JUBILEE RESEARCH BRIEFING ON DEBT IN IRAQ

By Susanna Mitchell                                                                         
17^th April 2003                                                                            

Iraq enjoyed rising prosperity in the 1970s, and its people benefited from the steady investment of oil revenues in health and education. However, Saddam Hussein’s war against Ayatollah Khomeini’s Iran significantly reversed this progress. Now, after 12 years of UN sanctions and the recent invasion by the United States and the United Kingdom, the country’s economy and infrastructure are in ruins, and its debt burden is unsustainable.

Iraq’s Outstanding Debts

Iraq’s debt is notoriously difficult to assess, due to the closed nature of the recent regime.  Estimates vary widely, but according to the Centre for Strategic and International Studies in Washington, Iraq’s total potential obligation – from war-related compensation claims, foreign debt and pending contracts – is approximately $383bn.[1]

Broken down, this sum consists of:

(i)         Foreign Debt

Figures given for Iraq’s foreign debt range from $62bn to $130bn. This disparity is mainly due to disagreement upon whether assistance from the Gulf States during the Iran-Iraq war (approximately $30bn) was offered as a grant or loan, and whether the figure should include some $47bn accrued interest.[2]

Information on bilateral debt is also incomplete. Estimates released by Exotix are quoted below.[3]

Indebtedness -  all figures in US $bn

Gulf States	55.0
Paris Club	9.5
Russia	8.0
France	8.0
Central Europe	4.0
Multilateral Institutions	1.1
Commercial Creditors	4.8
Others unaccounted for	26.1
Total	$116.5bn

(ii)        Estimated Compensation Claims

The United Nations Compensation Commission (UNCC) received a total of $320bn in claims awarded against Iraq related to its invasion of Kuwait in 1991.

Of this sum, $148bn concerned individual and family claims, of which the commission awarded $43bn (approximately 30% of the original). $16bn of this has been paid, leaving an amount outstanding of $27bn.

A further $172bn relating to government corporate and international organisation claims remains to be resolved, and according to the UNCC it is probable that these claims will be settled at a lower rate of compensation.

(Oil accounts for 95% of Iraq’s foreign currency earnings. The UN is currently siphoning off 28% of the country’s oil revenue to pay compensation claims from Kuwait)  

(iii)         Pending Contracts

Iraq has pending contracts estimated at $57bn with public and private companies in Russia, Netherlands, Egypt, United Arab Emirates, China and France.

The problem of foreign debt repayment

• Compared to the size of its economy, Iraq is now one of the world’s most heavily indebted nations.

• The ratio of debt to GDP is estimated to be more than 10 times that of Argentina or Brazil.[4]

• Since 1980, when the country's per capita income was estimated at $37,000, the wealth of both the nation and its people has plunged: some estimates suggest that per capita income had fallen to $1,200 by 2001,[5] and very much lower figures have recently been quoted.

• Given a population of 24 million, debt obligations work out at $16,000 for every man, woman and child in the country.[6]

• Even if 50% of Iraq’s future export income is diverted to meet debt repayment, it would take more than 35 years to pay off current obligations.

• In fact, Iraq is in no position to service debt obligations. Rather, it is estimated that $100bn will be needed to rebuild the country, $20bn of which is urgently required, $1.3bn for the World Food Programme.[7]

• The US has demanded that foreign countries and their banks seize Iraqi assets currently lodged with them, and hand these over to the US for use in the reconstruction of Iraq. This suggestion has met with some resistance, but the UK Chancellor has said that he would take “whatever steps necessary” to follow the US lead.[8]

• On 12^th April, the US Congress approved a $79bn supplementary budget for emergency spending, of which $60.5bn is directly committed to military spending in Iraq. This is likely to be the first instalment of the total cost of the war, as it only covers spending until October.[9]

• The UK Treasury allocated £3bn to the UK’s military effort, and £240m to humanitarian aid.[10] 

Progress to date

• Following the US/UK invasion, the US called for the international financial institutions to get involved in Iraq as soon as possible. After initial reluctance, other major shareholders of the World Bank and the IMF agreed to ‘play the normal role in Iraq’s redevelopment at the appropriate time’. They are preparing themselves to send a fact-finding mission to the country.

• On April 12^th, Horst Kohler, Managing Director of the IMF, said it was ‘premature to speak about debt forgiveness, which should be a matter for Iraq’s creditors to discuss.’  It was agreed that an early engagement with the Paris Club would be necessary to gather data on this question.[11]

• Meanwhile, some of Iraq’s bilateral creditors appear inclined oppose debt cancellation. In the case of Russia and Germany, for instance, Mr.Putin and Chancellor Schroder initially said that they would contemplate a write-off of some of Iraq’s debt, but the Russian finance minister, Alexei Kudrin, has since declared that Russia does not have a policy of debt forgiveness, and Germany’s finance minister, Hans Eichel, has categorically announced his intention of recovering the $4bn owed to his government.[12]

• On the 12^th April the US Congress agreed to provide $2.4bn for the reconstruction of Iraq. This money will be controlled directly by the White House, rather than by the State Department.[13]

• The UNDP estimates that reconstruction (excluding humanitarian aid) could cost $10bn a year. At the moment, an initial $1.7bn in contracts is being planned by the US. [14] A $4.8m contract has been awarded to Stevedoring Services of America for the management of Umm Qasr port, and Bechtel, one of the largest US construction companies, has won a contract of up to $680m to provide emergency repair to the infrastructure destroyed during the war.

Conclusion

During the last two decades, Iraq has suffered from the results of Saddam Hussein’s military policies, and from twelve years of devastating UN sanctions. The US/UK invasion has now further destroyed the country’s infrastructure and ruined its economy. The combined effect of these disasters has left a formerly prosperous nation bankrupt, and its people impoverished, many of them unable to meet basic needs.

It is claimed that one of the aims of the current war was to remove an unacceptable tyrant, and free the Iraqi people. Accordingly, it would seem logical to free them from the debts incurred by that tyrant, and knowingly loaned by other governments. As John Snow, the US Treasury Secretary himself remarked, “certainly the people of Iraq shouldn’t be saddled with those debts incurred through the regime of the dictator who is now gone.”[15]

Jubilee Research completely agrees with this assessment. While ‘engagement with the Paris Club’ usually results only in debt rescheduling for troubled countries, what Iraq now needs is substantial debt cancellation, and especially a write-off of those ‘odious’ debts related to Saddam Hussein’s military expenditure over the last three decades. While a write-off of this kind might well set a precedent for the cancellation of loans spent on arms by repressive dictators and corrupt regimes, we consider that such a precedent would be justified. The poor of other indebted countries, Indonesia, for example, or Argentina or the DR Congo should not be asked to repay debts spent by tyrannical governments on buying weapons from creditor countries.

The Iraqi people have surely born enough pain, and every attempt should now be made by the international community to free them from an unsustainable debt burden that can only prolong their suffering.