Thanks for nothing

06 November 2003
Countries at the Madrid Donors' Conference recently pledged $33 billion for the reconstruction of Iraq. Kamil Mahdi questions the motives and substance behind the donors' promises

For many Iraqis, the Madrid Donors' Conference added insult to injury. The event was a surreal "charity" auction, selling the supposed beneficiary into bondage. Governments the world over posed for the cameras to nobly pledge support to the people of Iraq when the vow is actually one of loyalty to the US government and a promise to support its illegitimate occupation.

Apart from the money offered by the US, most pledges made at Madrid were in the form of loans and trade concessions that further burden Iraq's already onerous international debt. Donors' political and business interests reigned supreme, while the humanitarian and development content was marginal.

Many pledges of financial support factored in the cost of military contingents that have been enlisted to operate alongside the US and British forces, while about a quarter of the original US pledge of $20.3 billion (reduced by Congress to $18.4 billion) is devoted to purely military and security aspects. Moreover, the Bush administration presented the entire commitment to the US public in its strategic context, justifying it as a form of support for US troops.

Some of the British government's rationale behind its own pledge was revealed by Jeremy Greenstock, a former British representative at the UN Security Council and fervent supporter of the devastating economic sanctions against Iraq. Greenstock, who now acts as the deputy to US Civil Administrator L Paul Bremer, explained in a interview with UK-based Channel 4 television that Britain was providing two to three per cent of the total funds, but receiving 12 per cent of the contract value. Of course, the same degree of gain is not open to all other states, but a common desire to share in the lucrative business of reconstructing Iraq is apparent from the manner of tying aid to trade and project concessions.

Some Gulf states joined in with pledges that express both support for the US endeavour and for their own financial and commercial interests. Saudi Arabia talked of Iraq's need for a debt write- off, but was unwilling to set an example. Instead, it promised unspecified debt reduction in the future and pledged one billion dollars, divided equally between project financing and trade credit. Indeed, the Saudi offer is even stingier than it looks. Its claims against Iraq have virtually no chance of being paid except within an international debt settlement. Rather than being generous, Saudi Arabia seems bent on fortifying its claims in the forthcoming Paris Club arrangements, trying to increase its own chance of repayment, rather than aid the Iraqi people.

The same goes for Kuwait and its insistence on repayment of prior claims. Its pledge of $500 million at Madrid pales in comparison with the over $200 billion in inflated Gulf War compensation claims against Iraq made through the UN. In one such case, the Kuwaiti government asked for $86 billion in damages, but its losses were judged to have been only $1.5 billion. Kuwait could have come to Madrid with a promise to wipe the slate clean in its financial relations with Iraq, but failed to do so.

For their part, the US and British governments have been urging the international community to come forward with substantial contributions to the Development Fund for Iraq set up under the May 2003 UN Security Council Resolution 1453, but have been resisting international monitoring for this fund. An agreement on establishing a weakened monitoring board took almost six months to be finalised. Nevertheless, the US has predictably excluded its own $18.4 billion contribution from international monitoring, preferring to allocate it directly through its military and US Agency for International Development disbursements.

This US position appears to have prompted the creation at Madrid of two additional Iraq funds, one run by the United Nations and one by the World Bank. It is not clear at this stage to which of these funds the various pledges of international support will be made, nor is it known towards what economic priorities these will be directed. Coordination will be problematic in the absence of a sovereign state and effective policy tools and control over resources. Add to that the general insecurity, and the continuing military conflict, and the economic outcome looks far from clear or desirable.

The Madrid conference was presented with a joint UN/World Bank assessment of Iraqi needs in order to clarify the support needed. However, the crucial oil sector was omitted, as it was deemed the sole concern of the occupation authority alongside the security sector. Furthermore, the impact of the expenditure of the occupation forces and personnel themselves, and the effects of international agencies and businesses on domestic demand and infrastructural capacity, were not addressed in any detail. State ministries were assumed to be capable of operating on a balanced budget without external support, nor with any room for an active fiscal policy. State-owned enterprises were additionally written-off as economically worthless, without any detailed individual assessment. Those limited funds suggested for the public sector were largely earmarked for overseeing its demise rather than for rehabilitating capacity destroyed by three wars and a decade of sanctions.

The UN/World Bank assessment was not matched or supplemented by one from the Interim Governing Council and the occupation administration. Their contribution was to declare an open door policy on trade and investment without any provisions for the protection of domestic enterprises. At the same time, public enterprises, individuals and small businesses have fallen victim to general lawlessness, and the only businesses that can operate in relative security are those that can afford licensed private security firms. This situation paralyses the domestic economy and favours foreign firms that receive the bonanza of foreign funding. The ridiculously high contracting costs will serve to debilitate domestic capacity rather than stimulate it. In these circumstances, increased funding and expenditure will not encourage development.

On the basis of the above, one can assume that the shape of economic management for the coming years will be characterised by the following features. The public sector will be small and constrained, with poor regulatory capacity and no active economic policy. There will be a number of uncoordinated external public funds that function in response to politically volatile international commitments. Mainly foreign private businesses will operate through insider contracts under heavy private security, or in a Mafia-style environment paying "protection money". Massive external military expenditure will continue, with powerful temporary and incidental effects on the economy. A free market will favour imports into an economy with severely damaged production facilities and an uncertain business environment that is subjected to powerful external shocks. Finally, we will see the neglect of Iraqi institutions, social security and human capacities, as evidenced by the current attempts of the occupation administration to abandon food-rationing permanently.

This outcome would be detrimental for the Iraqi people, and so it is beside the point to reflect upon Madrid in terms of whether or not it has met any financial targets. It is perhaps more appropriate to remember the conference for the rush to grab a stake in Iraq's business opportunities, and for the refusal to bring the question of the cancellation of debt and reparations payments to the table. Iraq does not need aid. It needs an end to the double bind of occupation and debt.

This article originally appeard in Al-Ahram weekly. Copyright 2003 Al-Ahram weekly