Iraq s staggering debt


One of the ghastly problems that the United States faces in governing and then getting out of Iraq is the some $100 billion to $120 billion in external debt that Saddam Hussein s government left as part of its legacy.

The matter is extremely urgent also. The current U.S. plan provides for handing authority over to an Iraqi government by June 30, 2004. Only a sovereign government can borrow money. The new Iraqi government will most definitely want to take out loans as part of a development process.

But before that can occur, something will have to be done about the billions in old debt. It can be forgiven by the creditors, or the government part of it can be rescheduled at what is called a Paris Club, a meeting of governments named after the city where such gatherings are normally held. (London Clubs reschedule debt to private lenders.)

The United States as principal occupying power is on the hook to attack this problem. President Bush took the important step of naming former Secretary of State and former Secretary of the Treasury James A. Baker III as his special envoy to travel around the world visiting Iraq s creditors to seek sympathetic treatment on their part in dealing with the dilemma.

Mr. Bush chose well in giving the job to Mr. Baker.

France and Germany quickly indicated they would explore the matter of forgiving Iraq s debt, and at week s end, Mr. Baker s entreaties to the Russians had produced a pledge by President Vladimir Putin to consider forgiving all $8 billion owned his nation by Iraq. That s hugely significant, considering that the Russian economy could certainly use the payback.

On the other hand, it s fair to ask what is the point of holding out indefinitely for something these foreign governments know Iraq has little of?

Mr. Baker s experience is very relevant. It is hard to imagine any American better qualified to undertake the mission. Mr. Baker clearly speaks for the President; he was the Texas big gun rolled out to oversee Mr. Bush s interests in the 2000 election scrap in Florida.

He does carry some baggage that could constitute conflict-of-interest. He is associated with the Carlyle Group, a large Washington-based international investment enterprise that has wide financial interests across the world, including in countries to which Iraq owes money. He is also a partner in the Texas-based law firm Baker Botts, smaller than Carlyle, but in the same questionable category in terms of potential conflicts of interest.

Despite some early encouraging signs, Mr. Baker s assignment remains difficult.

There may be sentiment on the part of some of Iraq s creditors to stay the course and try to get paid when Iraqi petroleum production comes back on line, as it must. In other words, they might wonder, why forgive Iraq s debt so it can come right back and try to borrow more?

We can hope that Mr. Bush has given Mr. Baker decent cards to play in his negotiations with Iraq s creditors. The $750,000 in hundred-dollar bills Saddam Hussein had with him in his spider hole won t go very far in covering the country s staggering debt.