April 5, 2003	Saturday	Safar 2, 1424

LONDON/DUBAI: The reconstruction of Iraq will be the most expensive aid operation since the Marshall Plan for rebuilding Europe after World War Two, but wrangling between the US and Europe means it is unclear the funds can be raised.

Any dreams that Iraq, which has the world’s second largest oil reserves, could neatly finance its own reconstruction have evaporated due to massive debts and run-down oil infrastructure.

Europe and Japan, which have helped bankroll reconstruction in ex-Yugoslavia and Afghanistan, face budgetary constraints. Some Europeans may not pay for a war they do not agree with and in the absence of a post-war United Nations mandate.

That leaves one source of finance, the United States, which economists say may have to underwrite the cost, estimated by some at $100 billion, using Treasury bonds as collateral, something that would not add to US debt.

Iraq’s problems are larger than those of Afghanistan and Yugoslavia. To put its needs in context, $100 billion is the aid given to 36 post-conflict countries in all of the 1990s.

Adjusted for inflation, the figure is almost as big as the amount spent in the post-World War Two Marshall Plan.

“We would really have a contingent liability on the US Treasury,” said Professor Valpy Fitzgerald, a development economist at Oxford University and an expert on reconstruction.

US Treasury officials decline to comment on the issue of financing reconstruction, saying they are holding discussions, but if the US runs post-war Iraq, the kind of international solidarity which saw donors dig deep for former Yugoslavia and Afghanistan is likely to be in short supply.

The US is considering $2.5 billion for aid and rebuilding.

Germany has already said that the country which caused the damage should pay and European Union president Greece warned on Wednesday of new difficulties after the war ends.

“The management of issues in the (post-war) period by the attackers will trigger new conflicts and crisis,” Prime Minister Costas Simitis said.

BUILDING ON OIL A CHIMERA: Before the US war on Iraq, there had been concerns Saddam Hussein would damage Iraq’s oil infrastructure, thus hitting the country’s ability to export and so its ability to pay for rebuilding after the war.

That appears not to have happened, but there are plenty of other pitfalls for a country which was once one of the richest developing nations. Per capita income was $4,000 a year in 1980 and is now $150 a year.

Even before the first US air strikes were launched on March 20, Iraq needed billions to shore up basic services for its 26 million citizens, 60 per cent of whom are dependent on food aid, and an oil sector ravaged by 12 years of UN sanctions and decades of economic mismanagement.

The US has suggested Iraq could use $11-$14 billion a year in oil revenues for reconstruction.

But any attempt by the US to take Iraqi oil receipts would be on suspect legal ground as there is around $142 billion in enforceable debt claims on the country as well as up to $300 billion reparations outstanding from the invasion of Kuwait, plus $57 billion in contracts signed by the Iraqi government.

Washington could also create another flashpoint with states like Russia, which is owed $8 billion, if it supports a call by Iraqi exiles for forgiveness of all Saddam-era obligations.

In a benign economic scenario, oil export earnings would rise, enabling the country partly to fund its own redevelopment.

But with oil exports running at around $10-$12 billion a year there would not be enough money to finance humanitarian needs, debt repayments, even assuming a generous debt relief.

Yugoslavia saw 66 per cent of its debts written off after Slobodan Milosevic was ousted as a debt to gross domestic product figure of 150 per cent was deemed unsustainable.—Reuters