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Dramatic Ideas for Post-War Iraq

Two dramatic ideas for post-war Iraq:

Via Plastic, an article in the New Yorker proposing that Iraq repudiate its international debt:

In 1979, when Saddam Hussein took power, Iraq -- thanks to the oil boom of the seventies -- had a foreign surplus of about thirty-five billion dollars. A decade later, after the war with Iran, it had a foreign debt of some fifty billion dollars. And today, after more war and a dozen years of missed interest payments, the country owes, by many estimates, more than a hundred billion dollars. Its creditors, which include Kuwait, Bulgaria, and the Korean conglomerate Hyundai, are already jockeying for position to be repaid after the war.

Iraq has no hope of ever repaying its debts. Its annual gross domestic product is a mere thirty billion dollars, and even if this war does relatively little damage to the country’s infrastructure it will take years -- and tens of billions of dollars -- to repair the damage that Saddam has done to the Iraqi economy. Presumably, the U.S. and others will invest heavily in reconstruction. But, if Iraq is to become stable and prosperous, it needs to spend public dollars on public goods (health, education, roads), not on debt payments to creditors who willingly lent money to Saddam.

Even if the Iraqi people could afford to pay back Saddam's debts, it's hard to see why they should. Most of the money that Iraq borrowed in the past twenty years went either to Saddam's military misadventures in Iran and Kuwait or to his internal security apparatus. Asking the Iraqi people to assume Saddam’s debts is rather like telling a man who has been shot in the head that he has to pay for the bullet.

Oddly, though, that’s pretty much what international custom seems to require. Lenders and borrowers still believe that debt belongs to a state, not to a regime. As a result, only a handful of countries have ever repudiated their debts. Even when tyrannical regimes have been deposed -- Somoza in Nicaragua, Mobutu in Zaire, the apartheid system in South Africa -- their successors have dutifully, if reluctantly, assumed their debts.

It might be time to change all that and consider an old idea that has recently been resurrected: the doctrine of odious debts. First articulated in the twenties by a former tsarist minister named Alexander Sack, the doctrine holds that a country is not responsible for debts incurred by a "despotic regime" and used for purposes "contrary to the interests of the nation." Both criteria have to be met for the debt to be considered odious. (In other words, profligate Argentina couldn't repudiate its debt, because it's a democracy.) The idea is that when the despot falls his debt disappears with him. The Harvard economists Michael Kremer and Seema Jayachandran have proposed the creation of an international institution that would have the authority to declare a regime "odious." Such a system would likely persuade lenders to avoid tyrants, as they would no longer expect to be repaid...

Perhaps Saddam's successors should turn theory into practice and, when the time comes, repudiate the debts that Saddam incurred to stock his arsenal and maintain his power. That would vastly improve Iraq’s economic prospects, and establish a worthy precedent: lend to tyrants, and you will get stiffed. The U.S., at least, is unlikely to object -- two of Iraq’s biggest creditors are Russia and France.

And via InstaPundit, an idea to pass much of Iraq's future oil wealth directly to its people:

Our government should announce -- soon -- that the new postwar Iraqi administration will "personalize" the nation's oil revenues by establishing an Iraqi national investment trust -- The Iraqi People's Freedom Trust -- that will receive a major share -- say, 50% -- of all future Iraqi oil earnings.

The rest can go to central government and federal regional governments on some per capita basis.

Each Iraqi -- man, woman or child -- would be eligible for a personal investment account in the trust once they register as citizens of New Iraq...

Funds in the trust may be invested in New Iraq government bonds, domestic equities, venture capital investments in Iraq or international markets. But legal ownership will be vested in each individual Iraqi -- not the tribe, clan region, power-broker etc. Any Iraqi over age 21 may withdraw funds or borrow against their balances -- for any reason at all...

The effect -- immediately -- would be to establish irrefutably that the U.S. is NOT waging this war to somehow steal Iraqi oil -- but rather to return this resource to the benefit of the Iraqi people themselves -- directly. One person at a time.

It would give all Iraqis a clear sense of the profound policy difference between liberators and corrupt thieves like the Ba'ath regime who have exploited, stolen and misused oil revenues in way that infuriate ordinary Iraqis -- and endanger the world...

By ensuring that all Iraqis will have access -- on reaching adulthood -- to significant sources of money -- it would spur entrepreneurship, revitalize the whole economy, distribute real resources to the most remote and poor regions of the country and create a very strong interest among all ethnic and confessional groups and tribes in ensuring their nation's future stability.

We're not talking small money here. Once its oil facilities are repaired and production is ramped up, Iraq can earn $50 billion a year from its oil. 50% of that would be about $1,000 a year per person...and funds would accumulate for young people to even more significant sums -- until they came of age... I would suggest to you that such a proposal, properly structured and publicized, would have the kind of impact -- in Iraq and on world opinion -- that Lincoln's emancipation proclamation did on the domestic politics -- and nternational [sic]diplomacy -- of our own Civil War. It would be the same kind of profoundly moral -- and revolutionary -- stroke.

Though, as the conquering power, the US will have the ability to impose these ideas on Iraq, it shouldn't do so. But encouraging Iraq's new leaders to take such steps -- and working with them to make doing so possible -- has great appeal.

I don't agree with how we got into this war, but as Thomas Friedman says, now it's time to take our lemons and make lemonade. A post-war Iraq along these lines -- a secular, democratic nation of 25 million people, debt-free, with half its oil revenue kept in trust for the direct use of its people -- is a powerful idea.

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Comments

hi there,

I like the idea of the oil-revenue fund. It would make certain that large parts of the revenue will be invested in enterprises to create a livelihood for and by the Iraqi citizens that use the fund. This would mark a big difference with other rich oil states in the region, where oil revenues are not used to invest in other undertakings and thus creating a more sustainable economy, but either in luxury and appearances or outside the own country. For most of those states drying up oil wells would mean the drying up of the single source of income: with nothing to show for the enormous profits made while they were still pumping oil.

the fact is, such system would not be adopted. and yes the usa is after the iraqi oil and all the non-bid contracts worth of tens of billions of dollars that will be paid by iraqi oil is the evidence, bush is looking to stimulate our economy not their's , bring the money here not there. he denied the local iraqi companies the share of the reconstruction (execuse: they can't do the job) , so basically the iraqi money will be flooding out of iraq, mainly to the USA, bush just had to fix his messed up economy somehow!

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