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Last Updated:  Thursday, 10 April, 2003, 07:08 GMT 08:08 UK
Iraq in the red
By Jeremy Scott-Joynt
BBC News Online business reporter

A US marine talks with an Iraqi construction worker
Negotiations may be tense
Whoever, or whatever, has the job of putting Iraq together again after the current hostilities are over is going to find it an expensive business.

Guesstimates about how much damage has been done to Iraq's basic infrastructure over the past two decades of war and sanctions vary wildly, as do figures for the cost of reconstruction.

In 1991, the United Nations reckoned it would cost $22bn - about $30bn (19.3bn) in today's money - simply to return Iraq to its condition before its invasion of Kuwait and its defeat in the subsequent Gulf War.

Taking into account the magnitude of the task, recent studies put the bill anywhere from that level up to as much as $400bn.

Running a tab

Which, coincidentally, is almost exactly the figure put on Iraq's debts, according to Bathsheba Crocker at the Center for Strategic and International Studies in Washington DC.

Total: $383bn
of which...
Pending contracts: $57bn
Debts: $127bn
Compensation claims: $199bn
Source: CSIS, Washington DC

Not that there's much discussion of that $383bn burden going on at the moment, she fears - fears which are shared by a range of other academics, analysts, UN officials and even governments.

"Once Saddam Hussein is gone, people will be swarming around Iraq like bees round a honeypot," she told BBC News Online.

"It's astounding that it's not being addressed. Not even, as far as I can tell, in private."

What is required, she believes, is a moratorium - or temporary suspension - on debt agreed for, say, five years.

Silent treatment

But getting that could prove problematic.

Neither the US nor the UK governments were willing to talk to BBC News Online about whether they have plans for Iraq's debts.

Nobody in Washington DC seems ready to budge from the position that the victor should dole out the spoils, despite UK and other European Union countries insisting that debt, like the rest of reconstruction, has to be a multilateral affair.

If money is to start pouring into Iraq, it's hard to imagine these claim holders sitting on the sidelines and holding off till ten years from now
United Nations official
And the UN has its own problems. Its reliance on donors means officials from its agencies in Iraq are unwilling to challenge US policy in public. But privately, they believe the US approach is storing up trouble to come.

"In all the things the US and other governments say, the debt question has been pushed aside to be finessed later," one UN official told BBC News Online.

"But we think it's much more complicated than the US and UK policy makers are prepared to admit."

The debts can't just be written off without terminally hurting the existing, and precariously financed, debt relief efforts, the official said, adding that no-one has really come to grips with how to handle a destroyed country with the world's second largest oil reserves.

"Inevitably, the new government's going to be faced with demands for it to mortgage its future oil revenues," he said.

"If money is to start pouring into Iraq, it's hard to imagine these claim holders sitting on the sidelines and holding off till ten years from now."

Oil for everyone?

Iraq typically pumps 1.7 million official barrels per day for the United Nations' Oil For Food (OFF) programme, earning more than $10bn in 2002.

Smuggled oil passing mainly through Syria takes that to 2.5 million barrels.

But getting that back to the pre-1991 3.5 million would probably cost at least $5bn a year and could take as much as three years.

A slice of that is probably already earmarked for reconstruction, given that the US budget includes less than $2bn for that purpose.

The $1.7bn in frozen Iraqi assets that the US has seized is also probably destined to lighten the load on the US, although again other countries will not and, indeed, cannot legally do likewise without Security Council sanction.

With a variety of oil companies pushing for the US to make sure the industry is privatised, rather than kept on a licensed basis for all Iraqis to share, there may not be much left over for the rest of Iraq's needs.

Waiting game

And the multilateral institutions besides the UN are some way back from there, caught in the same bind as UN officials: the speed of the US attack and the diplomatic quagmire from which it emerged left no space to build the necessary consensus.

"We haven't had a formal relationship with Iraq since our last loan in 1973," a World Bank official told BBC News Online, "so at this point there are no concrete plans.

"We're just building up our knowledge base."

A British marine walks through a gas and oil terminal near Basra
Getting the refineries onstream would be an attractive contract
In the meantime, the creditors are beginning to line up. Add together pending contracts and debts, not to mention compensation for the Kuwait invasion in 1991, and the number of shouts in the trough could be impressive.

Russia, for one, is keen to collect, and a string of corporations are not going to wait around.

Join the queue

With this amount of red ink around, it is perhaps understandable that there should be concern about the lack of clarity.

And as UN officials pointed out, the current state of transatlantic diplomacy and the perception - right or wrong - that the US is looking to make sure its corporations get the plum jobs if it wins in Iraq, hardly give the likes of Russia, France and Germany a great deal of incentive to be altruistic.

"If money is to start pouring into Iraq," one told BBC News Online, "it's hard to imagine these claim holders sitting on the sidelines and holding off till ten years from now."

But if the US-led forces eject or kill Saddam Hussein, the sheer cost of reconstruction on top of continued economic troubles at home could force the US to take a slightly more multilateral view.

The simple practicalities of the situation could force such a development, since broken promises in Iraq along the lines of those which have left Afghanistan with only half the resources it was promised could destroy the US-UK rationale for war: that they are liberating Iraqis for a bright, democratic future.

Bathsheba Crocker certainly sees it this way, insisting that a rush to make money on the back of the Iraq conflict, or a lien on future oil revenues, would be a disaster.

"If we are serious about getting Iraq's economy off the ground," she says, "that can't happen."

How much does Iraq owe?
10 Apr 03  |  Business
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08 Apr 03  |  Business
Swiss bank agrees Iraq asset grab
24 Mar 03  |  Business
US seizes Iraqi assets
21 Mar 03  |  Business

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