President Bush’s request for an $87 billion supplemental-spending bill, at least $20 billion of which is for the rebuilding of Iraq, has met with surprisingly stiff opposition. Opinion polls indicate that the president’s approval rating stumbled after Americans learned that the burden of paying for modernizing and repairing the infrastructure of war-torn Iraq would have to be shouldered by American taxpayers, rather than the Iraqis themselves. The opposition to this plan is heightened by problems here at home: the slow recession recovery, still-too-high unemployment, and an already record $400 billion of federal deficit spending.
In the run-up to the war in Iraq, administration officials had consistently argued that Iraq’s oil revenues would pay for the costs of reconstruction. That financing plan, which draws from the assets of Iraq to pay for their own economic rehabilitation, seems no less sensible today than it was six months ago. Iraq is not a poor country–at least not for long. It is a resource-rich country, with the highest levels of oil reserves of any nation in the world other than Saudi Arabia. With an estimated 100 billion barrels of known reserves, and probably much more than that is technologically recoverable from these rich desert fields, the discounted present value of the oilfields could easily approach $1 trillion. But these assets only have value once they are linked to a dependable infrastructure of roads, bridges, pipelines, and security.
This begs the question: Why should U.S. citizens have to pay one additional penny for this rebuilding when Americans have already paid tens of billions of dollars for the liberation of Iraq with a huge military operation and more preciously, thousands of our own soldiers’ blood?
Skeptics say that using the oil money to pay for the reconstruction of Iraq is no longer a practical option, because Iraq’s oil revenues are way down. It is true that the combination of the war and economic sabotage has left the oil fields in poor condition and has brought production levels far below prewar levels. But this situation of disrepair is temporary. Once there has been a return to reasonable civic order in Iraq, oil production will increase dramatically and this nation will once again be flush with petrodollars. It could become like Saudi Arabia: one of the richest nations in the world.
As such, we would propose a fairer way to pay for infrastructure reconstruction in Iraq than the president’s plan. First, the dollars for rebuilding this nation should not be given, but rather loaned, to Iraq through the U.S. government, or better yet, through a financial intermediary, such as the World Bank, or the International Monetary Fund. These loans should be collateralized against the future profits of the Iraqi oilfields. A formula which dedicates 50 percent of the oil profits to the repayment of these loans, could mean that within 10 to 15 years the debts would be paid off in full (depending in part on what happens to the world price of oil). Better yet, if the Iraqi government decides to privatize the oil fields through a public offering, some percentage of the sale proceeds should be dedicated to debt repayment. We would even go a step further; a substantial portion of the actual war costs could and should be reimbursed to the U.S. government from this oil money, because the ultimate beneficiaries of this war were the Iraqi people themselves.
Making the loans through the World Bank or IMF would have the benefit of avoiding the spurious charge that the hidden agenda of the Bush administration was to secretly take control over the Iraqi oil fields. But in this case the U.S. government would not get a penny of the oil revenues for reconstruction purposes. The loans would be made by multilateral institutions and would be repaid to them.
This straightforward plan for financing this rebuilding process, is said to be complicated by Saddam’s foreign debts. Major creditor countries, including war-opponents France, Germany, and Russia, as well as various Arab states, insist that Iraq’s oil revenues secure their debt. Estimates of the amount of debt are between $100 and $150 billion, well above the entire cost of reconstruction. While these debts are likely to be renegotiated, Iraq’s provisional government and the United States have adopted the questionable position that the debts are valid and will be paid. That is a mistake. To not repay the loans sends a signal to the rest of the world that they will pay a hefty price for engaging in commerce with corrupt, brutalistic, and illegitimate regimes like Saddam Hussein’s. It would be a horrendous policy if Russia, Germany, and France were repaid for financing Saddam’s wicked repression of Iraqis, while American taxpayers are not reimbursed for liberating and rebuilding Iraq.
President Bush is now pursuing diplomatic means to persuade the Europeans and other industrialized nations to help shoulder the remaining costs of the war and the peacekeeping process. Rather than going hat in hand to the Europeans, the Bush administration should simply cancel the Iraqi debts owed to France, Germany, Russia, and other nations. After all, the debts were incurred by a government that no longer exists and at a time when the U.S. government was boycotting Iraq. These other nation’s were effectively undermining U.S. national security by effectively undermining that boycott
What we are proposing is known as the doctrine of odious debts, first proposed by Alexander Sack in 1927. According to Sack: “When a despotic regime contracts a debt, not for the needs or in the interests of the state, but rather to strengthen itself, to suppress a popular insurrection, etc, this debt is odious for the people of the entire state. This debt does not bind the nation; it is a debt of the regime, a personal debt contracted by the ruler, and consequently it falls with the demise of the regime.” Beginning to enforce this principle of odious debt would very rapidly defund and thus help topple other oppressive and dangerous tyrants around the globe. If France and Germany want to be repaid, they should start hunting down Saddam and his henchmen.
Americans put their lives at risk freeing Iraq. The French, Germans, and Russians not only sat on the sidelines but, inadvertently propped up Saddam by financing his purchases of arms, palaces, and oil infrastructure. It makes no sense to argue that they should get a claim on the new Iraq’s assets before we do. For once in our history, Americans should not be forced to foot the bill for the war and the peace–especially since the means to pay for both is right beneath the Iraqis feet.
–Tom Feeney is a freshman member of Congress from Florida. Stephen Moore is president of the Club for Growth.