Posted 12:39 AM by Robert

Loans To Iraq?

Senate Republicans proposed yesterday to convert nearly half of President Bush's $20.3 billion Iraqi reconstruction program into loans underwritten by that nation's oil.

[Is "underwritten" the right word here? Does the writer mean "secured" or "supported?"]

In many way it's more than a little strange to see this development. Much has been written and urged recently on the lack of wisdom and practical effect of saddling third-world countries with tens of billions of dollars in debt. The Catholic Church even sponsored a "Jubilee" to encourage forgiveness of such debt. What value is there in saddling Iraq with such huge obligations that will almost certainly create serious mischief for any future pro-US government? The money will be sent well before Iraq's government will be independent of the US, so what's the claim to a "voluntary obligation" supposed to be? And if the result of the future "reconstruction" effort is not a prosperous Iraq whose trade and economic relations with the US have a value far beyond the amount of such an imposed "loan," then the reconstruction will have failed. It's not as if the US gets to foreclose on Iraq if that happens. Doesn't Iraq have enough problems? And does someone in Washington enjoy watching currency and international debt crises in action? Isn't the Argentina show enough entertainment for that crowd?

The loan idea does have some political appeal. If the loans are sufficiently "soft" in the World Bank argot, then they can be all but grants in fact but give Congress and the Administration political cover with the argument that the money is to come back to the US in principle.

If the decision is made to structure the reconstruction funds as loans, one can only hope that the existing European and Russian credits to Iraq and its state companies will be strictly subordinated to the new reconstruction loans.