No Money, No
Play:
US On The Brink In Iraq
By Herbert Docena
Asia
Times
10 October, 003
October
23 to 24, the United States will be sitting down with rich creditor
countries, the International Monetary Fund (IMF) and the World Bank
(WB) during an international donors' conference on Iraq in Madrid. The
IMF, the World Bank and the UN have estimated that Iraq will need US$36
billion for reconstruction within the next four years, in addition to
$19 billion for other nonmilitary needs calculated by the American occupation
regime. [1] With few options left, the US will be passing the hat.
This meeting could
be a turning point in the occupation because whether the hat goes back
to the US full or not will determine whether the US can afford to stay.
The decision of donor countries to cough up cash will depend, in turn,
on whether this continues to be a unilateral or multilateral economic
takeover of an occupied country.
'This has nothing
to do with oil'
The US is now forced
to turn to the creditor countries, including war opponents France and
Germany, and international financial institutions (IFIs) because it
has nowhere else to go. The US initially had two options: to turn to
the Iraqis or to the American taxpayers.
A few weeks after
President George W Bush announced the end of "major hostilities"
in Iraq, the US managed to pass UN Resolution 1483, which created the
so-called UN Development Fund. Under this fund, all of Iraq's past and
future oil revenues, as well as all the assets of the former Iraqi government
located anywhere in the world, would be placed under the direct control
of the US, as overseen by the IMF and the WB - two institutions in which
the US has considerable voting power.
The resolution passed
the UN Security Council because the US assured Russia, France and China
that all contracts entered into by their firms under the UN Oil-for-Food
program during the sanctions regime would be honored by the occupation
authority and any subsequent interim government. [2]
The development
fund is intended to finance the rehabilitation of all that's been damaged
by the war. The choice of corporations to undertake this reconstruction,
however, has so far been a question reserved exclusively for the US.
And since most contracts are negotiated on a cost-plus basis, the price
of the "reconstruction" is all up to the chosen contractor.
In other words, what will be paid to Kellogg, Brown and Root to repair
Iraq's oil fields and machinery, for example, will be financed out of
Iraqi oil revenues at a price determined by Kellogg, Brown and Root
itself.
Paying to get robbed?
Aside from financing reconstruction, the fund will be used by the US
for leveraging US government guaranteed loans, as well as for directly
financing corporate investments in Iraq.
According to a press
release by the US Export and Import Bank, which is officially tasked
to promote American business overseas, the fund will be used for lending
money to US companies wishing to do business in Iraq. Few risk-averse
private banks will willingly give money to any investor applying for
a loan to open business in war-torn Iraq. But with the development fund,
there'd be lots of money for the daring, adventurous, or simply bargain-hunting
types. [3]
And in Iraq, there'd
be lots of bargains around. The US handpicked Iraq Governing Council's
(GC) Finance Minister, Kamel al-Kelani, announced on September 21 that
all of Iraq's assets and state-owned corporations, except the oil industry,
will be sold off. As sweeteners, the buyers will be entitled to 100
percent ownership of their purchase, full repatriation of profits, and
minimal taxation. [4] Given Iraq's present condition, the items on the
bidding block will come very cheap. But in a few more years, what was
bought at dirt-cheap prices - using the Iraqis' oil revenues - could
then be sold for a nice profit.
Making use of the
Iraqis' assets for reconstruction means that the Iraqis themselves will
be paying for rebuilding what the Americans destroyed. This is a violation
of the Geneva Convention, which unequivocally states that humanitarian
assistance, aid, reconstruction and other development expenses are the
legal and moral obligation of the occupying forces. The use of the Iraqis'
money to finance the massive privatization scheme of their economy means
that the Iraqis themselves will be paying US corporations to buy off
their own assets from them.
Unreliable oil
But Iraq's oil,
though definitely plentiful, is not enough - at least for now. To the
war planners' chagrin, oil coming out of Iraq's spigots has only been
able to fill around 1 million barrels a day (mbd) - far less than on
what the US originally based their plans. [5] Analysts say it would
take another 18 months more before the output could even begin to hit
the prewar production level of 3 mbd, and even longer to surpass it.
Add a couple more years to that if the rate at which the pipelines are
being sabotaged keeps up.
Worse news is that
even the multinational oil giants are keeping their distance. "There
has to be a proper security, legitimate authority and a legitimate process
... by which we will be able to negotiate agreements that would be longstanding
for decades," Sir Philip Watts, chair of Royal Dutch/Shell, was
quoted as saying. "When the legitimate authority is there on behalf
of Iraq, we will know and recognize it." [6] Whether Watts considers
as legitimate the US-installed GC, one of whose members has already
been killed by the resistance, remains to be seen from the oil industry's
actions.
In an attempt to
solve its liquidity problems, the US is considering converting Iraq's
expected future oil revenues into marketable securities that could be
sold at discounted rates in the present. [7] This promises to be a controversial
measure not only because it could indicate that the US will be there
to stay for the long haul, but also because, as with other decisions,
it raises the question of whether the US has the right to decide on
matters which should normally be reserved for legitimate and sovereign
governments.
'The most consequential
national security debate'
If an invader cannot
count on the invaded to fund its occupation, then surely it could count
on its own taxpayers on whose behalf the invasion was waged in the first
place.
Not in this case.
The Bush administration had just given its richest taxpayers $1.8 trillion
in tax cuts, but it cannot afford to spend $20 billion on the people
it has just liberated. Just last week, Republicans quashed Democrat
efforts to fund the war by raising taxes from the wealthiest Americans
[8] a number of whom will be profiting handsomely from the post-invasion
boom in Iraq. Vice President Dick Cheney, who allegedly pushed intelligence
agencies to exaggerate their Iraq findings, still maintains financial
interests in Halliburton, the Congressional Research Service officially
declared recently. [9]
These tax cuts and
soaring war costs should be put in the context of the gaping and record-breaking
budget and trade deficits currently facing the weak US economy. The
trade deficit is now hitting the perilous 5 percent mark and still rising;
the budget gap has been a quick turnaround from previous years' promise
of uninterrupted surpluses way into the future. At $5 billion a month,
the monthly cost of occupying Iraq, excluding reconstruction, is already
approaching that of Vietnam. [10]
If Bush has not
yet been politically broken by the still-to-be found weapons of mass
destruction or the issue of intelligence leaking, his hold over legislators
just might snap from this funding question. With what is turning out
to be a less than smooth ride for Bush's funding request, Democrats
are calling debates in Congress "the most consequential national
security debate in a generation". [11] It is a debate that Bush
may not be winning.
Touch their oil
but not our taxes
US politicians,
especially those from the Republican party, are bristling at the idea
that the US should pay for restoring the very things it destroyed in
Iraq. Republicans are convinced that the US has no obligations to Iraqis
whatsoever and that any US funds used in reconstructing Iraq should
be treated as loans, not grants.
Should this be approved,
and chances are high that it will, Iraqis will in effect be borrowing
money from the US in order for them to pay back the US corporations
that will be rebuilding almost everything in their country from
roads to schools to power generators. Using money borrowed from the
US, Iraqis will need to pay the very same corporations that would have
had no business in Iraq if there were no war.
Senator Byron Dorgan,
who may not have been adequately briefed on the oil situation, insists
that the US "should not shoulder the whole burden on its own. Iraq
has enough oil to pay for part of the reconstruction effort". [12]
Defense Secretary
Donald Rumsfeld is more adamant. "I don't believe it's our job
to reconstruct that country after 30 years of centralized Stalinist-like
economic controls in that country," he said, as though the damage
had nothing to do with the cruise missiles and the decade-long embargo.
"The infrastructure of that country was not terribly damaged by
that war at all," Rumsfeld maintains. [13]
Taxpayers not footing
the war bill, however, would be disastrous. Having calculated the cost
of war and occupation, Yale University economist William Nordhaus warned
long before the war, "If American taxpayers decline to pay the
bills for ensuring the long term health of Iraq, America may leave behind
mountains of rubble and mobs of angry people." [14]
Paying for democracy
But the US won't
be leaving just yet. Having passed the hat to the liberated Iraqis and
to the supposed liberators, the American taxpayers, and still not having
enough, the US is now turning to the United Nations, the rich creditor
nations and IFIs for a fast buck.
In a draft UN resolution
that has been tabled at the Security Council but which has been denounced
by the usually pliant Secretary General Kofi Annan, the US "appeals
to member states and the IFIs to strengthen their efforts to assist
the people of Iraq in the reconstruction and development of their economy".
It also "calls upon member states and concerned organizations to
help meet the needs of the Iraqi people by providing resources necessary
for the rehabilitation and reconstruction of Iraq's economic infrastructure".
The same resolution
even asks the UN to finance Iraq's electoral process. It "requests
the secretary general to ensure that the resources of the United Nations
and associated organizations are available, if requested by the Iraqi
Governing Council, to help establish an electoral process in Iraq ..."
This war was waged in order to give the Iraqis the gift of democracy,
Bush said before. With this resolution, the US is now asking others
to pay for its present.
A piece of cake
The latest reports
indicate, however, that the US has run into such unbending opposition
at the UN that it is abandoning the resolution altogether. [15] That
leaves the US with the Madrid option.
In Madrid, the US
will be trying to woo countries which opposed the invasion as well IFIs
like the World Bank, which has been boasting of its role in financing
the reconstruction of conflict areas such as Mozambique, Uganda, East
Timor and Palestine and reaping profits in the form of interest
payments in the process. In passing the hat, the US only needs to convince
these countries and institutions that what they will be putting in will
be money well spent.
So far, it doesn't
look encouraging. As of early October, the European Union was reported
to be thinking of giving only a measly $250 million to the pot. This
is not even 1 percent of the required total, and US officials are reportedly
"shocked" at the amount. Canada, for its part, is willing
to share $200 million. [16] Only Japan has been reported to be willing
to give a relatively hefty sum of $5 billion, and Japanese officials
have been very frank about their reason: their reliance on Middle East
oil. [17] Still, when you add all these together, it's still quite a
trifling sum compared to the required $36 billion.
All that could change,
however, with a simple assurance. "You have to offer them a piece
of the cake," advised the French politician and former UN special
representative to Kosovo Bernard Kouchner. [18] With over $100 billion
dollars or more at stake said to be one of the most profitable
building programs in decades [19] there will be a big cake to
pass around.
Not a charity
ball
Germany, France
and other potential donors, according to the Washington Post, have long
indicated that they will only be bringing money to the table if their
companies are given more opportunities to take part in the multi-billion
dollar post-war reconstruction bonanza in Iraq. They will be more willing
to cough up cash if they will be assured that their corporations will
not be shut out of Iraq by US corporations. [20] In other words, the
potential donors will only be signing checks in Madrid as long as their
corporations are assured of getting invitations during the slicing of
the cake.
So far, they've
had to settle for crumbs. US Federal Procurement laws decree that government
contracts for Iraq can only go to US corporations which, in turn, are
free to hire subcontractors as they deem fit. Halliburton and Bechtel
have been besieged by offers for subcontracting work at their company
headquarters, as well as at their offices in the Middle East, by scores
of companies and prospectors from all over the world. [21] This has
been how non-American companies have so far managed to catch some of
the action.
This current division
of spoils could change, however, depending on whether some governments
are able to wrangle for more concessions in exchange for giving money
to the occupation effort. Surely, creditor nations will insist on a
good bang for their buck. The meeting in Madrid will not be a charity
ball.
Unilateral or
multilateral?
What the donor government
negotiators will be bringing in their pockets to Madrid, however, will
not be their personal money nor that of the corporations, but that of
their country's taxpayers. The Madrid meeting is an effort by the US
to transfer the burden of Iraq from the Americans to, say, French, Japanese
and German taxpayers. Borrowing from the IMF and the World Bank on behalf
of the Iraqi people will pass the liability to future Iraqi generations,
who will then be indebted to the IFIs and subjected to their conditions.
For the burden they'll bear, others will be reaping the profits.
Whether the US would
still consider it financially worthwhile to continue occupying Iraq
thus depends on the following: how quickly Iraq's oil wells can rake
in cash, the US taxpayers' willingness to part with their money, and
the readiness of the donor countries to infuse funds. The Iraqis seem
not to figure anywhere in the equation. Relying on oil is simply impossible
today. When the going gets really tough, the second could still be an
option, but not something Bush as champion of tax cuts for the
rich and presiding over a weak and deficit-ridden economy would
really want to push. The third then could be the only available option
left.
But the possibility
of getting billions from donors, in turn, appears to be solely dependent
on whether the US will lock its firm grip on the business opportunities
in Iraq, or relax it. The question before Madrid, then, is whether this
will continue to be a unilateral corporate takeover or a multilateral
one. And since what the donor countries will be pledging will be taxpayers'
money, the question in Madrid will also be whether the world's taxpayers
would be willing in the face of the liberators' reluctance
to finance this multilateral corporate invasion.
One thing is sure:
the drive for money is now the only thing getting this occupation going.
This was a war of choice, not of necessity, and opinion surveys are
increasingly saying that more and more people think it was a wrong choice.
Without the assurance of funding and public backing, the US troops and
the Halliburton crew may have to pack up at some point. Without money
holding the occupation together, there is a real chance that the US-led
enterprise in Iraq could unravel not in Baghdad, but in Madrid.
References
[1] New York Times, October 2, 2003
[2] Michael Renner, "The Other Looting", Foreign Policy in
Focus, July 2003
[3] See Steve Kretzmann and Jim Vallete, "Operation Oily Immunity",
CommonDreams.org, July 23, 2003
[4] The Independent, September 22, 2003
[5] Houston Chronicle, September 23, 2003
[6] Financial Times, July 24, 2003
[7] Los Angeles Times, July 11, 2003
[8] Washington Post, October 3, 2003
[9] Washington Post, September 26
[10] USA Today, September 8, 2003
[11] Christian Science Monitor, October 7, 2003
[12] Financial Times, October 3, 2003
[13] Seattle Times, September 11, 2003
[14] Yale Herald, November 15, 2002
[15] New York Times, October 8, 2003
[16] New York Times, October 2, 2003
[17] Financial Times, October 6, 2003
[18] International Herald Tribune, March 18, 2003
[19] New York Times, April 11, 2003
[20] Washington Post, June 26, 2003
[21] New York Times, May 21