A cut-price peace

Bush Administration's efforts to reconstruct Iraq after the war resemble the economic philosophy on supermarket America - cheap and easy. It is a recipe for disaster, says this contributor

Back in April, administration spokesmen talked as if the reconstruction of Iraq would somehow be self-financing. That seemed optimistic at the time; today it is simply incredible. What we are witnessing is not so much "Empire Lite" - in Michael Ignatieff's catchy phrase - as Cut-price Colonisation. Americans need to realise before it is too late that nations cannot be built the way Wal-Mart sells patio sets: on the cheap.

First, the good news. Not everything is going wrong in Iraq. L. Paul Bremer III, the American occupation administrator in Iraq, has made a promising start, establishing a broadly representative governing council and pledging that once it has drafted a constitution and held elections his job will be done. Just how long that will take is another matter, of course, but the important thing at this stage is the appearance of legitimacy.

Meanwhile, the number of American soldiers killed in combat since the war began - 122 - is still barely more than fell in the 1991 Gulf War. Considering the magnitude of the task and the small size of the force deployed, the casualty rate remains remarkably low. What's more, the discovery of mass graves containing hundreds of thousands of victims of Saddam Hussein's tyranny vindicates the decision to overthrow him - even if it is now clear that the military threat he posed was significantly less grave and imminent than Messrs Bush and Blair claimed.

The bad news, however, is that this good news will count for nothing if economic reconstruction in Iraq does not make more rapid progress. For without jobs and wages, the young men of Iraq will find the temptations of violent crime and guerrilla warfare impossible to resist.

In theory, the revival of the Iraqi economy ought not to be difficult. The country has the second largest oil reserves in the world. Before they were plunged into poverty by Saddam's despotism, Iraqis had per capita incomes not much less than half those of Americans. Under the right circumstances, Iraq could bounce back quite rapidly to pre-1979 standards of living. But what are those circumstances? And are they likely to arise?

For economic recovery to take place in Iraq, three things are urgently needed. First, the effective imposition of law and order. Second, the repair and restoration of basic infrastructure (water, electricity). Third, substantial expenditure on reconstruction to modernise the dilapidated oilfields and stimulate economic activity in other sectors.

There are two reasons why these things seem unlikely to be achieved in the foreseeable future.

The first reason is that the US is attempting to run postwar Iraq on a shoestring. This may surprise some readers. Many Americans were shocked to hear last week that the Defence Department had almost doubled its estimate of the cost of occupying Iraq: $3.9 billion (o2.4 billion) a month certainly sounds like serious money. If you accept the projection of Tommy Franks's projection that US forces will need to remain in the country for four years, that implies a total bill of $186 billion. Serious money, no doubt, when the total defence budget this year amounts to around $370 billion. But bear in mind that these sums cover only the costs of military occupation: the bullets and the burgers on which US soldiers depend. Not a penny will go towards either aid or reconstruction.

Just how much money does the Iraqi economy need? Estimates range from $6 billion over two years (according to the Centre for Strategic and International Studies) to $593 billion over five years (the Centre for Strategic and Budgetary Assessments). But even if the figure is somewhere towards the lower end of this huge range - say, $100 billion, as estimated by William Nordhaus, of Yale University - it is hard to imagine the Bush Administration paying more than a tiny fraction of it.

This, after all, is the government which admitted this week that the budget surplus of $334 billion which it forecast for this year back in 2001 has - thanks to a combination of recession, war and tax cuts - become a deficit of $455 billion.

And this is the government which has so far spent next to nothing on the reconstruction of Afghanistan, where "nation building" has supposedly been under way for a year and a half.

According to CARE International, the amount per person per year pledged to Afghanistan to date by all foreign donors combined is no more than a quarter of the amount spent on post-conflict recovery in Kosovo - despite the fact that Afghanistan's needs are obviously far more acute.

In any case, pledging is different from actual spending. The Centre for International Co-operation has calculated that no more than $1.6 billion has so far been "disbursed" for Afghan reconstruction, of which just $947 million has actually been "activated" (which often means it has been spent on vehicles and computers for Western "needs assessment" teams). Barely $192 million has been spent on projects that are now completed. That should be compared with the $15 to $20 billion the Afghan Government says it needs over the next three years.

The future stability of Afghanistan depends on the success of the Interim administration or transitional government, established in Kabul under President Hamid Karzai.

Yet less than a fifth of postwar funding has gone to the Afghan Government's designated trust funds; far more has been distributed by international donors. Small wonder the government lacks legitimacy if foreign powers and the non-governmental organisations simply bypass it. The American contribution in this respect is risible. By May 2003, the US had disbursed a paltry $5 million to the main Afghan Interim Administration Fund.

The Bush Administration's blithe disregard for its responsibilities in Afghanistan is especially astounding given the indisputable fact that it was in the anarchy of post-Cold War Afghanistan that al-Qaeda took root and flourished.

The second reason why Iraq's recovery will be delayed - if not bungled altogether - is the dogged refusal of the US to cede any responsibility for the occupation of Iraq to the United Nations. The result is that there is very little prospect of substantial financial contributions towards Iraqi reconstruction from other countries.

Last week both Chris Patten, the EU Commissioner for External Relations, and the French President, Jacques Chirac, made it plain how reluctant the Europeans are to subsidise an Anglo-American occupation that they sought to prevent.

This matters because the US is very unlikely to spend as much money on either aid or reconstruction as the Europeans would. According to recent figures from the Centre for Global Development, aid to developing countries from the member states of the European Union is worth roughly three times as much as aid from the US. The EU and its members have already spent far more than the US on the reconstruction of Afghanistan.

Is it possible to run an empire on the Wal-Mart principle of "always low prices"? Maybe. But that was not the way it was done in West Germany and Japan after the Second World War. And since those are President Bush's favourite examples of successful nation-building, he will only have himself to blame when the hoped-for economic miracle in Iraq becomes an economic debacle.

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