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Odious Debt
While the war effort continues, two meetings this weekend will attempt to shape the post-Saddam
era. In St. Petersburg, Russia, France and Germany will meet to determine strategy on defending their positions
as Iraq's major creditors and holders of highly favorable advanced contracts contingent upon lifted sanctions.
In Washington, the G-7 will congregate for the semi-annual meeting of the International Monetary Fund (IMF) and
the World Bank. Their theme will be "don't leave us out." At the same time, forces within the Congress
are working to make sure that Iraq cannot recover quickly by selling so much oil that the OPEC market will be depressed
The Axis of Weasels. Iraq has the second-largest proven oil reserves in the world. The secret, though, is
that the Saddam regime has put their industry development so far behind that accelerated maintenance and repair
plus new technology could make them the largest holder of proven reserves, some 50 billion barrels ahead of Saudi
Arabia. That is the stone cold fact which lead Russia, China, France and Germany to stake their economies on keeping
Saddam in power, his people be damned.
France, Russia and China have been selling Iraq more than 80 percent of its weapons arsenal and "dual-use"
material. Using Syria as a middleman, these sales have continued in violation of UN sanctions and been paid for
with proceeds from smuggled oil. As the war winds down, reports indicate that senior Iraqi leadership has purchased
protection and passage to Syria and are taking up residence on their sea shore.
For these nations, Iraq is a vital connection. France alone sells Iraq about one-quarter of all its imports. The
others seem to share about six percent each in annual imports. Within the legal UN Oil-for-Food program, Russia
is the number one supplier at $4.3 billion annually and France is third at $3.1 billion. When sanctions are lifted,
France has contingent options to explore and develop about 25 percent of Iraqi reserves under very favorable terms.
The contracts are so important that France has threatened to sue if necessary to see that they are not broken.
Similar contracts worth more than $40 billion in western Iraq have gone to Russia. China has similar but smaller
arrangements.
Independent studies have concluded that Saddam's Iraq has foreign financial obligations that could total $383 billion.
Some $200 billion of that are Kuwaiti victim reparations from a decade ago. Some $57 billion is represented by
pending contracts and $88 billion is outstanding bank loans. Many Iraqi Gulf War debts have already been settled
at about 30 cents on the dollar.
That's not France's proposal, however. The weekend meeting will deal with a strategy whereby the UN guarantees
priority to the creditors on access to oil revenues while forcing the United States and its taxpayers to pay the
$20 billion a year necessary for reconstruction.
Repudiated Debt. In the halls and in the sessions, just how and under what circumstances can Iraq be allowed
to repudiate such enormous debt will be the Big Buzz. In a grand irony, the discussion will be influenced by a
French legal scholar named Alexander Sack. His academic argument is that loans to despots are personal and not
sovereign debt. Therefore, the people have no right to repay them once the despot has been overthrown. His work
has been expanded by two Harvard economists. According to columnist Bruce Bartlett, they argue that allowing the
repudiation of odious debt should discourage banks from bankrolling tyrants in the first place. Such a system,
they conclude, would do far more to control despots than trade sanctions because the market itself would do the
discipline.
Senator John McCain has added an important point. Since most of the debt was run up buying weapons, the Axis of
Weasels could show their concern about Iraq's future by forgiving past debts. Sen. McCain suggests that we smile
when we say that.
Congress and the Middle East. Lead by Secretary Powell's principal aide Deputy Secretary Richard Armitage,
the Near Eastern Bureau of the State Department has waged continuous war on the Iraqi National Congress (INC) and
its leader Ahmad Chalabi. Why? They say stability. The problem is that what they mean by stability is that Iraq
should, in Michael Barone's phrase, 'install an authoritarian leader acceptable to the existing Arab tyrants who
deflect popular dissatisfaction with their rule by directing their people's hostility to the United States and
Israel." That translates into another Sunni Tyrant. The NEB speaks for Egypt and the House of Saud, not the
President of the United States, this one or the last one. In pursuit of their aims, the State Department has placed
two provisions in the appropriations bill currently in conference and due out momentarily.
The first provision takes $2.5 billion in reconstruction funds and gives spending authority to the State Department
instead of the Pentagon. According to columnist Joel Mowbray, that money could be used to derail the INC or even
given to the UN to spend. The significant reason State wants to hobble the INC is that Chalabi has stated on a
number of occasions that he would consider pulling Iraq out of OPEC. Unlike the Carter years, OPEC does not control
one-half the oil market. Their world-market share has dropped to about 35 percent. Take away Iraq and it drops
below 30 percent. At that point, OPEC (i.e. Saudi Arabia) cannot set world prices.
If Iraq would pull out of OPEC and double its production, the price would fall. That's good for the Western economies
but a disaster for Russia. What would keep Iraqi production down?
Provision Two limits the Army Corps of Engineers to handling only conflict-damaged oil wells and equipment that
has been subjected to environmental damage. Most wells, says Mowbray, simply suffer from poor maintenance and lack
of upkeep. This provision would prevent the rebuilding of most oil facilities. In the South, for example, just
seven of 1,000 wells were set afire. Prohibiting the Army Corps from bringing production up to three million barrels
per day would, of course, delay the resources to meet humanitarian and economic development goals.
The Bush administration has the first 21st century military at its command. The question for the week is whether
it can corral those non-military forces trying to steal its victory and rob the people of Iraq of a chance at freedom.
It's a Byzantine weekend, even without the intrigue of the battlefield itself. It is amazing that those folks who
were so wrong about the war think that they are so right about the peace.
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