Without the promised money, Iraq with become another Haiti

How much will it cost to reconstruct Iraq's economy, exhausted by decades of dictatorship, disrupted by an Anglo-American Blitzkrieg and now seemingly in the grip of anarchy? The sums involved already sound worryingly large to American voters: up to $17 billion a year just for the costs of occupation, according to one estimate, plus "several billions" more for humanitarian assistance.

But this is small change compared with the $726 billion tax cut President Bush is trying to push through Congress. What is more, it already seems clear that such sums as the administration has in mind to spend on Iraq's reconstruction will largely end up in American pockets.

Liberal columnists are apoplectic at the likely prospect that companies with long-standing links to the Republican Party - the obvious candidate being the construction company Bechtel - will be near the front of the queue for reconstruction contracts.

Rather less attention has been paid to the efforts of Congressmen of both parties to divert a share of the spoils to their constituents. This month, there was a surreal meeting of House and Senate negotiators to determine how - and where - the $79 billion requested by the Bush administration to cover the cost of the war should be spent.

By the time they'd finished, $2.9 billion had been diverted from Iraq to bail out US airlines, whose profits have been hit by international instability since 9/11. Another $275 million had been re-routed to workers recently laid off by the airlines. Senator Patrick J. Leahy of Vermont even proposed that $3.3 million of the war budget should be spent on reconstructing a dam near his house in Waterbury.

This gravy train may not have much further to run. The line coming out of the White House is that Iraq's post-war reconstruction will be largely self-financing. "Iraq is a wealthy nation," the President's spokesman, Ari Fleischer, declared recently. "Iraq will have a huge financial base from within upon which to draw . because of their oil wealth."

This sounds like advance warning that Bush is going to be as niggardly about post-war reconstruction in Iraq as he has already shown himself to be in the case of Afghanistan. (Last year's aid budget for the country was a meagre $937 million, compared with the $20 billion that the Afghan finance ministry has requested for the next five years.)

That Iraq has a lot of oil under the ground nobody doubts, though the exact scale of the country's reserves is hotly debated by industry experts. The real question is: who is going to pay for the $5 billion of investment needed to modernise the country's dilapidated oil extraction and refining infrastructure. For without that investment, the country's current production will stay at just 2.5 million barrels a day, barely three per cent of total world consumption.

Let's suppose Iraq is able to increase production to three million barrels a day under American occupation and that somehow the price of oil is not further depressed by that increased output. That's a gross revenue stream of maybe $27 billion a year.

But the key word is gross. Huge amounts would have to be deducted from that sum: first the cost of actually imposing law and order on the country; second, the cost of Iraq's existing foreign debts: $60 billion to foreign lenders plus another $200 billion in reparations claims dating back to the invasion of Kuwait.

Mr Fleischer is right about one thing. Iraq is an economy with real potential. If the US gets post-war Iraq right, we might expect to see rapid growth as the economy bounces back from its current nadir. What does the US need to do to ensure such a post-war recovery happens? It's worth comparing previous American nation-building successes - and failures.

President Bush has some unorthodox views on what happened after the Second World War. "America has made and kept this kind of commitment before," he argued in February, drawing an implicit parallel with 1945. "After defeating enemies, we did not leave behind occupying armies, we left constitutions and parliaments." On this basis, he argued, "We will remain in Iraq as long as necessary and not a day more."

In fact, the formal military occupation of Japan did not end until 1952 and that of West Germany not until 1955. Even today, the biggest overseas concentrations of American troops in the world are in Germany (69,000) and Japan (40,000). Contrast that with the occupation time-frames currently being discussed by the administration for Iraq, which range from three months to two years.

Yet some of the biggest failures of recent US foreign policy - Somalia (1993) and Haiti (1994) - have been the result of precisely that kind of short-termism. Neither has benefited in the slightest from American military intervention. After all Bill Clinton's talk of restoring democracy in Haiti, the country is in as ghastly a mess as it was under the Duvaliers. If Bush leaves Iraq prematurely it will be the same story - to say nothing of what could happen in Afghanistan if the same happens there.

Money will also be needed if the rule of law and civil society are to be rebuilt in Iraq. Bush is allergic to mentions of the hugely expensive post-1945 Marshall Plan for Europe. Nevertheless, this is precisely what the US needs to come up with. From 1948-52, the US dispersed - as grants, not loans - some $11.8 billion dollars to Europe's war-ravaged economies.

Allowing for growth and inflation, that's a cool $470 billion in today's money - 4.5 per cent of GNP. Iraq doesn't need anything like that much spent on it: it's far smaller than the economies of Western Europe that Marshall Aid was supposed to revive. But it needs more than "a few billions" to prime the pump.

Getting this regime change right is in America's economic interests, too. The US has already made a saving by getting rid of Saddam, since it was costing around $13 billion a year just to contain the military threat he posed.

If Iraq is going to emerge from his reign of terror as anything more than a Middle Eastern basket case, two things must happen: a sustained occupation measurable in years, not months; and some serious investment in the country's economic recovery.

A policy which focuses exclusively on today's bottom line and tomorrow's exit strategy is a recipe not for Iraqi recovery, but for Port-au-Prince on the Tigris.
 

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