From: Cyrus Bina (binac@MRS.UMN.EDU)
Date: Tue Oct 21 2003 - 16:11:45 EDT
Asia Times -Dear OPE-Lers,
I've just returned from California and immediately re-activated my mail to receive the postings again. Hope all of you have had a great time in this no so great era. Below is an interesting piece that Jerry has send me and I thought I should share with you.
Best wishes,
Cyrus
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No money, no play: US on the brink in Iraq
By Herbert Docena
BANGKOK - This coming 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
Herbert Docena is with Focus on the Global South, a research and advocacy organization based in Bangkok . He can be contacted at herbert@focusphilippines.org
Oct 10, 2003
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