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The first step: Debt cancellation for Iraq, increased control for the IMF
Shortly after the start of the US occupation of Iraq, the Bush administration sent former Secretary of State James Baker on a pilgrimage to the capitals of other wealthy countries to seek cancellation of Saddam Hussein’s odious debts. In a move that seemed inexplicable at first, the Bush administration was using the principle of odious debt to ask for cancellation of Iraq’ s Saddam Hussein-era debt.
Now, the political motivations behind this unexpected move are clear. The cancellation of Iraq’s debt is a Trojan horse for the IMF, World Bank, and WTO to enter Iraq and start restructuring the economy further, continuing where Paul Bremer’s Coalition Provisional Authority (CPA) left off. In a move reminiscent of the Heavily Indebted Poor Countries (HIPC) program, not only debt but debt relief is being used as a tool to restructure Iraq’s economy
The Paris Club of Creditors, a cartel of most of the world’s major bilateral creditors (including all the G8 governments and the governments of other wealthy countries), agreed on November 21, 2004, to cancel 80% of Iraq’s debt of about $39 billion to Paris Club members, in three steps. The terms of the cancellation are that:
- 30% of the debt would be cancelled outright;
- 30% would be cancelled “as soon as a standard IMF programme is approved,” according to the Paris Club press release announcing the move, essentially conditioning debt cancellation on the subjugation of Iraq’s economic policy to the IMF;
- Another 20% would be cancelled after three years, subject to the IMF Board’s review of Iraq’s implementation of the terms of the agreement, further binding Iraq to IMF conditions.
Two things about the Paris Club “deal” are noteworthy. First, Iraq’s debt to the IMF is only about 1% of its total Paris Club debt, and yet the IMF gets to determine the conditions for most of the debt cancellation being offered to Iraq. This shows that the political clout of the IMF is way out of proportion to its financial clout.
Secondly, the Paris Club made it clear that the offer of debt cancellation was because of “the exceptional situation of the Republic of Iraq and... its limited repayment capacity over the coming years.” While the initial rhetoric of the Bush administration had focused on the principle of odious debt, the Paris Club was careful not to set a precedent for acknowledging this principle, lest they face pressure in the future to cancel the debts of other repressive regimes such as the apartheid regime in South Africa, the Suharto dictatorship in Indonesia, the notorious Duvaliers of Haiti, or the Mobutu regime in Congo. Denying the odious nature of the debt also provides the Paris Club political cover to keep 20% of Iraq’s debt off the table. Even the Iraqi National Assembly, a body that rarely contradicts the United States, has publicly condemned the Paris Club deal for failing to recognize the odious nature of Iraq’s debt and consequently requiring Iraq to repay a fifth of it.
In this manner, a move that appears on the surface to be beneficial for Iraq – debt cancellation – is being used as a tool of control by the World Bank, the IMF and the wealthy creditor countries. What is more, it is a tool of control that will last long after the withdrawal of U.S. combat forces.
Stage Two: The Coalition Provisional Authority lays the groundwork.
In this context, it is worthwhile to review how the Coalition Provisional Authority restructured Iraq’s economy. (See “World Bank Brings Market Fundamentalism to Iraq,” Economic Justice News, September 2004) Paul Bremer passed a series of Executive Orders (without any accountability to Iraqi people) that, among other things:
- Laid off 500,000 government workers – 400,000 of them employees of the Iraqi Armed Forces – in a country with a workforce of 6.5 million. This lay-off thus represented nearly 8% of the workforce.
- Changed laws governing foreign investment to “make Iraq one of the most liberalised economies in the developing world and go beyond even the laws in many rich countries,” according to the Financial Times. (CPA Order No. 39)
- Made it illegal for Iraqi farmers to plant saved seeds and to exchange knowledge freely. Now they are allowed to plant only “protected” crop varieties which remain the property of the multinational seed companies. Previously, the Iraqi constitution did not allow patenting of plants. The CPA, however, changed the law to allow “intellectual property” control over plant varieties. (CPA Order No. 81)
Collectively, these laws represent what The Economist calls “the wish-list of foreign investors.” (“ Let’s All Go to the Yard Sale: Iraq’s Economic Liberalization,” September 27, 2003).
Every single one of these policies fit the neoliberal framework, and sound as if they were World Bank and IMF conditions. But they aren’t. Even before the IMF, World Bank, and WTO made their entry into Iraq to any significant extent, the US occupation was unilaterally coercing Iraq to conform to policies identical to what these institutions would have required – and at a more accelerated pace. There are more ways to restructure economies than through loan conditions. What Iraq has undergone under the CPA can best be described as a structural adjustment program imposed at gun-point.
Stage Three: Economic occupation by the IMF and World Bank
Not content with the extent to which Iraq’s economy has already been restructured on neoliberal lines by the U.S., the IMF, World Bank, and WTO have more designs for the Iraqi economy. The IMF and World Bank are using debt cancellation as leverage to compel Iraq to comply with their conditions, while the WTO is using Iraq’s entry into the world trade body as leverage. In addition, both institutions have begun normalizing their relations with Iraq: in July, the World Bank made its first loan to Iraq since 1973.
This renewal of lending will strengthen the IFIs’ hand in the country.
Conditions imposed by the IMF, World Bank, and WTO on Iraq include the following:
Privatization of all state-owned enterprises in Iraq except oil. This IMF-imposed condition will lead to the lay-offs of an estimated 145,000 workers. It will also provide foreign corporations with control of vital sectors of Iraq’ s economy. As for the oil industry, while it will not be totally privatized, legal changes are underway to provide for partial foreign ownership. Former Finance Minister Adel Abdul Mehdi (who is now one of Iraq’s two Vice-Presidents) admitted that these legal changes would be “very promising to the American investors and to American enterprise, certainly to oil companies.”
An end to food subsidies. Subsidized food rations have been a lifeline for 60% of Iraq’s population, and often their only protection against starvation, but the IMF, World Bank, and WTO want to eliminate them. The elimination of subsidized food distribution will facilitate the control of Iraq’s market for food by corporate agribusiness.
Liberalization of food prices. The World Bank wants to eliminate regulations that keep food prices under control. “Liberalization” of food prices has led to severe food shortage, even famine, in many countries, most recently in Niger and Mali.
Parallel to the Constitution, a Petroleum Law has been drafted, to be implemented following the elections of December/January. According to sources in the government, although some details are still being debated, it specifies that Iraq’s 'currently producing' fields should be developed by the state-owned Iraq National Oil Company (INOC), but all other fields should be developed by private companies.
Only 17 of Iraq’s 80 known fields, and 40 billion of its 115 billion barrels of known reserves, are currently in production. Thus the policy potentially allocates to foreign companies 64% of known reserves. If a further 100 billion barrels are found, as is widely predicted, the foreign companies would control 81% of the total, and if 200 billion were found, as some suggest, they would have 87%.
In February 2003, a month before the U.S. invasion of Iraq, a 101-page document came my way from somewhere within the U.S. State Department. Titled pleasantly, "Moving the Iraqi Economy from Recovery to Growth," it was part of a larger under-wraps program called "The Iraq Strategy." The Economy Plan goes boldly where no invasion plan has gone before: the complete rewrite, it says, of a conquered state's "policies, laws and regulations." Here's what you'll find in the Plan: A highly detailed program, begun years before the tanks rolled, for imposing a new regime of low taxes on big business, and quick sales of Iraq's banks and bridges—in fact, "ALL state enterprises"—to foreign operators. There's more in the Plan, part of which became public when the State Department hired consulting firm to track the progress of the Iraq makeover. Example: This is likely history's first military assault plan appended to a program for toughening the target nation's copyright laws.
And when it comes to oil, the Plan leaves nothing to chance—or to the Iraqis. Beginning on page 73, the secret drafters emphasized that Iraq would have to "privatize" (i.e.,sell off) its "oil and supporting industries." The Plan makes it clear that—even if we didn't go in for the oil—we certainly won't leave without it. If the Economy Plan reads like a Christmas wishlist drafted by U.S. corporate lobbyists, that's because it was. From slashing taxes to wiping away Iraq's tariffs (taxes on imports of U.S. and other foreign goods), the package carries the unmistakable fingerprints of the small, soft hands of Grover Norquist. Norquist is the capo di capi of the lobbyist army of the right. In Washington every Wednesday, he hosts a pow-wow of big business political operatives and right-wing muscle groups—including the Christian Coalition and National Rifle Association—where Norquist quarterbacks their media and legislative offensive for the week. Once registered as a lobbyist for Microsoft and American Express, Norquist today directs Americans for Tax Reform, a kind of trade union for billionaires unnamed, pushing a regressive "flat tax" scheme.
Acting on a tip, I dropped by the super-lobbyist's L-Street office. Below a huge framed poster of his idol ("NIXON— NOW MORE THAN EVER"), Norquist could not wait to boast of moving freely at the Treasury, Defense and State Departments, and, in the White House, shaping the post-conquest economic plans—from taxes to tariffs to the "intellectual property rights" that I pointed to in the Plan. Norquist wasn't the only corporate front man getting a piece of the Iraq cash cow. Norquist suggested the change in copyright laws after seeking the guidance of the Recording Industry Association of America.
And then there's the oil. Iraq-born Falah Aljibury was in on the drafting of administration blueprints for the post-Saddam Iraq. According to Aljibury, the administration began coveting its Mideast neighbor's oil within weeks of the Bush-Cheney inauguration, when the White House convened a closed committee under the direction of the State Department's Pam Wainwright. The group included banking and chemical industry men, and the range of topics over what to do with a post-conquest Iraq was wide. In short order, said Aljibury, "It became an oil group." This was not surprising as the membership list had a strong smell of petroleum. Besides Aljibury, an oil industry consultant, the secret team included executives from Royal-Dutch Shell and ChevronTexaco. These and other oil industry bigs would, in 2003, direct the drafting of a 300-page addendum to the Economy Plan solely about Iraq's oil assets. The oil section of the Plan, obtained after a year of wrestling with the administration over the Freedom of Information Act, calls for Iraqis to sell off to "IOCs" (international oil companies) the nation's "downstream" assets—that is, the refineries, pipelines and ports that, unless under armed occupation, a Mideast nation would be loathe to give up.
An insider working on the plans put it coldly: "They have [Deputy Defense Secretary Paul] Wolfowitz coming out saying it's going to be a democratic country… but we're going to do something that 99 percent of the people of Iraq wouldn't vote for."
Garner's an old Iraq hand who performed the benevolent autocratic function in the Kurdish zone after the first Gulf War. But in March 2003, the general made his big career mistake. In Kuwait City, fresh off the plane from the United States, he promised Iraqis they would have free and fair elections as soon as Saddam was toppled, preferably within 90 days. Garner's 90-days-to-democracy pledge ran into a hard object: The Economy Plan's 'Annex D.' Disposing of a nation's oil industry—let alone redrafting trade and tax laws—can't be done in a weekend, nor in 90 days. Annex D lays out a strict 360-day schedule for the free-market makeover of Iraq. And there's the rub: It was simply inconceivable that any popularly elected government would let America write its laws and auction off the nation's crown jewel, its petroleum industry. Elections would have to wait. As lobbyist Norquist explained when I asked him about the Annex D timetable, "The right to trade, property rights, these things are not to be determined by some democratic election." Our troops would simply have to stay in Mesopotamia a bit longer.
After General Garner was deposed, I met with him in Washington. He had little regard for the Economy Plan handed to him three months before the tanks rolled. He especially feared its designs on Iraq's oil assets and the delay in handing Iraq back to Iraqis. "That's one fight you don't want to take on," he told me..."They shouldn't have to follow our plan," the general said. "It's their country, their oil."
In May, for example, Bremer—only a month from escaping out Baghdad's back door—took time from fighting the burgeoning insurrection to sign orders 81—"Patents,"and 83, "Copyrights." Here, Grover Norquist's hard work paid off. Fifty years of royalties would now be conferred on music recording. And 20 years on Windows code.
Order 81, for example, has the status of binding law over “patent industrial design, undisclosed information, integrated circuits and plant variety” — a degree of detailed supervision normally associated with a Soviet command-and-control economy. While historically the Iraqi Constitution prohibited private ownership of biological resources, the new US-imposed patent law introduces a system of monopoly rights over seeds. This is virtually a takeover of Iraqi agriculture.
The rights granted to US plant breeding companies under this order include the exclusive right to produce, reproduce, sell, export, import and store the plant varieties covered by intellectual property right for the next 20-25 years. During this extended period nobody can plant or otherwise use plants, trees or vines without compensating the breeder.
In the name of agricultural reconstruction this new law deprives Iraqi farmers of their inherent right, exercised for the past 10,000 years in the fertile Mesopotamian arc, to save and replant seeds. It enables the penetration of Iraqi agriculture by Monsanto, Syngenta, Bayer, Dow Chemical and other corporate giants that control the global seed trade. Food sovereignty for the Iraqi people has therefore already been made near-impossible by these new regulations.
Order number 37, "Tax Strategy for 2003," was Norquist's dream come true: taxes capped at 15 percent on corporate and individual income (as suggested in the Economy Plan, page 8). The U.S. Congress had rejected a similar flat-tax plan for America, but in Iraq, with an electorate of one—Jerry Bremer—the public's will was not an issue. Not everyone felt the pain of this reckless rush to a free market.
Order 12, "Trade Liberalization," permitted the tax- and tariff-free import of foreign products. One big winner was Cargill, the world's largest grain merchant, which flooded Iraq with hundreds of thousands of tons of wheat. For Iraqi farmers, already wounded by sanctions and war, this was devastating. They could not compete with the U.S. and Australian surplusses dumped on them. But the import plan carried out the letter of the Economy Plan. This trade windfall for the West was enforced by the occupation's agriculture chief, Dan Amstutz, himself an import from the United States. Prior to George Bush taking office, Amstutz chaired a company funded by Cargill. There's no sense cutting taxes on big business, ordering 20 years of copyright payments for Bill Gates' operating system or killing off protections for Iraqi farmers if some out-of-control Iraqi government is going to take it away after an election. The shadow governors of Iraq back in Washington thought of that, too. Bremer fled, but he's left behind him nearly 200 American "experts," assigned to baby-sit each new Iraqi minister—functionaries also approved by the U.S. State Department.
The “Oil and Energy” working group met four times between December 2002 and April 2003. Although the full membership of the group has never been revealed, it is known that Ibrahim Bahr al-Uloum, the current Iraqi Oil Minister, was a member.(34) The 15-strong oil working group concluded that Iraq “should be opened to international oil companies as quickly as possible after the war” and that “the country should establish a conducive business environment to attract investment of oil and gas resources.”(
The subgroup went on to recommend production sharing agreements (PSAs) as their favoured model for attracting foreign investment. Comments by the handpicked participants revealed that “many in the group favoured production-sharing agreements with oil companies.” Another representative commented, “Everybody keeps coming back to PSAs.”
Using an average oil price of $40 per barrel, our projections reveal that the use of PSAs would cost Iraq between $74 billion and $194 billion in lost revenue, compared to keeping oil development in public hands.
This massive loss is the equivalent of $2,800 to $7,400 per Iraqi adult over the thirty-year lifetime of a PSA contract. By way of comparison Iraqi GDP currently stands at only $2,100 per person, despite the very high oil price
It should be noted that these figures relate to only 12 of Iraq’s more than 60 undeveloped fields. Iraq has identified 23 priority fields on which to potentially sign contracts in 2006.(h) Thus when the other 11 fields are added, along with a further 35 or more later, and especially other fields yet to be discovered (recall that Iraq’s undiscovered reserves may be as large or even double the known reserves), the full cost of the PSA policy could be considerably greater.
Both the corporate lobby group ITIC (see section 3) and the British Foreign Office have argued that foreign investment can free up Iraqi government budgets for other priority areas of spending, to the tune of around $2.5 billion a year.(61) Although technically true, this is deeply misleading – as the investment now would be offset by the loss of revenues later.
Our figures show that under any of the three sets of PSA terms, oil company profits from investing in Iraq would be quite staggering, with annual rates of return ranging from 42% to 62% for a small field, or 98% to 162% for a large field. This shows that under PSAs, Iraq's loss in terms of government revenue will be the oil companies’ gain.
But critics note that the terms of such contracts, now keenly promoted by the U.S. and Britain, bar local authorities from amending them in the future and are subject to confidentiality provisions.
Iraqis will not be able to contest the contracts in their own courts, because they (Production Sharing Agreements) require that all disputes be heard by international investment tribunals. Such tribunals have traditionally ruled based on commercial interests rather than on national interests, international law or human rights.
This loss of democratic control is illustrated by the case of BP’s Baku-Tbilisi-Ceyhan (BTC) oil pipeline, which is being built from the Caspian Sea to the Mediterranean. This project is governed by a Host Government Agreement, some of whose legal provisions are comparable to those in PSAs.
In November 2002, the Georgian Environment Minister said she could not approve the pipeline routing through an important National Park, as to do so would violate Georgia’s environmental laws. Both BP and the US government put pressure on the Minister, through then President Shevardnadze. The Minister was forced first to concede the routing with environmental conditions, and then to water down her conditions. Part of the reason for her weak bargaining position was that two years earlier Georgia had signed the Host Government Agreement for the project, which set a deadline for environmental approval within 30 days of the application and stipulated that the contract had a higher status than other Georgian laws. The environment laws the Minister referred to were irrelevant. Ultimately, on the day of the deadline, the President called the Minister into his office, and kept her there until she signed, in the early hours of the morning.
Originally posted by marg6043
Occurs is all about the privatization and all about money, I can not way to see the Iraqis getting their first 0% interest credit cards for a year.
Its all about the money and who is the one to control the market.
CPA Order No. 51 suspends the exclusive right of the State Company for Water Transportation to act as the maritime agent in Iraqi ports. This Order therefore allows other entities to act as maritime agents.
CPA Order No. 94 promulgated Iraq’s new banking law. This law allows, among other things, the establishment of private sector banks in Iraq that are wholly owned by foreign banks. Foreign branches and domestic subsidiaries of foreign banks must be given treatment equal to that of domestic banks, except as otherwise stated in the Order.
Originally posted by marg6043
Even if plans are on going to privatizes Iraq, the problem that big corporate greedy barons are going to find is the opposition that sure is going to stop their efforts.
We can never underestimate that Iraqis are no stupid and they will fight back even if that means becoming terrorist and insurgents.
So far look how many attacks are against foreign interest in Iraq.
I think that the privatization and taken over of Iraq market is going to be a bloody one.