often the cause of the former. They were forced to flee Arab-nationalist Iraq in 1941-1951, following the rise of Nazism and, later, the establishment of the State of Israel.

Yet, though they have left Baghdad physically after 2600 years of continuous presence - many of them are still there emotionally. This holds true for numerous other Iraqi exiles, expatriates and immigrants in the far-flung diaspora. There are 90,000 Iraqis in the USA alone, according to the latest data from the Census Bureau.

But nostalgia may be the only common denominator. Exile groups jostle aggressively for the spoils of war: political leadership, sinecures, economic concessions, commercial monopolies and access to funds. The Washington Times reported yesterday that the Pentagon and the State Department back different cliques. It quoted one Republican congressional aide as saying: "There's a deep and messy war in the administration, and it's in the weeds."

Arab countries are promoting Sunni future leaders. Pro-democracy souls support representatives of the hitherto oppressed Shiite majority. Most exiles oppose a prolonged postwar U.S. presence or even an interim administration. They opt for a government of Iraqi technocrats with a clear United Nations mandate. The fractious Iraqi opposition and the two main Kurdish factions set up an Iraqi Interim Authority, a government-in-waiting with 14 ministries and a military command.

The Brussels-based International Crisis Group warned last Tuesday against a provisional administration composed substantially of exiles and expatriates:

"It would be a mistake to short-circuit the domestic political contest by prematurely picking a winner. Under either of these scenarios, the bulk of Iraqis inside Iraq, Sunni and Shiite, Arab, Kurd and others, who have been brutally disenfranchised for over three decades, would remain voiceless.''

The exile groups are out of touch with local realities and, as the Washington Times notes, compromised in the eyes of the Iraqis by their extensive contacts with the CIA and the USA, their political amateurism and their all-pervasive venality.

The finances of such self-rule could come from the $3.6 billion in Iraqi assets in the United States - about half of which have been recently re-frozen. The coffers of the United Nations administered oil-for-food program bulge with $40 billion in undistributed funds - enough to bankroll the entire reconstruction effort. Saddam and his clan are thought to have stashed at least $6 billion abroad. Everyone, though, tiptoes around the sensitive issue of reimbursing the war expenses of the coalition of the willing.

The Pentagon has other ideas in mind. It has recently formed the Office of Reconstruction and Humanitarian Assistance, headed by a retired general, Jay Garner. A few exiles, worried by this "colonial" tendency, have infiltrated Iraq, at great personal risk, to ensure that an Iraqi alternative is in place when Operation Iraqi Freedom achieves its eponymous goal.

Iraqi immigrants are fiercely nationalistic. Though few love Saddam Hussein and his interminable reign of terror - fewer are willing to countenance the occupation of their homeland by invading forces, regardless of their provenance. Many bitterly recall the Shiite rebellion in 1991 when a policy reversal of the United States allowed the dictator to bloodily suppress the uprising.

According to officials in Amman, more than 6500 Iraqis - out of 200 to 300 thousand - left Jordan in Iraqi-arranged free transportation to fight the "aggressors", as suicide bombers if need be. Others are streaming in from Lebanon, Syria, Yemen and North Africa.

Iraqi exiles in Iran - mostly Shiites and invariably mortal foes of the tyrant from Baghdad - have nonetheless denounced the invasion and called it, ominously, a "war on Islam". Aware of this duality, Donald Rumsfeld, the American Defense Secretary, recently warned that Shiite combatants "will be taken as a potential threat to coalition forces. This includes the Badr Corps, the military wing of the Supreme Council on Islamic Revolution in Iraq."

But other Iraqis, Kurds included, are training, in U.S.-sponsored camps in east and central Europe, to liaise with the local population to help non-governmental organizations and the coalition forces deliver humanitarian aid. The program - now suspended - is financed with money allocated from the $97 million 1998 Iraq Liberation Act.

According to the Boston Globe:

"During the four-week course, the volunteers learn battlefield survival skills including navigation, nuclear and biological weapons defense, marksmanship, first aid, and the laws of war and human rights. They also study civil-military operations such as processing refugees, distributing humanitarian aid, and rebuilding infrastructure."

Iraqi professionals abroad with vital skills in administration, agriculture, oil extraction, finance, economics, law, medicine and education are preparing to return. Draft reconstruction plans call for tax incentives and soft loans for homebound entrepreneurs, investors and skilled manpower. There are many of these. Arabs say that Egyptians write, Lebanese publish and Iraqis read.

Aware of this untapped wealth of talent and experience, the American have belatedly started recruiting dozens of expats and immigrants for the future administration of the war-torn country. Some 40 lawyers from Europe and North America will complete tomorrow a fortnight of training provided courtesy of the Justice Department.

The Pentagon and the State Department are running similar programs with 100 and 240 participants, respectively. According to the Knight-Ridder Newspapers, "the ('Future of Iraq') working groups deal with such topics as defense policy, civil society, public health, transitional justice, news media, national security, public finance and anti-corruption efforts".

According to the Washington Post, there is even an Iraqi military contingent of up to 3000 exiles underwritten by the Pentagon and training in Hungary. Some of them are slated to serve as guides and translators for the coalition forces in their homeland. The program is suspended now but the camp in Hungary remains open and it is tipped to be renewed.

And then there is the hoped-for reversal of the last four decades of capital flight. Iraqi merchants, traders, military officers, members of the security services, politicians, bureaucrats and professionals are thought to have secreted away, out of the reach of the rapacious regime, some $20-30 billion. Some of it is bound to come back and inject the dilapidated economy with much needed liquidity and impetus.

Last August, a group of Iraqi-born economists gathered at the Department of State in Washington. One of the participants, Dr. Salah Al-Sheikhly, a former Governor of Iraq's Central Bank, outlined to Washington File his vision of the future contribution of the diaspora to a liberated Iraq:

"People talk of the Iraqi Diaspora as if we have been idle. On the contrary, economists like myself have been working within the agencies of the United Nations and other international institutions. We have been consultants in many Arab countries. And many of us gathered around the table (in Washington) have extensive experience within the kinds of financial institutions that can assist Iraq enter the new world economy."

April 17, 2003

Forgiving Iraq's Debts

Also published by United Press International (UPI)

The French were at it again last Friday. Any reduction in Iraq's mountainous $120 billion external debt should be negotiated within the Paris Club of creditor nations, they insisted. It ought not - indeed, cannot - be tackled bilaterally. And what about another $200 billion in war reparations and contractual obligations? This, said French Foreign Ministry spokesman Francois Rivasseau, is to be discussed.

A day earlier, Paul Wolfowitz, the American Deputy Defense Secretary, prompted the French, Russian and German governments to write off Iraq's debts to them, so as to facilitate the recovery of the debtor's $15 to 25 billion a year economy. He echoed U.S. Treasury Secretary John Snow who suggested, in an interview to Fox News Channel, that Iraq's debts should be discarded even as was the dictator who ran them up.

At first, Putin made conciliatory noises upon exiting a gloomy meeting with the two other co-founders of the discredited "peace camp". Russia, he reminded the media, is number one in erasing debts owed it by poor countries.

But he was swiftly contradicted by the Chairman of the Duma's Committee on the State Debt and Foreign Assets Vladimir Nikitin, who called the American proposals "more than bizarre". Iraq's debt to Russia - some "well verified and grounded" $8 billion - is not negotiable. Contradicting his own contradiction, he then added that discussions on debts have to be held bilaterally.

Gennady Seleznyov, the Chairman of the lower house of the Russian parliament, concurred. For good measure, he also demanded $2 billion from the USA for contractual losses due to the war. The Russian government and especially Finance Minister and Deputy Prime Minister, Alexei Kudrin, cautioned Wolfowitz that applying his proposal consistently would lead to the scrapping of the debts of another departed evil regime - the U.S.S.R.

Russia needs Iraq's money - especially if oil prices were to tumble. According to Russia's Central Bank, the Federation's foreign debt was up $2.7 billion in 2002 and reached $153.5 billion, of which $55.3 billion is in Soviet-era debt, $48.4 billion were accrued in post-Soviet times and the rest is comprised of various bonds and obligations.

But the U.S. is unfazed. US Ambassador to Russia Alexander Vershbow reiterated to the Russian news agency, Rosbalt, his government's position thus: "We intend to organize a conference of creditors in order to discuss ways of finding a balance between the rights of the creditors and the rights of the Iraqi people to develop their economy. In my opinion, it would be unwise to immediately demand large sums of money from the new Iraqi government."

In this debate, everyone is right.

Iraq's only hope of qualifying for the status of a Highly Indebted Poor Country (HIPC) is by reaching iron-clad debt rescheduling agreements with both the Paris and the London Clubs. Still, as the Americans envision, creditors can unilaterally forgive Iraqi debt - especially one arising from Saddam Hussein's misdeeds - without hampering the process with the World Bank and without hindering future access to global or internal capital markets.

This is especially true when it comes to the United Nations Compensation Commission which administers Iraqi reparations to victims of Iraq's aggression against Kuwait in 1990-1.

Signs of utter confusion abound. The International Monetary and Financial Committee of the International Monetary Fund, headed by Gordon Brown, Britain's Chancellor, is committed to the Paris Club multilateral route. Yet, James Wolfensohn, the President of the World Bank, a twin institution, plumps for a bilateral resolution of this novel controversy.

Anticipating a beneficent outcome, $2 billion in traded Iraqi sovereign and commercial loans, harking back to the 1980s, have recently doubled in value to c. 20 cents to the dollar. According to The Economist, brokers are betting on a 70 to 90 percent reduction of Iraq's debt. This is way too exuberant. Moreover, not all creditors are created equal.

Iraq owes the IMF and the World Bank a mere $1.1 billion. But there is an abundance of unpaid high priority trade credits and bilateral loans. Private banks and commercial firms come a dismal third. Moreover, following Nigeria's example, Iraq may choose to ignore Paris Club creditors and deploy its scarce resources to curry favor with those willing and able to extend new financing - namely, private financial intermediaries.

Trading Iraqi debt - sovereign notes, letters of credit and papers issued by the central bank and two other financial institutions, Rafidain Bank and Rashid Bank, is onerous. The Economist describes it thus:

"Trading, or even holding, Iraqi paper is loaded with traps. Its validity can expire every few years, according to the statute of limitations in various jurisdictions. Renewing it requires some acknowledgment from the borrower, and that was difficult even before the war. Assigning the debt from buyer to seller requires the borrower's assent, and the Iraqi banks have been unco-operative since 1988. The trick is to apply during public holidays, or when communications are down (as they are now), because the borrower's failure to respond within ten working days can be taken as agreement."

No one has a clear idea of how much Iraq owes and to whom.

According to Exotix, a sovereign debt brokerage, Iraq owes commercial creditors $4.8 billion and other Gulf states $55 billion - regarded by Iraq as grants to cover the costs of its war with Iran in the 1980s. It owes Paris Club members - excluding Russia and France ($8 billion apiece) - $9.5 billion, the countries of Central Europe, mainly Germany - $4 billion and others - about $26 billion, including $5 billion to the U.S. government and American businesses.

The tortured country's foreign debt alone amounts to $5000 per every denizen. With reparations and commercial obligation, Iraq's destitute inhabitants are saddled with more than $16,000 in debt per capita - or 15-20 times the country's gross national product. Iraq hasn't serviced its loans for well over a decade now.

Others dispute these figures. Frederick Barton compiled, together with Bathsheba Crocker, an inventory of Iraq's outstanding financial obligations for the Center for Strategic and International Studies in Washington.

According to Barton-Crocker, quoted by the Gulf satellite channel, al-Jazeera and by the Christian Science Monitor, Iraq owes $199 billion in compensation claims to more than a dozen nations, another $127 billion in foreign debts and $57 billion in pending foreign contracts - public and private. Iraq owes Russia $12 billion, Kuwait $17 billion, the Gulf States $30 billion and less than $2 billion each to Turkey, Jordan, Morocco, Hungary, India, Bulgaria, Poland, and Egypt.

Most of the pending contracts are with Russian firms ($52 billion) but the French, Chinese, Dutch, United Arab Emirates and Egyptians have also inked agreements with Hussein's regime. The United states and American firms are owed little if anything, concludes al-Jazeera. Debt forgiveness would allow a more sizable portion of Iraq's oil revenues to be ploughed into the American-led reconstruction effort, to the delight of U.S. and British firms.

Russia and France are not alone in their reluctance to bin Iraqi credits. Austrian Minister of Finance, Karl-Heinz Grasser, was unambiguous on Tuesday: "We see no reason why we should waive 300 million Euros of Iraqi debts". He noted that Iraq - with the second largest proven oil reserves in the world - is, in the long run, a rich country.

In the build-up to the coalition, the United States promised to buy the debt Iraqis owe to countries like Bulgaria ($1.7 billion) and Romania. In Macedonia, Dimitar Culev of the pro-government daily "Utrinski Vesnik", openly confirms that his country's participation in the coalition of the willing had to do, among other, longer-term considerations, with its hopes to recover Iraqi debts and to participate in the postwar bonanza.

Poland's Deputy Labor and Economy Minister, Jacek Piechota, on Tuesday, affirmed that Poland intends to recover the $560 million owed it by Iraq by taking over Iraqi assets in a forthcoming "privatization". Another option, he suggested, was payment in oil.

Nor are such designs unique to sovereign polities. According to Dow Jones, Hyundai hopes to recover $1.1 billion through a combination of crude oil and reconstruction projects. During the Clinton administration, American creditors almost helped themselves to between $1.3 and $1.7 billion of frozen Iraqi funds with the assistance of the U.S. Foreign Claims Settlement Commission. Luckily for the looming new Iraqi government, the legislation languished in acrimony.

The debt question is not academic. As the London Times observes: "As things stand, no one can write a single cheque on Iraq's behalf until the question of its towering debts is sorted out. Not a single barrel of oil can be sold until it is clear who has first claim to the money; no reputable oil company would touch it without clear title."

According to Pravda, to add mayhem to upheaval, the Iraqi opposition indignantly denies that it had broached the subject with the USA. Iraq, they vow, will honor its obligations and negotiate with each creditor separately. But, some add ominously, members of the "friends of Saddam" fan club - alluding to Russia, Ukraine and Belarus among others - are unlikely to get paid.

The Iraqi opposition is as fractured as the Western alliance. Some exiles - like Salah al-Shaikhly from the London-based Iraqi National Accord - promote the idea of a big write-off cum grace period akin to the 66 percent reduction in the stock of Yugoslav obligations. Debt for equity swaps are also touted.

The trio of creditors - especially France and Russia - might have considered debt reduction against a guaranteed participation in the lucrative reconstruction effort. But a fortnight ago the House of Representatives approved a non-binding amendment to the supplementary budget law calling upon the administration to exclude French, Russian, German and Syrian companies from reconstruction contracts and to bar their access to information about projects in postbellum Iraq.

Also Read:

Saddam's Thousand Nights

Is It All About Oil?

The Iraqi and the Madman

God's Diplomacy and Human Conflicts

The Economies of the Middle East

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