April 18, 2007

Saudis Forgive Iraqi Debt

The Bush administration won an important foreign-policy victory yesterday when Saudi Arabia agreed to write off 80% of Iraq's debt to their southern neighbor. Bush has worked for the last four years since the fall of Saddam Hussein to drastically reduce the crushing load of debt on the new Iraqi government. The Saudi decision is doubly important, as the conservative Sunnis did not appear likely to forgive so much debt from a Shi'ite nation:

Saudi Arabia has agreed to forgive 80 percent of the more than $15 billion that Iraq owes the kingdom, Iraqi and Saudi officials said yesterday, a major step given Saudi reluctance to provide financial assistance to the Shiite-dominated government in Baghdad.

But Iraqi Finance Minister Bayan Jabr said in an interview that Russia was holding out on debt forgiveness until talks begin on concessions that Russian oil and gas companies had under Saddam Hussein. Russian Embassy officials in Washington declined to comment late yesterday.

The Bush administration has been working for months to persuade other governments to follow the U.S. lead and write off all of their shares of Iraq's debts, which Jabr said total $140 billion. Most of those loans date to Iraq's war with Iran from 1980 to 1988, when the United States, Saudi Arabia and other governments saw Iraq as a buffer against Iran.

Iraq also owes $199 billion in compensation for the Persian Gulf War that followed Iraq's 1990 invasion of Kuwait, analysts said.

The agreement by the Saudis could help convince the other Sunni nations in the Middle East to follow suit. Europe agreed to the 80% formula in 2004 after James Baker made the pitch for Bush. Arab nations have been less forgiving, at least until now.

How critical is this? Iraq owes a whopping $380 billion, almost half of it owed to Kuwait after Saddam's brutal invasion and occupation. It wuld take decades for Iraq to make good on that debt, and at the moment, the new government in Baghdad cannot even service the interest. They need new investment to rebuild their oil-production facilities in order to generate revenue, and they can't get the investment until they start servicing the debt. It's a catch-22 Bush hopes to break with his diplomatic initiative.

Russia had agreed to some level of debt forgiveness, but reneged. Vladimir Putin himself promised 65% writeoff in December 2003, and then upped it to 80% last year, according to the Iraqis. However, all of that was just to establish some leverage. Putin wants his oil contracts back, the ones he lost when Saddam Hussein lost power -- the reason why he ran interference for Hussein in the first place. It might be tempting to pay Putin directly and tell him to take a hike.

The Saudi example gives Bush a little more leverage in the region, and it underscores the fact that the Iraqi government appears to have established themselves and their legitimacy in the region. When the Wahhabis forgive Shi'ite debt, that says something about the legitimacy of the democratically-elected Iraqi government.


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Comments (5)

Posted by Jim [TypeKey Profile Page] | April 18, 2007 11:04 AM

I wonder what we had to give the Saudi's for them to do this... or what we have hanging over their heads.

Jim C

Posted by Jhn'1 [TypeKey Profile Page] | April 18, 2007 3:23 PM

Actually it would seem that Spain would be the main beneficiary of a Russian debt requirement spanning an overthrown government with what Stalin got from Franco. (IIRC 11 freighters loaded to the freeboard with the hoarded gold from the initial looting of the "New World"). If it is correct that Iraq is still liable after military force destroyed the previous government, than why should a lessor standard be held to successor governments who "inherited" their roles instead of having to "kill" the previous government to get to authority?

Posted by Courtneyme109 [TypeKey Profile Page] | April 18, 2007 5:24 PM

Hi Jim, well, there is a multi billion dollar arms deal that is swinging in the wind. Mostly Bradleys and amphibious landing vehicles, hovercraft - though whats holding the deal up is a lot of super smart sophisticated weaponry that might end up being used on Israel. Maybe the arms deal is what did it.

For all their tough talk about America, the Saudis' still depend on the Great Satan to keep the Royals on the throne. Even after Americans left the Hijaz back in 2003 - essentially telling the Saudis' "Hey - it's your kingdom - keep it if you can".

Also, Bodansky says in his awesome book 'Secret History of the Iraq war" that the Saudi's are terrified of America, her might and the ease at which She justified putting paid to the largest Arab army in history in 20 days. The Royals are particularly worried that since America has a precedent for getting rid of Arab leaders they don't like - that the house of Saud may end up on the list.

Posted by conservative democrat [TypeKey Profile Page] | April 18, 2007 8:07 PM

The Sauds forgive the debt but Saudi money is surely fueling the Sunni insurgency, what is gained?

Posted by trapeze [TypeKey Profile Page] | April 18, 2007 8:21 PM

"The Bush administration won an important foreign-policy victory yesterday when Saudi Arabia agreed to write off 80% of Iraq's debt to their southern neighbor."

Not to be too nit-picky here Captain but I think you meant "northern" neighbor...but, yes, this is great news for the new Iraqi government.