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No Loans, Tighter Oversight

October 21, 2003

When the victorious Allies imposed massive debt and reparations on Germany in the Treaty of Versailles after World War I, they helped ruin the democratic Weimar Republic and bring the Nazis to power. No matter how costly it may be, the United States and Europe must not make the same mistake in Iraq.

President Bush is rightly urging Congress not to make half of $20 billion in civilian aid to Iraq a loan rather than an outright grant. The Senate and House approved separate bills Friday largely providing the $87 billion that Bush had requested. Unfortunately, leading senators, including Dianne Feinstein (D-Calif.), support a loan provision.

It's not that the first $10 billion in loans would ruin Iraq's economic chances but that it would set a precedent and give ammunition to opponents of the occupation who claim that the United States aims only to profit from Iraq's oil.

The argument of Feinstein and others is that a loan would not only hold down the cost to taxpayers but also give the administration a bargaining chip in pushing countries like France, Germany and Russia to forgive Iraq's debt to them. "If you forgive your loans," Feinstein said hypothetically on CNN, "we'll forgive our loan." If only that were true. German Finance Minister Hans Eichel recently said in response to American pressure to forgive debt, "We not only expect to get our money back, we will get our money back." Iraq already owes various countries about $120 billion. If reparations demands from the 1990 invasion of Kuwait are included, the tab rises to more than $300 billion.

Where Congress has acted most prudently so far is in adding provisions to oversee how money is being spent. It should further tie detailed reports on spending to disbursement of future funding.

Rep. Henry Waxman (D-Los Angeles) alleged last week that Halliburton Co. had been overcharging on fuel trucked into Iraq; the company defends its prices as a cost of the difficulty of working in Iraq. On Friday, the Army Corps of Engineers disclosed that the price so far of importing fuel and restoring Iraq's oil network was $762.4 million and that the transmission system was still not functioning.

The United Nations is footing much of the bill through what used to be called the Food for Oil program. But whether it's paid for by the U.N. or American taxpayers, every major contract deserves closer scrutiny.

Secretary of State Colin Powell's hand will be strengthened in a meeting with prospective donor nations in Madrid this week if he can present a clean U.S. funding measure: no loans, tighter oversight. The administration's decision in advance of that meeting to let an agency run by the World Bank distribute international reconstruction funds for Iraq is another helpful signal. The best way to save taxpayer dollars isn't by charging Iraq for fixing its own war damage but by getting more countries to pitch in.

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