Oil wealth far from covering all of Iraq's debts and needs
By Jim Puzzanghera
Mercury News Washington Bureau
WASHINGTON - Bush administration officials have described Iraq as a wealthy nation that can pay for much of its postwar reconstruction simply by tapping the vast pool of oil deep beneath it.
But while it's true that Iraq sits atop the second-largest known oil reserve in the world, the country also sits on a staggering amount of international debt: about $383 billion in foreign loans, unpaid legal claims and outstanding contracts.
Some analysts warn that Iraq's antiquated oil wells, which produced about $12.5 billion worth of oil last year, can't pump enough to get the country out of the red.
``No matter how you run the numbers, there is no way in hell that oil can solve Iraq's problems,'' said Anthony Cordesman, an expert on Middle East security at the Center for Strategic and International Studies in Washington.
Unless much of the country's debt is forgiven -- a tough sell, because Russia, which opposed the war, is one of Iraq's biggest creditors -- the United States could end up spending tens of billions of dollars on reconstruction to prevent Iraq from descending into chaos.
``I think there's a huge financial problem with Iraq that this administration has been unwilling to discuss with the American public,'' said Rep. Sam Farr, D-Salinas, who serves on a private commission looking at the reconstruction of postwar countries. ``There's not going to be enough money from oil.''
Bush administration quiet
Bush administration officials have not provided details of reconstruction costs, but have said they will try to get other nations to share the expense, and hope to turn the country over to a new Iraqi government as soon as possible. A recent report by the Council on Foreign Relations estimated the cost of reconstruction at $20 billion annually for several years; other estimates have suggested the total cost could reach $100 billion.
When asked about debt relief for Iraq, White House press secretary Ari Fleischer said last week that the issue would be addressed after the war.
``The one thing that is certain is Iraq is a wealthy nation,'' Fleischer told reporters. ``Iraq has vast resources. Iraq will have -- unlike Afghanistan, for example -- Iraq will have a huge financial base from within upon which to draw and that's because of their oil wealth.''
But the administration has not given a dollar figure for that wealth.
Critics dispute claims that Iraq is a wealthy nation because of its huge debts.
``It's difficult to see how you can classify Iraq as a wealthy nation,'' said Bathsheba Crocker, a fellow at the Center for Strategic and International Studies and co-author of several recent reports on Iraqi reconstruction.
Iraq has about $127 billion in outstanding international debt, according to a 2001 estimate by the World Bank. The U.S. government estimates the figure much lower, at $62.2 billion, but that does not include about $47 billion in accrued interest.
In addition, Iraq is on the hook for about $199 billion in unsettled legal claims and unpaid settlements from the invasion of Kuwait in 1990, according to Crocker's recent study, ``A Wiser Peace: An Action Strategy for a Post-Conflict Iraq.''
Added to those debts are $57.2 billion in contracts Iraq has signed with companies in several nations for energy, telecommunications and other work.
Iraq's high debt load
The total of nearly $400 billion dwarfs that of other financially troubled countries. Argentina, for example, owes $141 billion. And Iraq's troubles are amplified by its meager economy. The U.S. State Department estimates Iraq's gross domestic product at $59 billion. Argentina's economy is more than four times that size.
Rubar Sandi, a Kurdish Iraqi who heads the Washington-based U.S.-Iraq Business Council, plans to press the Bush administration to work toward an international agreement to forgive some of Iraq's debt.
``A wealthy nation that's paying all its wealth to others is no longer wealthy,'' Sandi said. He argues that the Iraqi people should not be liable for about 75 percent of Iraq's debt because it is related to military activities by the government of Saddam Hussein.
Easing the debt problems of a country emerging from war and a dictatorship is not unprecedented. In 2001, a group of creditor countries known as the Paris Club agreed to a five-year moratorium on debt payments for Yugoslavia, which was trying to recover from the rule of Slobodan Milosevic and the U.S.-led war in Kosovo.
In her recent study, Crocker recommended such a moratorium for postwar Iraq. The study also urged the United Nation to review the legality of contracts signed by Saddam's government and recommended that the Bush administration press the United Nations to stop any further payment on claims from Iraq's invasion of Kuwait.
But international politics could make those steps difficult to achieve. Russia, which is a permanent member of the United Nations Security Council, holds $12 billion of Iraq's foreign debt and Russian companies have $52 billion in outstanding contracts with Iraq.
Even if Iraq could get relief from some, or possibly all, of its international debts, oil still would not be able to pay for much reconstruction for several years, said Farr, who serves on the Commission on Post-Conflict Reconstruction, a joint project of CSIS and the Association of the United States Army.
Iraq's oil revenues have fallen sharply since their peak in 1980 for several reasons, including the impact of two major wars, U.N. sanctions and overpumping of existing wells. Because of limited international access during Saddam's rule, little is known about the state of Iraq's oil infrastructure.
Iraq now gets about $12.5 billion in annual oil revenue, with about $2.5 billion more possible through modernization of its wells -- though that would require an investment of between $7 billion and $20 billion. An additional $3 billion a year is believed to have been lost to the black market. So Iraq could boost its oil revenues to about $18 billion a year.
But that falls short of the estimated $20 billion needed each year for reconstruction, and ignores a key fact: About 72 percent of Iraq's oil money has gone for food and other humanitarian services in the country as part of the United Nations Food for Oil Program. About 60 percent of the people in Iraq have been dependent on that aid, according to the United Nations -- a figure that's likely to increase because of war damage.
Sen. Dianne Feinstein, D-Calif., will be involved in U.S. funding decisions as a member of the Senate Appropriations Committee. She has said it is crucial for the United States to help rebuild Iraq since it was U.S. weapons that did much of the damage.
But she said the Bush administration has not been forthcoming about how much postwar reconstruction will cost.
``I think to say that all of the funding should come from the oil revenues is a bit too optimistic,'' she said. |
