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Last Updated: Wednesday, 4 June, 2003, 20:13 GMT 21:13 UK
US seeks help to rebuild Iraq

By Steve Schifferes
BBC News Online, Washington

The United States is calling for a conference of donors to help rebuild Iraq, as the costs of occupation increase.

Bomb damage
Getting Iraq back on its feet will be an expensive task
US officials told the Senate Foreign Relations committee they want a donor conference as soon as possible where other nations can pledge funds to help with the reconstruction of Iraq.

The need for more resources has become more urgent, as it has become clear that it will take some time for Iraqi oil production to return to its pre-war levels.

And the growing cost of keeping 160,000 troops in the field, which has to be paid by the US taxpayer, has also given a renewed political imperative for finding other sources of funding.

Difficult task

But persuading other nations to help could be tricky.

US taxpayer: $2.5bn
Seized assets: $2.5bn
Oil revenues: $5bn
International aid: $1bn
Source: US Treasury, US State Department, USAid
Under-Secretary of State for Economic Affairs Alan Larson told the committee that "it will not be easy" to persuade European nations to become major donors.

But he said that the UN resolution, and recent statements at the G8 summit of world leaders, were important milestones on the road towards getting the rest of the world to accept its "moral responsibility" for rebuilding Iraq.

So far, the US has been relying on the $2.5bn in seized assets (including $800m from Saddam Hussein's palaces in Baghdad) to pay Iraqi civil servants.

Treasury Under-Secretary for International Affairs John Taylor explained how the US Government flew in $200m in seized cash assets from Andrews Air Force base in Washington to Iraq to meet emergency salary payments.

A Republican Senator, Lincoln Chafee of Rhode Island, expressed scepticism that other countries would be prepared to donate significant amounts of money, and said that inevitably "we would be saddled with an enormous cost".

The cost of keeping US troops at their current level in Iraq is around $3bn per month, or $35bn-$40bn per year.

So far, the US had received pledges of help worth $1.1bn from foreign donors.

Uncertain costs

The size of the rebuilding task is still unclear to US officials, although they say that the job is made more difficult by the need to restore the damage, not just of the war, but of 25 years of "economic misrule" by Saddam Hussein.

Iraq's overall economy declined from $128bn in 1979 to $40bn in 2001, according to the US Treasury, and measures of health and education also fell sharply.

So far, only six key ministries out of 24 are functioning (including finance, justice, agriculture and trade - which runs the food programme) after the US Agency for International Development (USAid) resupplied their office equipment which had all been looted.

And, according to Mr Taylor, it will take at least six weeks before the World Bank will be able to complete its preliminary assessment of Iraq's long-term needs.

He said that while officials would meet on 24 June to discuss how to pay for rebuilding Iraq, it would not be until September that a formal pledging conference could take place.

Oil and debt

Two key factors loom large in the future of Iraq.

The first is how quickly oil production can resume.

Mr Larson says that he expects oil production to reach one million barrels per day (bpd) by the end of the month, and to hit two million bpd by the end of the year - which would yield a revenue of about $5bn this year, and $14bn-$15bn next year.

The money will initially go into the Iraq Development Fund which is held by the Iraqi central bank but internationally administered.

But Mr Larson said it would be up to the Iraqi people to decide whether they wanted to expand oil production further, which would require a substantial investment of $3bn-$5bn from foreign firms.

And he said that with oil and nationalism so closely linked, the US had to "careful not to be seen as steering Iraq" on key decisions such as whether to remain a member of the Organisation of Petroleum Exporting Countries (Opec).

Debt burden

Another burden that could reduce the amount of money available for reconstruction is the huge external debt owed by the Iraqi nation, estimated by the US Treasury at between $60bn and $130bn.

Repayment of this debt has been suspended until the end of 2004 and the US is pressing for a substantial reduction in debt service after that.

But many smaller countries are resisting that idea, as is Russia, one of the main creditors.

Senator Joe Biden, the leading Democrat on the committee, said that some countries had "exaggerated expectations" of how much of their money would be got back.

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