Months before the war in Iraq began, the competition for the title of Conscience of the World had already started heating up. Should the title go to France, the nation that fought the mighty Americans to prevent the war, or should it go to America, the country that risked blood and treasure to rid the world of a dangerous despot? The other candidates held various positions, seeking to bridge the gap between the champions of peace and the warriors for justice.
The competition was tested last year when representatives of dozens of nations gathered in Madrid for a conference of donors, seeking funding for the reconstruction of post-Saddam Hussein Iraq. In a display of unflinching commitment to their principles, France, Germany and Russia, the most vocal opponents of the U.S.-led war, refused to make any financial pledges at the donors’ table. After all, how could countries that opposed the war and remain highly mistrustful of the American occupation contribute cash to Iraq under the current circumstances?
When Hussein ruled Iraq, however, principles apparently did not pose that much of a moral quandary.
Should the people of Iraq, victims of Hussein’s brutality, repay loans made to a regime they despised, often to buy the very weapons used against them? Do the governments that made the loans have a right to demand repayment, especially in light of the fact that they knew exactly what kind of regime Hussein was running?
This is not the first time this sort of problem has emerged. The situation is old enough to have a name: odious debts. The concept, more than a century old, maintains that debts incurred by dictators, without the support of their people, without benefit to their people, should not become the burden of the tyrants’ successors. The principle carries even more power when the lenders were well aware of all of the above.
Struggling with debt
It’s a nice idea. The history of its application, however, is less than heart-warming. Developing countries on every continent, with populations barely making ends meet, are struggling under the weight of enormous debts accumulated by assorted thieves, generals and demagogues–with the full knowledge of their lenders, often including the United States and other rich countries.
In the case of Iraq, U.S. and Iraqi leaders are urging that country’s creditors to cancel, reduce, or reschedule the majority of Iraq’s debt, for the sake of the nation’s future.
Leading America’s efforts on behalf of Iraq is James Baker, the man with the golden Rolodex. Baker served as chief of staff and treasury secretary in the Reagan administration, and as secretary of state in the first Bush administration. Baker has used his finely honed high-level schmoozing techniques to extract pledges of support from America’s less-than-supportive allies, France and Germany. He also has obtained major debt concessions from Japan and is setting out to work on Iraq’s Arab debtors, who hold the largest stacks of Iraqi IOUs.
Most estimates put the size of Iraq’s debt at $120 billion to $130 billion, but that does not include tens of billions owed in war reparations. On the other side of the ledger, however, remains the fact that Iraq, despite its problems, is a country of vast wealth.
Hussein borrowed the billions for an assortment of enterprises. Foreign financing helped pay for eight years of war against Iran. Generous financing provided for construction of the French-built Osirak nuclear reactor, bombed by Israel in 1981. Creditors helped finance the weapons Iraq used to conquer Kuwait in 1990.
Money bought weapons
Creditors’ money helped purchase the weapons that massacred Iraqi Shiites and Kurds after the war. It helped build Hussein’s lavish palaces and contributed to the slush funds that gave the Iraqi president’s family billions in personal wealth. Foreign loans also paid for legitimate infrastructure projects.
Most of the money is owed to wealthy Arab countries, but rich Western nations also hold a hefty chunk of the debt.
The same man now arguing the virtues of debt forgiveness, Baker, once used his talents to secure an American credit card with a stratospheric credit limit for Hussein. In 1989, Secretary of State Baker urged the U.S. to offer a billion dollars in loan guarantees for Iraqi purchases of U.S. agricultural products. By then, the U.S. knew about Hussein’s use of chemical weapons against Iraq’s Kurds and against Iranian soldiers.
The U.S. provided $500 million in credit. When Iraq invaded Kuwait in 1990, the program stopped and Hussein defaulted. Like all unpaid credit card balances, the debt ballooned.
Total Iraqi debt to the U.S. stands at about $4 billion. Russia is owed $8 billion in loans and billions more in contracts–some of them dating back to the Soviet era. France has said it has $8 billion in claims and Germany about $2 billion.
The U.S. says these debts should be eliminated to permit Iraq a fresh start. Some, such as Pentagon adviser Richard Perle, say the debts should be canceled to teach the lenders a lesson about the “moral hazard” of dealing with vicious regimes.
Supporters of debt forgiveness, such as the former World Bank chief economist and Nobel Laureate Joseph Stiglitz, point to the historical record of the infamous Versailles Treaty. After World War I, the victorious allies imposed enormous reparations penalties on Germany. The social and economic turbulence stirred by that debt is seen as one of the causes of the rise of Nazism and World War II.
Opponents of forgiveness say Iraq is a special case. Eventually, they argue, Iraq will become wealthy again.
Small countries such as Bulgaria say they need the money Iraq owes them. At the donors conference in October, Bulgarian Foreign Minister Solomon Passi said, “Every government represents the same country,” arguing that countries must honor their obligations, regardless of who holds power. Bulgaria is slowly repaying the loans from its own communist past. Iraq owes it $1.7 billion, 12 percent of Bulgaria’s gross domestic product.
Big creditors worry about the precedent of large-scale cancellation of odious debt, fearing a mad rush to the forgiveness table by countries still paying the debts of their dictators, such as Indonesia, the Democratic Republic of Congo, Ethiopia, Argentina and many others.
Charges that world leaders are playing politics are flying from all sides. The U.S., say some, is still lending money to dictators in countries such as Uzbekistan and Pakistan. The nation has found high moral principles only when it is politically expeditious. Germany and France, U.S. supporters respond, are punishing the Iraqi people when it is the U.S. they want to hurt. They helped Hussein even after the invasion of Kuwait, when he was filling mass graves with hundreds of thousands of civilian opponents.
The ultimate outcome will involve some type of compromise. Major lenders will reduce and reschedule Iraq’s debt, much as they did in Yugoslavia after it experienced its own regime change. Without an official system to address odious debts, however, each country will stand on its own, in the light of its political circumstances. The American government considers success in Iraq a paramount goal, so debt forgiveness for Iraq will enjoy the advocacy of the most powerful nation on Earth. That does not mean forgiveness would be wrong.
Until the international community develops a system to deny dictators the resources to oppress and pillage their countries, dealing with odious debts will remain a haphazard and unjust exercise. The countries aspiring to embody truth, justice and morality, however, have not found time to work on the problem.
