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[casi] Who Benefits? - Lifting the Sanctions on Iraq - Schaefer

May 23, 2003
Who Benefits?
Lifting the Sanctions on Iraq

U.S. Ambassador John D. Negroponte called the lifting of sanctions "the turning point of a 
historical page that should brighten the future of a people and a region." It simply will not do 
so. Thirteen years of sanctions has drastically altered the fundamental nature of Iraq's economy; 
history has shown repeatedly that the infrastructure of economic warfare always outlives the war 
itself. To distract attention from this fact, representatives to the UN from the United States 
continued to chastise Saddam Hussein for diverting money from the "oil for food program" to his 
personal bank accounts.

No doubt Hussein is guilty, but this is really beside the point. The United States, with its long 
history of love-hate relationships with dictators, should know by now that dictators welcome 
sanctions and embargos.

Sanctions allow dictators to blame the world, often rightfully, for their domestic problems. By 
portraying the country as under attack, they are able to reduce internal dissent. In response to 
sanctions, dictators are often relieved of the duty of serious social spending and can justify to 
its citizen's the increase in military spending.

The longer the sanction, the more porous. Black markets are created and with them a vast criminal 
underground infrastructure to support them. This particular lesson was made quite clear during the 
US embargo of Iran which did not stop weapons from reaching the Ayatollah, but succeeded in 
allowing France to gain a new customer. Furthermore, the embargo drove up the prices for black 
market weapons, which again did not make them prohibitively expensive, but instead contributed to 
the rise of smuggling and arms running. The profits of this smuggling, however, could not go into 
the Iraqi economy now any more than the black market profits in Iran could then. There is little to 
consume there and few legitimate ways to earn a decent return. Instead, smugglers resorted then and 
continue to resort now to the illicit economy of off-shore banks where privacy laws protect the 
smugglers and help enable the money to be laundered. Laundered money doesn't stay home. It rarely 
pays taxes. It has a strange purity. It can show up in other places, often as weapons, and its new 
owners are hard to identify until far too late.

The banking networks of criminals and financiers (here, as is often the case, quite 
indistinguishable) overlap with legitimate banks and create enormous headaches for intelligence 
agencies. The whole purpose of such things is, of course, to obscure any trail, but without this 
black market it would have been much easier to keep tabs on Hussein's official and personal 
expenditures. It would, therefore, have improved intelligence on his alleged arsenal.

Not incidentally, on the day before the lifting of these sanctions, it was reported that the U.S. 
Department of Defense had another intelligence difficulty. It has admitted that it cannot keep tabs 
on its own military expenditures. Over a trillion dollars is missing from the military budget and 
it cannot be explained. Could this be the result of some kind of underworld involvement? After what 
has been learned recently about Halliburton's bribes in Niger and Bechtel's years of overcharging 
of the Saudi regime for unnecessary construction projects, it is not an unreasonable assumption. 
But as is often the case with the Bush administration, hypocrisy is the least of the problems.

More serious is how the sanctions in Iraq, now that they are lifted, will create a fresh round of 
legal looting. Smugglers will simply become legitimate mercantilists. They will now have a larger 
customer base than previously when they could only deal with the Hussein regime. Now they will be 
free to move goods in both directions and their buying power, larger after the huge profits from 
busting the embargoes, will only improve their volume and allow them other efficiencies. They may 
have to pay taxes, but these may well be less than the pay-offs and bribes under the sanctions. 
They will buy whatever few goods the Iraqi people produce and sell them abroad rather than to their 
fellow Iraqis who could not likely afford the middle man's mark up. This means that the profits 
from Iraqi products will continue to flow out of Iraq, not back into the domestic economy.

The answer is increased foreign investment in Iraq, according to the free-market fundamentalists 
behind the Bush administration's policies. This is what is at stake in Bush's proposed free-trade 
plan for the region, no protection for what little of Iraq's industries still exist. The big idea, 
or the alleged idea, is that opening the door for foreign investment will allow this undeveloped 
nation to skip ahead, to acquire the latest technology, and so forth. There is no evidence, 
however, that a free-trade zone increases foreign investment throughout a country, only in small 
pockets, and then only in industries that require technology to extract natural resources. A 
statement today by John Negroponte, the U.S. ambassador to the U.N., suggests that: "It is time for 
the Iraqi people to benefit from their natural resources."

The US is not serious about siring a real modern industrial economy in this region. It is unlikely 
the billions in oil revenue that Iraq will produce right now will be used to buy capital equipment 
or build factories or do anything that will make for a sustainable economy. Where does Negroponte 
say this money will go to? Rebuilding the infrastructure. And who is doing that? Bechtel. 
Halliburton. So this money, too, will not remain in Iraq.

One is forced to decide whether Powell and Negroponte are being disingenuous when they hype this 
deal or whether they are simply oblivious to the economic underpinnings of market capitalism. But 
how can they be oblivious to the fact that the agreement they negotiated still binds Iraq to pay 
down its $400 billion in debt, a debt taken on during Hussein's rule. How can it be that Hussein 
lost his illegitimacy, but that his debts remain legitimate?

On this point, George Soros, philanthropist and convicted inside trader, makes more sense than the 
Bush administration. Soros rightly argues that these debts should be forgiven because doing so 
would send a message to the financial world that there are risks to supporting dictatorships.

Not canceling these debts is not only an exploitative, imperial policy, but also validates the 
whole network of off-shore banking, foreign subsidiaries, and corporate intermediaries that US and 
European financial institutions use to get around the sanctions and embargoes imposed by their 

It must be pointed out that the IMF and the World Bank both have a seat on the advisory committee 
overseeing all of this. For them, "building infrastructure" means renovating ports, pipelines, etc. 
These things are designed to get the natural resources out of the country.

What will then happen is what happened in Latin America. Trade volume will improve, but the profits 
will go to transport companies, the industries devoted to exporting natural resources (former and 
current smugglers. Little investment will be made in businesses that provide basic goods so these 
were imported from abroad, furthering their dependence on US and European imports. No money will go 
into programs that would redistribute the arable land or modernize the once robust agricultural 
industry of the region, although, here and there some new farm equipment will appear, just as it 
did under the failed "oil for food". The remaining agricultural industry will be undercut by US 
grain subsidies (long a standard practice of the IMF) and it will draw people away from rural areas 
into the cities. There will not be enough industry in urban areas to employ the migrants. The urban 
centers themselves will not have had their infrastructure rebuilt. No money, for example, will go 
to fix the crumbling school system. This will guarantee that these workers will not be of much use 
to either Iraq or Halliburton. And the Iraqis will not be able to afford whatever few goods can be 
produced domestically. These will be exported and consumed abroad. So the standard of living will 
not improve.

The money from these exports will remain modest, just enough to cover expenses but not enough to 
encourage expanded manufacturing. So no new textile mills, no new Iraqi pharmaceutical plants will 
be built. The considerable income from oil will go to pay debt. That money gone, US banks will be 
asked make loans to the Iraqi government, but that money will have to go to pay for imports of 
basic materials, not to build industry. Essentially, they will borrow to consume and be forced to 
sell, say, the Tigris and Euphrates themselves. Perhaps, then, as this cycle continues, leftist 
governments will appear, again just as they have in South America. And, as with those, the US will 
attempt to undermine them. The vicious circle. Though, of course, some will argue that when 
Halliburton and Bechtel arrive, they will spend money in Iraq and that they may even hire a few 
Iraqis on the cheap. The old trickle down theory once again. But what perhaps do they do when this 
worn-out platitude turns perilous again? Cut the dividend tax? Bring back the Shah?

One thing is certain: it is not a time to celebrate. It is a time to change the way underdeveloped 
nations are treated. As much debt as possible should be forgiven. Not all. Russia, for example, is 
owed $4 billion and needs it to pay its debts. France, who certainly the US does not mind 
slighting, should as Soros says, lose their investment, as should Citibank and all the US 
corporations who used fronts and intermediaries to get around sanctions. Companies like RJ 
Reynolds, who illegally sold billions of dollars of cigarettes in Iraq through intermediaries, 
should be tried for tax evasion, if not treason, and forced to pay a huge fine, equal to at least 
the amount of lost tax revenue. This money could go to the UN fund for Iraq. The UN should help 
guide the Iraqi economy toward a post-oil economy and set up a tariff regulation advisory board to 
protect fledgling Iraqi industries such as agriculture. Money spent to build infrastructure should 
not only to restoring airports and harbors, but to schools and educational equipment, to building 
Iraqi state-owned pharmaceutical factories, to modernizing existing equipment. Land reform will be 
needed. Everything should be done to keep the mercantile class (former smugglers) from repatriating 
their money abroad. This may well involve a little wealth redistribution.

Standard Schaefer is an independent economic journalist in Los Angeles. He can be reached at

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