Iraq's game of cat and mouse

Saddam Hussein’s capture does little to resolve more than a year’s quarelling between the United States and ‘Old Europe’

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By  John Irish Published  January 4, 2004

|~|ir2.jpg|~|The more Europe and the US quarrel, the less likely construction will happen, and ultimately the Iraqi people will suffer.|~|When the statue of Saddam Hussein fell at Firdous Square last April, the initial euphoria soon gave way to a host of questions. Ordinary Iraqis were confused as to what would happen. Little was resolved, general mayhem ensued and today resentment swells across the land. The US administration, often criticised for its gung-ho approach, divided increasingly into Rumsfeld’s hawks and Powell’s doves. The overriding sentiment in Washington, however, remained the old adage; to the victor, the spoils. Their commitment, although partly motivated by self-interests, remains substantial in terms of manpower and finances. Across the pond in Berlin, Paris and Moscow, the “old Europe’ was also feeling the heat. Years of priceless contracts from the Baathist regime literally went up in smoke for refusing to support the war. Fast forward to December 2003 and the diplomatic game of cat and mouse continues unabated. “It is necessary for the protection of the essential security interests to limit competition for the prime contract of these procurements to companies from US, Iraq, coalition partners and force contributing nations,” read a Pentagon directive from deputy defence secretary Paul Wolowitz. And that was that. France, Russia and Germany, the anti-war lobby, were not going to get a piece of American taxpayers’ hard-earned cash. The Pentagon’s decision to restrict the US $18.6 billion in upcoming contracts for Iraq’s reconstruction limits the number of countries bidding for 26 contracts to 63. Among those are the economic heavyweights of Tonga and Samoa as well as Saudi Arabia, whose lack of support for the war led to the US military moving its regional headquarters to Qatar. Complaints are reverberating across Europe. “Regarding the $18 billion provided from US funds, you can be with or against it, but it is still American money and they can do what they wish with it,” says Jihad Fegahli, CEO of Nutris Company, which represents more than 140 French companies in Iraq. “They can say ‘we are providing the $18 billion, we want the contractors to be American.’ Usually, in bilateral protocols between countries, there are conditions like this. It is not shocking to have it this way, but because it’s Iraq, it is sensitive and the declaration feels shocking,” he adds. The upshot, however, is that these ‘peaceful three’ are now feeling particularly hard done by. But how justified are they? The fact that almost immediately following Wolowitz’ announcement, President Bush sent special envoy, James Baker, to discuss Iraq’s debt burden with the very same countries that had been omitted from contracts, smacks of bad timing to say the least. ||**|||~|ir3.jpg|~|Destruction from the war left Iraq a veritable playground.|~|Alternatively, there are three possibilities. One, the Bush administration is so fragmented that the right hand side does not know what the left is doing. This explains Bush’s reported irritation at the Pentagon’s ill-timed decision. Secondly, with Bush so keen to alleviate some of the pressure on his troops, internationalise the resurrection of Iraq and now capitalise on Saddam’s capture, the momentum may shift to bringing back former allies of the Yugoslavian and Afghan campaigns. The likes of France are potential allies, with the resources to step up the reconstruction programme. By punishing them on the one hand and then dangling the prospect of a return to the fold if they help resolve the debt burden, Bush could be offering these states an opportunity to get back into Iraq without losing face. “Baker’s message to those who opposed us on the war should be, ‘We got Saddam out, now we need you in,’” says Karl Inderfuth, a former US ambassador for political affairs to the United Nations. “This is a time for the work-with-others faction that Baker represents to carry the day over the go-it-aloners.” The third option, which many experts believe, is that the administration has a grudge, will not forget it and plans to milk it to the bitter end. The ‘rogue’ three failed to help, so no contracts. America has offered an olive branch if they reduce or scrap odious debt, but they still refuse, thus adding to the woes of the Iraqi people. And, yes, inevitably the Iraqi people are set to become the pawn in resolving the ‘crisis’ between old Europe and the US. “Many companies are convinced that in all cases their chances will be very slim and that the major contracting companies, such as road building and petrol, will always got to the American companies,” says Feghali. The immediate reaction from the three European states, which combined are owed around $20 billion of the total $120 billion Iraqi debt, varies markedly. The Russian defence minister Sergei Ivanov immediately dismissed any debt write off. “Iraq’s debt to the Russian federation comes to $8 billion. As far as the Russian government’s position on this, it is not planning any forgiveness of arrears,” he told Interfax News Agency. “Iraq is not a poor country,” he added. While it may sound heartless in the current circumstances, that argument has been the stance of the Paris Club, a group of 19 creditor nations dealing with debt reduction for heavily indebted nations. Simply put, Iraq’s pay out potential, with the world’s second largest oil reserves, is too much for nations to forget. Russia, for example has the most at stake. In 1997, Saddam Hussein awarded Russia’s second largest oil producer, Lukeoil, the lucrative contract to develop and drill in the West Qurna region, one of the world’s largest oil deposits. Saddam annulled the contract in February, but Lukeoil claims the deal was not affected by the Pentagon’s decision. Additionally, Russian firms were often able to sell goods the first world dismissed, to willing Iraqi buyers. ||**|||~|ir4.jpg|~|The anti-war lobby may find it increasingly difficult to avoid the question of Iraq's odious debt.|~|There are compelling economic and financial reasons for creditors to forgive Iraq’s debt. The $120 billion figure touted does not include the estimated $200 billion due in 1991 Gulf war reparations. Additionally, compared to other indebted nations, Iraq is in a different league. World bank statistics from 2000 estimate Iraq’s gross domestic product (GDP), at $32 billion, an eighth of Argentina’s GDP. Even assuming that the security situation calmed, enabling Iraq to pump out 2 million barrels of oil per day, compared to the current 1.5 million, the ratio between debt and export would make it the highest indebted nation in the world, exceeding the 700% mark. Evidently, Iraq cannot rebuild its economy, develop and pay off outstanding debts under the current shackles. Despite early dismay at thought of bowing to American pressure, and the EU considering the legality of countries being banned from the reconstruction effort, a joint statement between the US, France and Germany declared that a substantial debt reduction and even debt forgiveness was on the cards. The sudden conciliatory tone suggests that there is scope to negotiate a deal on debt. That deal, however, is most likely to be done through the backdoor and, as Nutris’ Feghali suggests is bound to cause a stir in France. “If you reduce debt by three billion to get a contract for three billion, what’s the point? The spirit of discussion should be above those things, it is not showing the right example worldwide. Many companies, anyway, are convinced that in all cases their chances will be very slim and that major contracts for road building and oil will not go to them,” explains Feghali. Additionally, firms from both Germany and France will face big losses if they write off Iraq’s debts. Iraq owes $1.4 billion to German firms alone who were involved in Saddam’s ambitious palace developments. That would fall under the odious debt tag and subsequently could be written off entirely. Basil Sabbah, president of Sabbro Brothers, an Iraqi firm currently subcontracted to carry out work in Iraq is also hesitant about the Europeans getting any larger contracts in the near future. “Over the long term, 3-5 years, they will return, but over the short term the only way in will be through US companies, the World Bank and donor countries. Right now, what will come to fruition will be the US funded contracts, so they will need to partner with US firms, which is happening already.” The American ban does not restrict companies from anti-war countries bidding for contracts financed from alternative international funds. Washington estimates that to be around the $13 billion mark. Much like the situation prior to the war when American companies subcontracted through European companies, there is no ban on Europeans partnering with American firms. It is exactly here that any potential agreement between the two sides could be struck. Ultimately, business is business and if a few juicy contracts are thrown in the direction of the EU and China then the chances are the uproar will quieten. Where the irretrievable damage has occurred is in Europe’s increased suspicion of the United States’ unfettered wielding of power in the future and, President Bush’s heightened awareness of just how much France, in particular, is determined to curb America’s global influence. As one expert on US-European relations put it: “It doesn’t mean the two can’t work together, but it does mean the romance is out of the relationship.” ||**||

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