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Iraq Debts Could Add Up to Trouble

April 04, 2003|Warren Vieth | Times Staff Writer

WASHINGTON — To hear some Bush administration officials tell it, the reconstruction of Iraq will largely pay for itself, thanks to a postwar gusher of petroleum revenue.

"The one thing that is certain is Iraq is a wealthy nation," White House Press Secretary Ari Fleischer said.

A look at the national balance sheet tells a different story.

Iraq will emerge from the war a financial shambles, many economists say, with a debt load bigger than that of Argentina, a cash flow crunch rivaling those of Third World countries, a mountain of unresolved compensation claims, a shaky currency, high unemployment, galloping inflation and a crumbling infrastructure expected to sustain more damage before the shooting stops.

And the more oil Iraq produces to pump up its earnings, the more likely it becomes that prices will fall, leaving it no better off than before.

"Clearly, it's a basket case," said Dean Baker, co-director of the liberal Center for Economic and Policy Research in Washington. "Once you start talking about it, you see what an impossible situation it is. I don't think the Bush administration is anxious to have that conversation."

Bathsheba Crocker, director of the Post-War Reconstruction Project at the centrist Center for Strategic & International Studies, said Iraq's oil money is not the panacea many Bush officials seem to think it is.

"It's unreasonable to think that oil is going to finance all of the needs of the country," Crocker said. "All told, there's just not enough money to go around."

Baker and Crocker are among a small but vocal contingent of nongovernment economists and foreign policy analysts who say it is time for the United States to stop pretending that life in Iraq after the war will resemble something out of "The Beverly Hillbillies."

The reality, they say, will look more like Chapter 11. In their view, the only satisfactory solution is an international aid and debt relief program as ambitious as the Marshall Plan that helped Europe recover from the ravages of World War II.

"Unless debt and reparations are dealt with properly, Iraq is basically bankrupt," said Rubar Sandi, an Iraqi American investment banker who is pressing administration officials to embrace a major debt relief initiative.

"I know they might not like what I'm saying," said Sandi, whose Washington-based Corporate Bank Business Group has investments in several developing countries. "But I am a businessman, and it's simple mathematics."

Although the debt write-offs would be spread far and wide, some of the biggest hits would be taken by countries such as Russia and France, which supplied Saddam Hussein with military gear and other goods before the 1991 Persian Gulf War and have been staunch opponents of the current conflict.

Even then, experts say, Iraq's oil revenue probably would fall short of what is needed to pay for postwar reconstruction, and much of the immediate shortfall would wind up being financed by U.S. Treasury bonds.

So far, the administration seems not to have noticed. Deputy Defense Secretary Paul Wolfowitz told Congress last week that Iraq would be able to pick up much of the tab for postwar rebuilding.

"We're dealing with a country that can really finance its own reconstruction relatively soon," he said.

Office of Management and Budget Director Mitchell Daniels Jr. asserted that oil and gas revenue and confiscated Iraqi assets would provide abundant resources for reconstruction.

Some members of Congress agree. "I don't think it makes sense to ask U.S. taxpayers to pay the full cost of rebuilding Iraq when the Iraqi state has plenty of resources to do so itself," said Sen. Byron L. Dorgan (D-N.D.), who introduced a resolution Thursday calling for the use of oil proceeds to finance the rebuilding effort.

However, Bush administration officials have declined to make specific estimates of the long-term costs of rebuilding Iraq.

Without question, Iraq possesses assets any country would covet.

It sits atop the world's second-biggest pool of proven oil reserves, some 112 billion barrels, as well as huge deposits of natural gas and petroleum yet to be discovered.

But wealth in the ground does not necessarily translate into money in the bank, at least not immediately. Iraq's oil infrastructure has deteriorated badly during Hussein's reign, and most experts say it would take up to two years and $5 billion to restore production to its pre-Gulf War level.

Estimates of Iraq's potential oil earnings during the first year or two after the war range from about $15 billion to $20 billion, depending on price and production assumptions.

From that income, at least $11 billion would be needed initially for routine government spending on state employees' salaries, public health, safety, education, agriculture and welfare programs, Sandi said.

That would leave $4 billion to $9 billion to finance repairs, infrastructure development, humanitarian assistance, debt payments, claim settlements and war reparations.

And that's where the numbers stop making sense.

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