|
Analysis: Can Oil Pay for Iraq Reconstruction? LONDON/DUBAI (Reuters) - The reconstruction of Iraq will be the most expensive aid
operation since the Marshall
Plan for rebuilding
Europe after World War II, but wrangling between the U.S. and Europe means it
is unclear the funds can be raised.
Any dreams that Iraq,
which has the world's second largest oil reserves, could neatly finance its own
reconstruction have evaporated due to massive debts and run-down oil
infrastructure. Europe and Japan, which have helped bankroll
reconstruction in ex-Yugoslavia and Afghanistan, face budgetary constraints. Some Europeans may not pay for a war
they do not agree with and in the absence of a post-war U.N. mandate. That leaves one source of finance, the
United States, which economists say may have to underwrite the cost, estimated
by some at $100 billion, using Treasury bonds
as collateral, something that would not add to U.S. debt. Iraq's problems are larger
than those of Afghanistan and Yugoslavia. To put its needs in context, $100
billion is the aid given to 36 post-conflict countries in all of the
1990s. Adjusted for inflation, the
figure is almost as big as the amount spent in the post-World War II Marshall
Plan. "We would really have a contingent
liability on the U.S. Treasury," said Professor Valpy Fitzgerald, a development economist at Oxford University
and an expert on reconstruction. U.S. Treasury
officials decline to comment on the issue of financing reconstruction, saying
they are holding discussions, but if the U.S. runs post-war Iraq, the kind of
international solidarity which saw donors dig deep for former Yugoslavia and
Afghanistan is likely to be in short supply. The United States is considering $2.5 billion for aid and rebuilding. Germany has already
said that the country which caused the damage should pay and European Union
president Greece warned on Wednesday of new difficulties after the war
ends. "The management of
issues in the (post-war) period by the attackers will trigger new conflicts and
crisis," Prime Minister Costas Simitis said. Building On Oil A Chimera
Before the U.S. war
on Iraq, there had been concerns Saddam Hussein would damage Iraq's oil
infrastructure, thus hitting the country's ability to export and so its ability
to pay for rebuilding after the war.
That appears not to have happened, but there are plenty of
other pitfalls for a country which was once one of the richest developing
nations. Per capita income was $4,000 a year in 1980 and is now $150 a year. Even before the first
U.S. air strikes were launched on March 20, Iraq needed billions to shore up
basic services for its 26 million citizens, 60 percent of whom are dependent on
food aid, and an oil sector ravaged by 12 years of U.N. sanctions and decades
of economic mismanagement. The U.S. has suggested Iraq could use
$11-$14 billion a year in oil revenues for reconstruction.
But any attempt by the U.S. to take Iraqi oil receipts would be on suspect legal ground as there is around $142 billion in enforceable debt claims
on the country as well as up to $300 billion reparations outstanding from the
invasion of Kuwait, plus $57 billion in contracts signed by the Iraqi
government. Washington could also
create another flashpoint with states like Russia, which is owed $8 billion, if
it supports a call by Iraqi exiles for forgiveness of all Saddam-era
obligations. In a benign economic scenario, oil export earnings would rise,
enabling the country partly to fund its own redevelopment. But with oil exports running at around
$10-$12 billion a year there would not be enough money to finance humanitarian
needs, debt repayments, even assuming a generous debt relief. Yugoslavia saw 66 percent of its debts
written off after Slobodan Milosevic was ousted as a debt to gross domestic product figure of
150 percent was deemed unsustainable. Analysts calculate
that Iraq debt
payments alone would be $1.6 billion annually for the first five years based on
a 66 percent write-off and a five-year grace period, stepping up to $4.8
billion for the next 10 years. Repairing existing oil export
installations will require $5 billion and rebuilding electric power
infrastructure could cost $20 billion to restore its pre-1990 capacity, according
to the American Academy of Arts and Sciences. Gulf, Foreign And Domestic
Capital
Other potential
sources of capital are Gulf Arab governments, companies and banks which are
sympathetic to the plight of Iraq, foreign multinationals and domestic savings. Gulf bankers said that it was
Arab governments -- some of which hold billions of dollars worth of
Saddam-era claims -- that would put money in for strategic and political
reasons. "Once there is an
acceptable regime change in Iraq, it becomes much more important to them.
Afghanistan meant nothing by comparison," a senior Arab banker based in
Bahrain said. "They feel guilty about what is
happening to the Iraqi people, plus the fact that a stable Iraq is very
important to them," said the banker. The minimum
requirements for private sector capital would be a stable government, not an
interim U.S. administration, peace and clear rules and regulations, as well
probably as some sort of government guarantee, probably from the U.S. Treasury.
The private sector has the experience, but
appetite for projects in developing countries has evaporated in the wake of
Enron's experience in India
and the sequestration of foreign investors' assets in Argentina after the
country went bankrupt. "The only way to get the private
sector involved would be by so heavily insuring the risk and then raising money
on the U.S. corporate market to do it," said Oxford's Fitzgerald. Problems in the global
economy are also likely to limit the willingness of firms to risk their own
capital as they are suffering from overcapacity in domestic markets, low
domestic prices, weak share prices and poor credit outlooks, said consultant
Robert Shephard. "In the
current environment, few firms are willing to tell the rating agencies or their
shareholders that they are investing in riskier areas of the world," said
Shephard, formerly responsible for global project finance at Bank of America
and Nationsbank. There is still capital
in the country which could be invested, but that requires a stable currency and
central bank. Typically in
post-conflict situations, the International
Monetary Fund
likes to insist on high interest rates to stabilize the currency, which cuts
local risk appetite. "Domestic
investors, peasants, shopkeepers and so on are highly exposed to domestic
monetary policy and interest rates which are affected by the IMF," said
Oxford's Fitzgerald. Excerpt: U.S.,
Allies Clash Over Plan to Use Iraqi Oil Profits for Rebuilding By
Colum Lynch and Peter Behr, Washington Post Staff Writers @ http://www.washingtonpost.com/wp-dyn/articles/A15368-2003Apr2.html Thursday,
April 3, 2003; Page A34 UNITED NATIONS, April
2 -- The Defense Department is pressing ahead with plans to temporarily manage Iraq's oil industry after the war and to use the proceeds to rebuild the
country, creating a conflict with U.S. allies in Europe and the Middle East,
according to diplomats and industry experts. The White House maintains that Iraq's oil
revenue is essential to financing the country's postwar reconstruction. The administration intends to install a senior American oil
executive
to oversee Iraq's exploration and production. Iraqi experts now outside the country would be
recruited to handle future oil sales. Industry sources said former Shell
Oil Co. chief executive Philip J. Carroll is the leading candidate to direct
production. But the postwar oil
strategy is clouded
by legal questions
about the right of the United States to manage Iraq's oil fields.
Administration officials are searching for a legal basis to justify the U.S.
plan. If the war succeeds, the United States may claim a legal right as an
occupying power to sell the oil for the benefit of Iraq, people close to the situation
said. U.N. and British officials said the United
States lacks the legal authority to begin exporting oil even on an interim
basis without a new Security Council mandate. Iraq's oil sales before the war were controlled
by the United Nations under its oil-for-food program. "We're moving into a legal realm that is not clear," said Jan
Randolph, head of economic forecasting at the World Markets Research Center in
London. "The impression we're getting is that because the Americans
are largely bearing the [war] costs, they will want to determine what happens
next." (end of excerpts)
|
- [Futurework] RE: Long term siege Karen Watters Cole
- RE: [Futurework] Long term siege Karen Watters Cole
- Re: [Futurework] RE: Long term siege Karen Watters Cole
- Re: [Futurework] RE: Long term siege Harry Pollard
