This is the great plan from our leader.....MORTGAGE IRAQ...make sure they don't have A CHANCE TO MAKE IT!
U.S. May Tap Oil for Iraqi Loans
The White House weighs a plan to pledge future revenue to finance postwar
reconstruction. Critics question the effort's legitimacy.
By Warren Vieth, Times Staff Writer
WASHINGTON — The Bush administration is
considering a provocative idea to pledge some of
Iraq's future oil and gas revenue to secure long-term
reconstruction loans before a new Iraqi government is
in place to sign off on the proposal.
The plan, endorsed by the Export-Import Bank of the
United States and some of America's biggest
companies, would help avert a looming cash crunch
that has the potential to stall the postwar rebuilding
effort. One U.S. official rated the proposal's prospects
at 50-50.
But the plan is drawing fire from some administration
officials, lawmakers, policy analysts and prominent
Iraqis who say it would mortgage the Persian Gulf
nation's most treasured resource, prevent future
leaders from deciding how to spend their oil money
and put U.S. taxpayers at risk.
"Iraqis believe their oil should not be touched by
foreigners, that it should remain in the hands of the
Iraqi government and that no one has a right to do
anything before an elected government is in place," said
Fadhil Chalabi, executive director of the Center for
Global Energy Studies in London and a former Iraqi
Oil Ministry official.
"As an economist, I believe in what they are proposing.
You couldn't come up with a better formula," Chalabi
said. "But Iraqi politics and the way they look at these
things are not encouraging. It could create problems
later on. Better to wait until a government is formed."
That may be too late, in the view of the plan's
supporters. The Export-Import Bank and an industry
coalition that includes Halliburton Co., Bechtel Group
Inc. and other major companies that are interested in
winning contracts in Iraq are warning that unless steps
are taken soon to secure new funds, the reconstruction
well could run dry.
"Common sense says get Iraq running. How do you
get the country running? By using its own oil revenue
100% for the benefit of the Iraqi people," said
Export-Import Bank Chairman Philip Merrill. "If you
want to wait three or four years, be my guest. But that
means the country is going to be running on the dole of
the United States."
Many experts agree that Iraq is headed for a possible
cash flow crisis as reconstruction costs escalate, initial
funds are depleted and the resumption of oil exports is
delayed due to damage caused by looting and
sabotage.
But they part company over whether the U.S.-led occupation administration in
Baghdad has the legal or moral authority to pledge future oil revenue as loan
collateral before the issue can be debated by elected Iraqis.
"Unless a reconstituted Iraqi government or the U.N. Security Council authorizes
the plan, it appears to violate international law," said Rep. Henry A. Waxman
(D-Los Angeles). "We do not have the right, without additional authority, to
impose financial obligations on the future government of Iraq."
Waxman, the ranking Democrat on the House Government Reform Committee,
has asked the Export-Import Bank, the Pentagon and the U.S. Army Corps of
Engineers to disclose more information about the proposal and the role played
by Halliburton and other companies in crafting it.
Opponents of the plan warn that if a future Iraqi government chose to stop
making payments on the obligations, U.S. taxpayers could wind up holding the
bag.
"We're going to be on the hook, just like U.S. banks were on the hook to
Mexico in the early 1980s and U.S. lenders were on the hook to South America
in 1990," said independent energy economist Philip K. Verleger Jr.
Although the proposal is under consideration in Washington and Baghdad, the
State Department has expressed concern about the preemption of Iraqi
decision-making authority and the possibility that a future government might
choose to default on the debt.
The Treasury Department has voiced similar reservations, warning that the
creation of a new class of debt could complicate U.S. efforts to persuade other
countries to write off or restructure Iraq's massive prewar debt burden.
Still, a Treasury official who requested anonymity said the plan has merit and
might well win approval. "It's a 50-50 proposition right now," the official said.
Experts estimate that rebuilding Iraq could cost anywhere from $20 billion to
$100 billion over several years. Oil exports are expected to net about $3.5
billion this year and $14 billion in 2004. But some of that money will be needed
for other purposes, and coalition officials continue to scale back their export
targets as pipeline explosions and power outages constrain production.
The administration has been financing reconstruction from a $7-billion pool of
congressional appropriations, international contributions and seized Iraqi assets.
But concern is growing that the rising costs could consume all of the money set
aside so far and that initial oil sales will not make up the difference.
"Existing revenues for reconstruction are not adequate to sustain the effort much
beyond the end of this year," said Edmund Rice, president of a business group
called the Coalition for Employment Through Exports. "The crunch could come
in late autumn or after the first of the year. But roughly six months is when they're
going to hit the wall on resources."
The oil loan proposal is designed to bridge the funding gap. Under the plan, a
portion of Iraq's future oil and gas revenue would be pledged as collateral to
repay loans or bonds issued to finance infrastructure improvements. An Iraq
Reconstruction Finance Authority would be established to review projects and
arrange the financing.
The industry coalition has proposed using the financing mechanism to raise $3
billion to $4 billion a year for reconstruction work on a project-by-project basis.
The Ex-Im Bank envisions raising $25 billion to $30 billion to boost Iraq's oil
production to as much as 5 million barrels a day from its current level of less than
1 million barrels.
Depending on how much money was raised, the plan could wind up claiming
anywhere from a small fraction to the lion's share of Iraq's oil revenue over a
decade or longer.
The Iraqi reconstruction authority would use the borrowed money to pay
contractors for large-scale improvements such as renovating oil wells or building
power plants. The loans would be guaranteed by a consortium of export credit
agencies, including the Ex-Im Bank and its foreign counterparts. The financing
would be reserved for new projects and would be subject to competitive bidding
open to companies from all countries.
"Bechtel and Halliburton would have to rebid on a level playing field with
everybody else," said Rice, whose coalition represents 28 companies and two
trade groups. Members include such California-based giants as ChevronTexaco
Corp., Fluor Corp., Hewlett-Packard Co., Northrop Grumman Corp. and
Oracle Corp.
Ex-Im Bank officials believe the U.S.-led occupation already has adequate legal
authority to launch the oil loan program. In May, the U.N. Security Council
authorized allied officials to disburse Iraqi oil revenue for humanitarian purposes,
economic reconstruction, disarmament and "other purposes benefiting the Iraqi
people." It did not address the use of future revenue.
Bank officials say there is a precedent for such a plan in the region. In 1948, a
similar money-raising authority was established in behalf of the new state of Israel
before an elected government was in place to endorse taking on the financial
obligation.
Supporters of the oil loan idea insist that Iraqis should be included in the
decision-making process from the start. But until some form of elected
government is in place, the only Iraqi officials in a position to participate are
those appointed by allied authorities to staff the various government ministries.
"We're better off to have the Iraqis involved," said Merrill of the Ex-Im Bank.
"Should they have control from Day 1? Probably not. Will they have control at
the end of the decade? For certain. Where on the curve do they get control? I
don't know.
"But they're likely to get there a lot quicker if they've got the money than if they
don't." |
