Baghdad’s Future on Table in Madrid

With Iraqi oil proving to be insufficient to finance the occupation of post-war Iraq and with U.S. taxpayers recoiling at covering the shortfall, the result of a donors’ conference in Madrid will decide whether the United States can stay on in Iraq. The donors’ decision, in turn, depends on whether the occupation turns from a unilateral to a multilateral form of corporate invasion.

On Oct. 23 and 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 had earlier estimated that Iraq would need $36 billion for reconstructing Iraq within the next four years, in addition to the $19 billion for other nonmilitary needs calculated by the U.S. occupation regime. [1] With few options left, the United States will be passing the hat.

This meeting could be a turning point in the occupation because whether the hat goes back to the United States full or not will determine how much longer the United States 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 take-over of an occupied country.

This Has Nothing to Do With Oil

Washington is now forced to turn to the creditor countries, including war opponents France and Germany, and to the international financial institutions (IFIs) because it has nowhere else to run. The United States initially had two options: to turn to the Iraqis or to the U.S. taxpayers.

A few weeks after U.S. President George W. Bush announced the end of “major hostilities” in Iraq, the United States managed to get passed the UN Resolution 1483, which created the so-called UN Development Fund. Under this resolution, all of Iraq’s past and future oil revenues, as well as all the former Iraqi government’s assets located anywhere in the world would be placed under the direct control of the United States, being overseen, as they would, by the IMF and the WB–two institutions in which the United States has considerable voting power.

The resolution passed the UN Security Council because the United States 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 United States. And since most contracts are negotiated on a cost-plus basis, the price of the so-called 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 field and machineries, 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 United States for leveraging U.S. government guaranteed loans as well as for directly financing corporate investments in Iraq.

According to a press release by the U.S. Export and Import Bank, which is officially tasked with promoting U.S. business overseas, the fund will be used for lending money to U.S. 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. U.S. handpicked Iraq Governing Council (IGC) Finance Minister Kamel al-Kelani announced last Sept. 21 that all of Iraq’s assets and state-owned corporations, except the oil industry, will be sold off. As if sweeteners were necessary, the buyers will be entitled to 100% 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 United States 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 U.S. corporations to buy off their own assets from them.

Unreliable Oil

But Iraq’s oil, plentiful as it is, still 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 what the United States originally based its plans on. [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 U.S.-installed IGC, one of whose members was already killed by the resistance, remains to be seen from the oil industry’s actions.

In an attempt to solve its liquidity problems, the United States 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 United States will be there to stay for the long haul but also because, as with other decisions, it raises the question of whether the United States has the right to decide on matters that should normally be reserved for legitimate and sovereign governments.

Most Consequential National Security Debate

When an invader cannot count on the invaded to fund its occupation, then it may count on its own taxpayers on whose behalf the invasion was waged in the first place: but not in this case.

The Bush administration has 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 ostensibly liberated. Only last week, Republicans quashed Democrats’ 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 U.S. economy. The trade deficit is now hitting the perilous 5% mark and still rising; the budget gap has been a quick turnaround from the 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 the 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 discussion on it 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

U.S. politicians, especially those from the administration party, are bristling at the idea that the United States should pay for restoring the very things it destroyed in Iraq. Republicans are convinced that the United States has no obligations to Iraqis whatsoever and that any U.S. 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 United States in order for them to pay back the U.S. corporations that will be rebuilding almost everything in their country–from roads to schools to power generators. Using money borrowed from the United States, Iraqis will need to pay the very same corporations that would have had no business in Iraq if there were no war.

Sen. Byron Dorgan, who may not have been adequately briefed on the oil situation, insists that the United States “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 that “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 United States won’t be leaving just yet. Having passed the hat to the liberated Iraqis and to the supposed liberators, the U.S. taxpayers, and still not having enough, the United States is now turning to the UN, the rich creditor nations, and the IFIs for a fast buck.

In a draft UN resolution that has been tabled at the Security Council but that has been denounced by the usually pliant Secretary General Kofi Annan, the United States “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 United States is now asking others to pay for its present.

Piece of Cake

While earlier reports suggested that it was going to be unable to get a new Security Council resolution endorsing the occupation [15], its success in obtaining one does not mean Madrid will become irrelevant. France, Germany, and Russia have all said that the resolution itself will not influence their decision to send troops or funds. That means the stakes for Madrid have been raised.

In Madrid, the United States will be trying to woo countries that opposed the invasion, as well IFIs, such as the World Bank, which has been boasting of its role in financing the reconstruction of conflict areas including Mozambique, Uganda, East Timor, and Palestine–and reaping profits in the form of interest payments in the process. In passing the hat, the United States 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 putting only a measly $250 million into the pot. This is not even 1% of the required total and U.S. 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 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 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 multibillion 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 U.S. 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. U.S. federal procurement laws decree that government contracts for Iraq can only go to U.S. 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-U.S. 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 United States to transfer the burden of Iraq from the U.S. public 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 United States 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 U.S. 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 United States 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 take-over 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 for the occupation is now the only game in town. 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 U.S. 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 U.S.-led enterprise in Iraq could continue to unravel–not in Baghdad, but in Madrid.