Lounsbury: Iraq spending passed.: commentary

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November 04, 2003

Iraq spending passed.: commentary

And none of this idiotic loan business either.

A good day. I predict that well spent, this money will help turn the corner in Iraq.

On the actual package, this bit from AP reporting (which was cut, I noted from the NYT take up of the piece) is in fact among the most important bits, although the journo editors did not get it:

Senate OKs $87.5 billion Iraq aid package
Approved on voice vote
Tuesday, November 4, 2003 Posted: 0538 GMT ( 1:38 PM HKT)
http://edition.cnn.com/2003/ALLPOLITICS/11/03/sprj.nilaw.senate.iraq.ap/
" A business consultant told the lawmakers that U.S. t
axpayers are paying excessive reconstruction costs because small- and medium-sized Iraqi businesses that win contracts are charged exorbitant interest rates by Iraq's most powerful families. The consultant, Timothy Mill, urged the creation of a lending fund from $500 million in seized Iraqi assets. "

Bingo, exactely what I have been telling you all - although I would say it would be better to have mixed money and oversight in there - in regards ot the oligarchical families and financing the SME sector.

I've written to Embassy and the like to kick this around with them, we desperately need to get some movement on ideas like this in order to see some practical paths for financing real change in Iraq. I passionately believe that if one brings means to finance the aspirations of the excluded "potential but always excluded entrepreneurs" - the middle boys - one checkmates the oligarchs' dead hand and one begins to win the battle people say they want to fight.

Sadly I note that not one big metro edition picked up this key observation. Not one.

Now, I want to draw attention to the following:
OP-ED CONTRIBUTOR
Make Baghdad Pay
By MARK MEDISH
Published: November 4, 2003
http://www.nytimes.com/2003/11/04/opinion/04MEDI.html

Let me quote and comment:

"The economic consequences of regime change in Iraq could get worse if the United States, Great Britain and their coalition partners act on radical impulses to make grand gestures. A case in point is Iraq's sovereign debt.

[.. ommited figures]

What is to be done? Already we hear calls from the right and the left to impose what might be called a "zero option"; that is, cancellation of Iraq's debt. From the right, Richard Perle and William F. Buckley Jr. have called for freeing Iraq of its "odious debt" on moral grounds. From the other end of the political spectrum, Oxfam and Jubilee Iraq have taken much the same position, while Joseph Stiglitz, the Nobelist, is advocating relief on more prudent grounds, citing the lessons of the 1919 Treaty of Versailles, which required Germany to pay heavy war reparations."

What I find most amusing is the ideological hacks like Perle and Buckley - I am surprised by his presence here- have jumped on this. Ah well, I suppose one can rarely count on ideological consistency when suddenly it's your idea on the line. Like my dear fellow business men who rail on against others tax breaks and subsidies, but of course ours are just fine.

What I am most disgusted with is the volte face of the ideologue-conservatives, who (rightly in many respects) argued against just such concepts (odious debts, debt cancellation) only a few years ago when the third world debt relief movement was hitting the media - I am thinking of esp. 2000-2001 I believe. Now suddenly they (the ideologues) have a dog in the fight, ah well now the idea doesn't seem something to be dismissed.

Base Hyprocrites.

Returning to the commentary:
"These recommendations, though doubtless well intentioned, are misguided. A country like Iraq, with the world's second-largest proven oil reserves, should be expected to be able to pay its obligations. Furthermore, the moral charge that the debts are odious is simply too sweeping. Acting on it would be bad for Iraq and would set a damaging precedent for the international financial system."
(emphasis added)

As I have argued in the past.

Now to some meat:
" For Iraq to normalize its external financial relations, it must respect one of the first principles of the rule of law: contracts should be honored. Without this presumption, markets cannot work. The threshold for overturning the presumption must be kept high to prevent chaos. In the case of Iraq, the threshold has not been met.

Several myths have gained currency in the debt debate. The first is that Iraq's debts are invalid because they were accumulated under Saddam Hussein's regime. This is overbroad and misleading. First, much of the debt, including the bulk of what Iraq owes to banks and corporations, went to finance civilian construction � roads, hospitals, apartments and utilities. By contrast, military-related debt can and should be separated out and perhaps even forgiven.

It's worth remembering, too, that much of Iraq's debt was incurred in the 1970's and 1980's, before sanctions were imposed, when the United States was willingly doing business with the Hussein regime."
(emphasis added)

Indeed, in

Further point worth quoting here:
"But there is an important difference between punitive reparations and commercial debt incurred by a country for civilian projects. Moreover, in the last decade countries like Poland, Egypt and Yugoslavia have escaped their heavy debts not because their debts were forgiven but because the financial community created reasonable long-term repayment plans."
(emphasis added)

As I have argued should be done.

Some final wise words:
" Iraq is entitled to have its special case heard. So far it has been granted an official moratorium through 2004. When the international community decides to begin tackling the wider debt problem, it should follow several simple maxims: avoid radicalism and bad precedents; promote an orderly, market-friendly debt repayment schedule based on financial analysis; and encourage creative solutions, including debt swaps.

Finally, for solutions to be meaningful, Iraq must negotiate with creditors on its own behalf. This, after all, is a major aspect of sovereignty.

The Iraqis should also favor an orderly debt repayment process. The country has been a financial rogue state for the past 12 years. What the new Iraq needs is a reputation for honoring its word."

Wise advice. Why does it have to come from a Clinton Admin. official. Once upon a time I would have expected such advice to have been coming from Republicans. It's shameful that people like Buckely, Perle etc. allow short term political expediency to overcome the clear

November 04, 2003

Iraq spending passed.: commentary

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