The price tag to rebuild war- and sanctions-torn Iraq may soar to $60 billion, according to various estimates. But that substantial figure is eclipsed by what Iraq owes to foreign countries, individuals and corporations that gave Saddam Hussein's government billions of dollars in loans over the years.
Hussein's Iraq owed those groups approximately $383 billion, according to studies by the Center for Strategic and International Studies in Washington and the General Accounting Office. Foreign countries comprise at least $127 billion of that total, with Russia, Kuwait and other Persian Gulf nations holding nearly 50 percent of the regime's governmental debt. And because Iraq stopped repaying most loans following the first Gulf War, it has accrued a whopping $47 billion in interest charges.
Hussein's government also owes billions to individuals and corporations. Through the United Nations, Iraq has paid more than $40 billion in reparations claims filed after the country's invasion of Kuwait, but nearly $200 billion is still owed. Collectively, Iraq's burden makes it the most indebted nation in the developing world, with obligations translating to approximately $16,000 for each of Iraq's 24 million citizens, according to researchers with the Heritage Foundation in Washington.
The key to demolishing that mountain of debt is Iraq's 121 billion barrels of oil reserves, the world's second largest. Saudi Arabia, with 264 billion barrels, boasts the world's largest supply. The sale of oil and the country's huge natural gas supply will be used for payments, as well as funding for the wide array of projects to build the country's infrastructure.
But oil has been slow to flow. Estimates are that Iraq could pump 2.5 billion barrels a year if its current infrastructure was fully functioning. But damaged by neglect and, more recently, sabotage by unidentified groups, pumps and pipelines reportedly are spitting out less than five percent that amount.
While foreign creditors look to recoup their years' old debts, President Bush has declared null and void any claims against Iraq's oil and natural gas or revenues from their sale. Those claims could disrupt the reconstruction process, and thus represent "a threat to the national security and foreign policy of the United States," the president said in an executive order issued in May.
The U.S. occupation authority in Baghdad controls the production and sale of Iraq's oil and gas, and the government plans to issue new contracts to further develop oil fields and infrastructure. But development experts warn that until Iraq's financial obligations are met, or until a plan to address them is formed, Iraq's future is as tenuous as its current oil production.
"You don't want to saddle post-war Iraq with similar debts" to the staggering costs imposed on Germany following its defeat in World War I, said Nile Gardiner, a Heritage Foundation fellow. "These debts effectively were a noose around the neck" of the post-war government and fueled nationalist animosity, paving the way for the rise of the Nazi party, Gardiner said.
With concern mounting in Washington that U.S. reconstruction funds will run out by year's end, U.S. contractors rebuilding Iraq are pushing a funding proposal that could indebt the country even more. Halliburton and Bechtel, the government's two main contractors, and other firms want the U.S. Export-Import bank to finance projects now in exchange for a share of future oil revenues. That would make the bank, a U.S. government agency, another in the long line of creditors the future regime will have to face.
The plan is backed by the Coalition for Employment through Exports, a Washington-based consortium of 35 major U.S. exporters. Edmund Rice, the group's president, said Export-Import funding of perhaps $4 billion to $5 billion per year is crucial, because no additional funds have been set aside for repairing Iraq. Unless Iraq's oil and gas infrastructure is rebuilt, "then Iraq has no hope of succeeding economically," he said. "The infrastructure is essential to everything else in the future."
It's unclear whether the U.S. government legally can accept loans on behalf of an Iraqi government that doesn't exist yet. But Rice said that money from Export-Import and other countries' banks would be placed in a fund controlled partially by Iraqis appointed by the U.S.
An official from the Export-Import bank said at an Iraq reconstruction conference in Washington last week that officials were contemplating future endeavors in the country. Historically, though, the bank has been reluctant to back projects in Iraq, fearing Hussein's government wouldn't repay its loans.
That fear isn't dampening interest in Iraq's reconstruction among foreign investors and companies around the world, though, said William Loiry, president of Equity International, a business development firm in Washington that has hosted several reconstruction conferences. With the Hussein regime formally wiped away, Iraq's debts are now spoken for by the U.S. government, he said. "I think there's no reticence at all as it relates to who's in charge [of debt repayment], because we're essentially in charge" through the occupation force, he said.