Lounsbury: Iraq: More on reconstruction and debt

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October 02, 2003

Iraq: More on reconstruction and debt

Some more comments as I remain appalled at the sheer near-sighted idiocy of the Congress' move to convert Iraq aid to a loan, and again let's be clear, it will amount to a forced loan in the grand colonial tradition of overthrowing native governments and then obliging the 'liberated' or so to be 'civilized' government to take out a loan from the obliging white masters, on their terms.

First, I still find it it stunning that anyone thinks this is a good idea. Rather clearly we have the continuation of the whole mirage of "them Arabs are rich, they gots oil." Little understanding evidently exists of the issues, of why this is such a stunningly bad idea - truly stunningly bad. As I argued yesterday, it ignores a current Iraqi debt load of at least 100 billion, potentially as much as double (*), which needs to be addressed. As much of this debt is held by others, Americans making a forced loan will sit rather badly, and likely scupper productive negotiations on a restructuring with write downs. It will also endanger both current and future efforts to raise other, non-American funds for Iraq.

(*: in my Iraq reconstruction thread I gave solid data on this, if someone wants to look it up.)

While it is true that currently few if any donors will come forward, I believe it is reasonble to expect that if hte US spends the current dollars, the $20 billion to get the ball rolling, puts its money where its mouth has been, and stabilizes the situation, then more money will be forthcoming. Think of it then as seed capital for a start up - the fact other financiers are not coming in with you is not a reason to load up your newly restructured investment with debt out of short-termist spite. Indeed, quite the oppositive, you inject equity to show you're shouldinger the risk properly and aligning your interests with the success of the investment. Do it right and you give other investors comfort to come in, even if later, and at an advantageous rate to yours if you play it right (and not stupid, rip off stupid).

Further, any Iraqi provisional or transitional authority or government that accepts a forced loan of this nature will automaticly be seen as a mere American creature. A forced loan is a fine means to instantly discredit your own actions (again for a short term, transitory gain, in fact no gain at all as the liklihood of payoff is low) and hand a propaganda victory to your opponents. As I argued yesterday, for the Jihadis, you give prima facie evidence that this is a Crusader play to take control of Iraq, just as the Europeans did in the colonial era, through debt taken on by captive governments. The same for the secular opposition - you plug directly into a historical set of resentments that are lively and powerful in the Middle East.

As in several purist policy actions taken, this is not something that will successfully survive contact with reality - the liklihood of repudiation is high, and worse yet, much of the international community would be likely to see this as genuinely odious debt, taken on under forced circumstances, and thus not support the US in recovery attempts.

I see no upside to this idiotic policy proposition, only downsides.

Now, let's look at this article from The New York Times
AID Assessments Say Iraq Needs $55 Billion for Rebuilding
By STEVEN R. WEISMAN
Published: October 2, 2003
http://www.nytimes.com/2003/10/02/international/middleeast/02DIPL.html

The article opens with this news: "A team of economic specialists led by the World Bank and the United Nations has determined that Iraq needs $36 billion for reconstruction over the next four years. This would be in addition to a separate assessment by the American-led occupation of $19 billion for a different set of needs in Iraq over the same period, diplomats and economists said Wednesday."

Nice, we're up to $55 billion over say a 5 year time frame. Rather significant. Ah yes, note this:

"Both assessments - not to be confused with the Bush administration's current request before Congress of $20 billion in nonmilitary aid - were prepared ahead of a donors conference scheduled for Oct. 23-24 in Madrid, which Secretary of State Colin L. Powell and other top American officials are expected to attend."

Now, I do dearly hope this experience dampens the apetite for empire among the Neo Cons.

Now, as to Congress and the like:
"Many in Congress, meanwhile, are balking at the administration's request for $20 billion in nonmilitary aid, $5 billion of it for training security personnel, saying they are not clear on what exactly is needed now or in the next few years. Lawmakers complained Wednesday that they had been given too vague an accounting of what happened to the $79 billion that Congress approved for Iraq and Afghanistan last April.

As the debate opened Wednesday on the administration's current $87 billion spending request, senators said they expected dozens of amendments that would add new reporting requirements and audits.

Also likely are amendments to bar noncompetitive bidding on contracts like the one awarded to Halliburton, where Vice President Dick Cheney served as chairman before joining the Bush campaign in 2000."

Well, some of these items are much more reasonable than the idiotic loan idea, and certainly I can understand frustration with the non-transparency of the CPA-Iraq efforts. At the same time, operating in this region means you're going to have issues, regardless, and expecting US levels of transparency and documentation will simply bog you down. However, I am all for reasonably structured oversight and audits, so long as it does not bog spending down in a bureaucratic morass.

Further data on needs, by the way:
"While Congress began to grapple with the administration over its spending request, American, European, Japanese and Arab envoys met in Madrid Wednesday to make their own assessment of Iraq's needs. This separate assessment was confirmed by knowledgeable officials on Wednesday as some numbers began to leak out.

According to these officials, Iraq's needs in 14 different sectors - including health, education, water and electricity - come to $9.3 billion for 2004 and another $26.3 billion over the next three years, for a total of $36 billion through 2007."

Now, a moment to make a nod to acknowledging the costs of arrogant unilateralism and premature and unfounded triumphalism, as we saw on the SDMB message board and even worse from leading officials.

"But many officials say that the early hope for billions of dollars from wealthy countries is fading rapidly.

In part, American officials say, donor nations are balking at the large sums, especially after President Bush's top aides had argued that Iraq was so rich with oil reserves it could virtually pay for its own revitalization.

French and German leaders cite the war and President Bush himself - both still deeply unpopular in Europe - as another reason they will have a hard time persuading their people to put up much money.

The European Union has suggested putting up $250 million, according to administration officials, who say they are shocked at such a small sum. Canada says it may give about $200 million, and Japanese officials are reported by news organizations in Tokyo to be considering something in the range of $1 billion."

October 02, 2003

Iraq: More on reconstruction and debt

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