Drop Iraq's Debt
Proposal to forgive Iraq's debt, racked up over the years by Saddam Hussein with the winking approval of France, Russia, the UK and of course, the US.
Noreena Hertz: Drop Saddam's Debt
Date: 09 April 2003
Iraq has been just one of the many countries that have been lent money to support our geopolitical or corporate interests, no matter how brutal their rulers. Most of these countries are still paying for these monies even after they have supposedly been freed from tyrannical regimes. Let us not now add Iraq to this list!
Speech delivered at a Jubilee Netherlands seminar held in Utrecht, the Netherlands on 29 March 2003.
For this occasion, I have chosen to tell the story of debt and Iraq, or more precisely debt, Iraq and war. A timely story that encapsulates many of the themes that underlie today's conference: themes that link debt to lending to odious regimes, to matters of injustice and to the perpetuation and escalation of poverty.
Iraq is a seriously indebted country. A very seriously indebted country indeed. Its external debt totals approximately $127 billion, almost 4 times its GDP - making it in many ways one of the world's most highly indebted poor countries.
How on earth did it get into this position? Because great projects that would aid development were provided with loans at some point? So that the country could create jobs, or provide health services, or set up schools? For productive investments?
Err no. Most of the debt was run up in the 1980s after Saddam Hussein came into power. About half of it was lent to him by Arab states as a show of geopolitical support during the Iran-Iraq war. And much of that and most of the other monies lent by other countries, was used to fuel military equipment purchases.
France for example is owed $4bn by Iraq for its sales of F1 fighters, Exocet air-to-surface missiles, laser guided missiles, attack helicopters, military vehicles, and artillery pieces to Saddam's regime. In fact in the 80s Iraq accounted for 40% of France's arms sales. Russia is owed about 9 billion dollars - monies that were spent to fund more helicopters, MIG fighters and radar equipment. Poland, Bulgaria, and countless Arab states are still owed monies that fuelled not only the Iran-Iraq war, but also provided the means for Saddam to turn brutally on his own people, and the nuclear capabilities which Israel then destroyed in 1991.
Most of the $127 billion that Iraq currently owes was used to fund Saddam's weapons programs. Or, looking at it in another way: to fund various international military manufacturers, whose sales to Saddam's regime were typically underwritten by government export credit agencies and using, in many cases taxpayer monies. And this, despite the fact that the tyranny of his regime was already public knowledge by the late eighties.
But of course not all the monies went into military expenditure. Billions of dollars lent undoubtedly also went to fund Saddam's own personal follies: his private palaces, his monuments to his reign, his entourage, his own off shore bank accounts in Switzerland, Luxembourg, France and Austria where it is estimated that about $4.5 billion is sitting. In fact in Forbes Magazines Rich List that came out only a few weeks ago, Saddam came out as the third richest ruler in the world, overshadowed only by King Fahd of Saudi Arabia and the Sultan of Brunei.
The irony of liberation
So in the case of Iraq we have the classic situation, that I am sure other speakers today will echo, of a country lent monies by the international community, not for income-generating projects, or development purposes, but instead to support either geopolitical interests or to support the interests of a domestic military industrial complex and arms manufacturers. The fact that the lenders in the process, including of course the United States and United Kingdom, were supporting a terrible regime, a tyrannical dictator who was known to be committing genocides on his territory - cynically ignored.
Ironic then that liberating Iraq from the tyrannical regime of Saddam Hussein is one of the key reasons given for the current war on Iraq!
But OK, whatever one's sceptism about the American or British motives for this war, whatever one's position on the war before it was launched, the war is taking place, and we can only pray and hope that the liberation of the Iraqi people will emerge from the carnage.
Funds for reconstruction
However, liberating the Iraqis is not just a matter of bombing Baghdad. Freedom from a tyrannical dictator means relatively little if one is starving. And Iraq today is desperately poor. According to Iraqi officials, per capita income has fallen to $150 per year, The war with Iran, the Gulf War, 12 years of sanctions, and now the current war will all have taken their toll.
Once the war is over, the country will need to be rebuilt. This will necessitate a huge injection of funds. Iraq will need an estimated $250 billion over the next ten years, to try and absorb its large conscript army into the economy, and to rebuild its crumbling infrastructure - its electrical sector for example is barely holding production steady at one third of its 1990 capacity. Despite its enormous oil reserves there is no way it will be able to cover these costs alone.
Debt relief, isn't that obvious?
The country will need massive amounts of aid and preferrably a cancellation, or at least a long-term rescheduling of its debt in order to have a hope of liberating its people not only from fear but also from poverty and despair.
Indeed, one would think it is obvious that the debts incurred by this tyrannical dictator, debts that have not been being serviced since the end of the Gulf War, would be written off, or at least automatically rescheduled, postponed once a new regime is in place.
Afghanistan: free - but not from debt service
Err not so. As the case of Afghanistan so poignantly highlights, even loans made to blatantly heinous regimes are most often expected to be serviced. Afghanistan still has foreign debt of over $5.5bn including World Bank, Asia Development Bank and IMF loans, over four time its GDP, which it is still having to service.
This, despite the fact that the country is in the midst of a lingering drought that is withering its already pitiful economy, despite the fact that this is a country that has been completely ravaged by a succession of wars, despite the fact that more than half of Afghanistan's 22 million people live in absolute poverty, despite the fact that most of the loans were made to further the particular lenders geopolitical or arms industry's interests, and despite the fact that monies spent on debt repayment are monies that could of course be spent on providing health care, education, basic needs provision to the Afghani people.
Let's not add Iraq to the list!
Afghanistan is just one of the dozens of countries that have been lent money to support our support geopolitical interests or corporate interests, regardless of where the money was being spent and by whom. Just one of the many countries that are still paying for these monies even after they have supposedly been freed from tyrannical regimes.
Let us not now add Iraq to this list! Let us as activists do all we can to ensure that debt cancellation or restructuring of Iraqi debt is forced onto the political agenda. Debt cancellation and relief for Iraq must become a political issue.
Taking on the debt vultures.
But even if we do succeed in putting pressure on the international community to cancel or reschedule Iraqi debts, there is another problem that is potentially looming that we must act to do something about. While the bombs fall on Baghdad, there is a group of financiers who are, my sources tell me, getting very excited - a group known as debt vultures - hedge funds like New York based Elliot Associates - that buy up poor country debt at a massive discount and then sue countries to redeem the debt at its face value.
We have seen them do it in Guyana and Peru. Now, at a time that one can buy Iraqi debt at between 8 and 10 cents on the dollar, Iraq is an obvious target for this group. A group that has legal precedent for successfully winning such claims, and also the deep pockets to bring such cases to bear which no post Saddam-Iraqi regime will be likely to be able to match. Not only must we as activists do all we can to ensure that debt cancellation and relief in Iraq be on the political agenda, we must also ensure that even if bilateral debts are cancelled or restructured, if these vultures do try to hold Iraq to account for debts racked up in the Saddam era, we also take them on.
The costs of the war
Of course the consequences of the War on Iraq go far beyond that country's own borders.
First of all, the war is going to cost the Americans a lot. Extrapolating from the cost of the first Gulf War, the best case scenario is that a relatively short war would cost about $75 billion (the amount Bush has already conceded is likely), rising to over $100 billion, in the case of a more prolonged war.
Costs which, unlike the first Gulf War will be borne primarily by the United States given its decision to go to war without the support of the international community. And this is just the cost of fighting, of sending troops overseas, of expending missiles, of downed helicopters and planes.
Just last week for example the allied forces spent $700million on the firing of 55 Tomahawk cruise missiles. $40m on the dropping of 2000 guided bombs, and $855m on 5,700 sorties by coalition aircraft.
If we add peacekeeping costs onto the cost of war, this could be an additional figure of at minimum $75bn and maximum $500bn, using peacekeeping operations in the Balkans as some sort of comparison. With the world at large rather than the US bearing the brunt of the cost. Because in virtually every country where the US intervened militarily over the last four decades, it has followed a "hit and run" philosophy by which bombing runs have seldom been followed by significant commitments to aid. Take the war in Afghanistan - while the US spent $13 billion on the war effort, by September 2002 the Pentagon had only committed $10 million to civil works or humanitarian aid!
But whoever ends up footing the reconstruction bill, the war is in any case going to cost the US and the international community a lot.
Indebted countries and the US deficit
Even the best possible scenario will significantly raise the US budget deficit, which is already escalating under George W. Bush. An increase which will either necessitate the raising of taxes - not likely given that tax cuts form the centerpiece of George W's domestic policies (and that the Republicans already feel that not enough cuts have been passed) - or more likely a hike in US interest rates.
An outcome that of course would have serious implications for the world's indebted poor countries, whose debt repayments would rise if the US were to raise interest rates, and who would be put under ever greater pressure to cut public services such as education and health so as to finance these payments.
The worst case scenario
What else are we likely to see? Well, depending on the extent to which a hike in US interest rates affects other countries, whether or not we see a hike in oil prices post war, the extent to which other countries bear the costs of reconstructing Iraq, and the extent to which the dollar continues to fall in value we are likely to see, and I am taking a worse case scenario now, the following:
The cutting back of foreign direct investment as business caution rules, an erosion of the foreign reserves of many of the world's poorest countries much of which is held in dollars, a sharp US recession which in all likelihood will spread elsewhere, and a cutting back of funds spent on aid, debt relief, and development projects more generally, with reconstruction of Iraq and US allies in the war (like Turkey) being given priority, and national leaders finding it hard to justify extra aid and development spending to their constituents, given the probably resultant fragility of their own domestic economies post this second Gulf war.
Add to this the fact that movement on trade subsidies in this climate by either the Americans or the Europeans now looks even less likely than before, and for those of us who are concerned about issues of development, the picture looks very bleak.
Admitted, I'm depicting a worst case scenario, but I feel as an activist and someone who is committed to working on issues of development, that it is this worst case scenario I need to use to inform me right now.
Implications for activists
And what does that mean in practical terms? Well, let me give you a sense of how current events are informing the way I proceed.
First I will be looking to identify "good things" in these bad times and then think about how to best leverage these. So for example, there are currently moves to loosen banking secrecy laws to enable Saddam's assets to be identified and to freeze Saddam's assets world wide - so that these monies can be then used to help rebuild Iraq - an obvious opportunity to draw parallels with other tyrannical dictators' funds kept offshore, and bring attention to the need to retrieve these too.
For that matter, I hope that we will have an opportunity as the day unfolds to explore more parallels between the cases we will hear about of monies lent to odious regimes in the past and the Saddam case, and discuss how we can use these parallels to best effect.
Moral imperative for debt relief hard to 'sell'
And secondly, much as I might wish it were the case that everyone thought like most of us in this room I am sure do, and saw the need to cancel or relieve debts for reasons of justice, fairness and equity, I just don't feel that the moral case for debt relief or cancellation or for increasing overseas aid is one that, for the general public, is going to work right now.
And of course I'm not speaking for the Netherlands here which may be different but for the States and the United Kingdom, the two countries in which I am currently dividing my time. In these two countries, I don't think I can 'sell' debt relief and cancellation at this time just on the basis that it is the right thing to do.
I feel that people are just too concerned right now about their own jobs, their own lives, their own security, their own economies, their own futures to be swayed by stories of poor people, droughts, famines, health care and education needs elsewhere.
And I can understand that. If you are desperately worried about your own needs being met, you become less worried about the needs of others. Unless, of course you come to believe that if these others needs aren't met, this'll affect you too. Unless you come to believe that we are actually all in this together and that if the lives of anonymous people in far away countries get worse this will in some way make your life worse too.
Appealling to enlightened self-interest
Al of which means that, rather than stressing the moral case for debt relief or cancellation, for foreign aid and the dismantling of Northern trade barriers, when I raise these issues in public forums, with government ministers, and with policy makers - what I do, is to concentrate instead on laying out a case based on enlightened self interest. That is, on an explicit recognition that poverty breeds unrest, instability and even terrorism, on a recognition that we cannot hide away in gated communities and hope to escape the problems of the ghettos that encircle us - that in a global world, problems elsewhere fast become our problems too. A case essentially built not on moral imperative, but on danger and fear.
And I do this, I stress, not because I don't believe that justice, equity, fairness, are the right reasons to give more aid, cancel debt, remove rich country trade subsidies. They are. And I also believe that they are the reasons that in the long term will prevail. But because I believe that it is this message of enlightened self interest that will work best for the general public and for policy makers at this particular moment. If this isn't the time for me to win over peoples hearts, that's OK. I can live with that, as long as I believe, as I do, that even in these difficult times, by slightly reframing the way I present the story, I can still win over people's minds.
This article is a transcript of the speech delivered by Noreena Hertz at a Jubilee Netherlands seminar held in Utrecht, the Netherlands, on the 29th of March 2003. The transcript has been adapted for the purpose of publication.
More articles on Saddam's debt can be found on the website of the Jubilee Iraq Campaign. There, you can also sign a Petition in support of debt cancellation for the people of Iraq.
add a comment on this article
add a comment on this article