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[casi] Costs of 1991 Gulf War will be borne by the Iraqi people

The costs of the 1991 Gulf War and military campaign will be borne by the
Iraqi people:
Iraqi Debt in Excess of $400 billion
Interview with US appointed Minister of Planning
  Al Hayat, 15 September 2003   September 2003
The URL of this article is:


  September 19, 2003


  Dr Mahdi al-Hafiz, the new Iraqi minister of planning and international
cooperation, has discussed the huge obstacles facing the reconstruction of
the Iraqi economy, including foreign debts of around 130bn dollars, a
reconstruction bill of an estimated 100bn dollars and requests for
compensation from those affected by the war of over 300bn dollars. He
discussed the implications of ending the oil-for-food programme in two
months time, and the dangers of a rapid privatization of the economy.
Al-Hafiz was the Iraqi representative at the United Nations in New York
between 1978 and 1980, he worked for the United Nations Economic and Social
Commission on Western Asia as a regional advisor and was also head of the
Cairo-based Arab Economic Research Association. The following is the text of
an interview with Mahdi al-Hafiz, by Ibrahim Khayyat, in Baghdad; date not
given entitled: "Iraqi Planning Minister Mahdi al-Hafiz estimates
reconstruction cost at 100bn dollars and asks for exempting Iraq from its
debts, says: It would be unfair to continue to pay compensation for
occupation of Kuwait"; published by London-based newspaper Al-Hayat on 15
September; subheadings added editorially:


  (Khayyat) You have been appointed as minister of planning and
international cooperation in the new Iraqi government. What is your
understanding of planning?

  (Al-Hafiz) The country needs a clear policy to develop the different
sectors and get rid of the legacy of the past. This legacy is embodied in
the manifestations of backwardness on the level of national production and
in the infrastructure and the damage done to it as a result of the war, the
previous policies and the international blockade. There are many elements
that require adopting a comprehensive view of developing the country in
accordance with a clear plan without belittling the private sector and
through depending on it as one of the key mechanisms for comprehensive

  Debts and negative growth

  We have a problem with the (economic) growth rate, which is negative
(now), after it exceeded 11 per cent in the late 1970s. However, due to the
policies of the former regime, the wars it waged and the international
blockade, the growth rates of production and the national economy in general
have deteriorated. Now, the growth rate is around minus 6 per cent, which is
very frightening. We also have the problem of backwardness of some economic
sectors, like agriculture, which is now unable to meet the needs of the
population and the local market.

  In addition, we have the problem of foreign debts, which total around
130bn dollars, according to the estimates of some international
institutions. Of course, these debts are computed on the basis of the
original debt, in addition to the interest that has accumulated for years.
This problem should be tackled as a priority. Security Council Resolution
1483 had referred this issue to the Paris Club to settle it in a positive
way, which means resolving it either by reducing some of these debts through
exemption or finding a new formula for payment over successive periods of
time. However, in our view, the problem should be solved radically because
the country has suffered a great deal over the past two decades, and there
are new burdens because of the need for revenues for reconstruction and
repairing the infrastructure, especially the oil sector and oil industry.

  Reconstruction and compensation

  The cost of reconstruction is estimated at 100bn dollars, according to
some international institutions. We think that the Iraqi people should be
treated favourably after all these misfortunes that have befallen it and
that it should be exempted of these debts. We are confident that our efforts
to cooperate with many institutions and friends in the world will produce a
positive result.

  Of course, we have another problem, which is the problem of compensation.
The Security Council resolution allocated 50 per cent of oil revenues to
cover compensation for the claims of victims of the [FIRST] second Gulf war.
The truth is that the former regime and not the Iraqi people, is responsible
for what happened. So far, Iraq has paid around 19bn dollars in
compensation. According to the records of the (UN) Compensation Commission,
the value of required compensation exceeds 300bn dollars. Also, claims worth
50bn dollars have been approved by the Compensation Commission, and Iraq is
supposed to pay them. This is very unfair, and it should be stopped. We do
not want to do injustice to anyone or to deny anybody his right, but justice
should be equal (for everybody), and the Iraqi people should be saved from
this catastrophe: that is, burdens of previous policies.

  (Khayyat) How do view the international aid which you could obtain at
international forums and that may take the form of cancelling or reducing
compensation? President George Bush spoke about inviting donor nations to
help Iraq, and a conference will be held soon. What will your position be?

  (Al-Hafiz) We attach great importance to international aid. This takes
different forms, most notably seeking to benefit from international
institutions to finance projects and programmes aimed at carrying out
reconstruction, repairing the infrastructure and developing human resources
to solve the problem of unemployment and poverty, which have become
disastrous phenomena. The rate of unemployment in Iraq exceeds 50 per cent.
This is a very abnormal situation, which must be tackled and given priority,
because the problem of poverty is the source of social disasters. We need
international aid. Through our international relations, we seek to obtain
the necessary international aid to tackle all these issues.


  Another important area is encouraging foreign investment, which has
priorities with regard to the fields and percentages of investment. We are
careful to provide all means and guarantees in order to attract foreign
investment. I have no doubt that the most important guarantee or encouraging
factor is maintaining security and stability in the country. This is a
central mission for the government. Regrettably, security is still faltering
because of the activity of forces that do not want this country to rise and
stabilize. For this reason, we are facing a great challenge, which is the
need to create the necessary climate for foreign investment. If this climate
is created - and I am optimistic about that - there will be great
opportunities for foreign capital in Iraq, because reconstruction projects
are very big and cover vital sectors. For some months now, preliminary
missions of large (foreign) companies and corporations have been arriving in
Iraq to examine many projects. We should have a clear plan for foreign
investment. We are in the process of studying this plan. I hope that this
(investment) law will be enacted quickly to allow this important source
(foreign investment) to play an effective role under the new circumstances.

  (Khayyat) The draft (investment) law includes an interesting paragraph,
which stipulates that foreign investment will not be treated less favourably
than Iraqi capital. But it does not stipulate that foreign investment will
not be treated better (than Iraqi capital). Are you going to include this
provision (in the investment law) so as not to strengthen foreign investment
at the expense of domestic investment?

  (Al-Hafiz) The examination of this law has not yet been completed. Discuss
ions will be held soon, and there are different points of view. However, the
law will definitely take into consideration, and pay special attention to,
national capital so that foreign competition will not be at the expense of
developing the national sector or national capital. This is my personal
opinion. We are also careful to strike a balance between developing national
capital and providing it with good opportunities on the one hand and
benefiting from and encouraging foreign investment in important, vital
sectors in the economy on the other.


  (Khayyat) What is the expected foreign capital flow to Iraq? Are there
studies that show that the market can absorb various financial products,
which help in financing the reconstruction process?

  (Al-Hafiz) We are now in the process of preparing for the Madrid
conference, which will be held next month. This conference will examine the
aspects of investment in Iraq and the aid to be provided by countries and
international institutions. In our estimation, the figure given for
reconstruction is 100 bn dollars. Of course, this is an estimated cost,
which we can consider as a ceiling for the projects and programmes that we
seek to execute. However, this will primarily depend on the projects that
will attract foreign capital and on the expected cost. Based on my personal
experience in this regard, when I used to supervise conferences for
investment encouragement at the UNIDO (UN Industrial Development
Organization), this issue was subject to change due to the desire and
interests of foreign financiers. At those conferences, you find that the
financier is interested in a certain project or programme at the beginning
of negotiation, but he can change his opinion at the last minute. Therefore,
we should be flexible in presenting projects and programmes, and we should
try to focus on vital sectors pertaining to people's lives.

  (Khayyat) In the Arab world, there is a complaint that foreign direct
investment or capital wants to control pan-Arab and national resources. On
the other hand, some (foreign) investors argue that the Arab market is not
as tempting as other markets. Will the Iraqi market be tempting, especially
in the short term; that is, over the next three years, irrespective of laws
and legislation, while taking the problem of security into account?

  (Al-Hafiz) There are two kinds of foreign investment. First, direct
investment. Second, investment in non-productive fields, like investment in
stock markets and in buying and selling currency, and financial speculation.
This kind of investment will not benefit Iraq. We call for direct investment
in productive, vital sectors that are useful for people's lives, because our
problems and the fields of investment are determined first by restoring the
oil sector. The oil industry needs rehabilitation, development and discovery
of new fields and this requires huge amounts of money. The infrastructure
was also destroyed and it needs to be rehabilitated and restored and this is
direct investment.

  There is also investment in several industrial and agricultural sectors
and in developing human resources. These fields are vital for people's
lives. The most important thing for us is that we want foreign investment to
achieve three key goals. First, creating new job opportunities to solve the
problem of unemployment and end poverty. Second, the transfer of technology
to modernize the economy and economic structures. Third, we think that the
attempt to restore balance to the national economy should be taken into
consideration in order to remove imbalances and diversify revenues. We seek
to achieve these key goals. We think that if this plan is adopted, it will
produce good results.


  (Khayyat) Handing over the services sectors, like electrical power
generation and others, to foreign investors entails a risk. Isn't this
process of privatizing and handing over these sectors to foreign companies
going to place additional social burdens on citizens, who are exhausted in
the first place, and cause a problem by increasing the cost of living?

  (Al-Hafiz) Of course, there is a problem that should be tackled by a clear
policy. I think privatization should be studied in light of the needs of the
national economy. I cannot accept privatization as an ideological slogan,
because this will be disastrous for the country, since it should be based on
requirements for developing the economy and on people's needs. If we find
that there are justifications for privatizing an agricultural project, we
should adopt an economic standard and the criterion of cost and return.
Otherwise, privatization will become an ideological action or measure, which
means that we are advocating a market economy instead of depending on the
role of the state. This issue leads to negative results, including harmful
social consequences and their impact on people's lives and increasing
unemployment. This happened in several countries because of not taking steps
that prevent such social consequences. For example, there is the issue of
cancelling subsidies on some commodities. This is also a social problem,
since we live in a country where the state had been playing a key role.
Take, for example, the oil-for-food programme, which was a key element in
the lives of millions of people, in fact, a kind of subsidy. This programme
will expire in November 2003, and a problem will arise unless we take
precautions to prevent it right now.

  The issue ( privatization) should be addressed in light of the
circumstances of the national economy and the needs of development, and not
because of the call for adopting market mechanisms. There should be a
balance between benefiting from market mechanisms and maintaining and
developing the social gains of people and averting any consequences which
could stir up social unrest and lead to a kind of poverty and unemployment.

  Transparency and free competition

  (Khayyat) The Americans say publicly that the road to the Iraqi market
passes through Washington. This means that US or British companies alone
have a monopoly, because of the limited ability of other foreign investors
and companies, including Arab companies, to participate in tenders and in
the development process, as the case is in cellular phone tenders, for
example. These tenders were prepared in a way that does not allow any Arab
company to participate in them. This attitude could harm the development
process by politicizing or ideologizing it. So are you going to clash with
the Americans and British at some point?

  (Al-Hafiz) First of all, the Americans and British have their own view and
policies. In fact, they represent their own interests. However, we (Iraqi
ministers), who assumed responsibility recently, view this issue from the
perspective of the interests of the Iraqi people and the national economy.
We are keen on placing all matters related to international tenders in an
atmosphere of transparency and free competition and within strict controls.
We cannot place obstacles to national or Arab capital. This is the central
issue in dealing with outside capital. Without adopting these controls,
there is no doubt that there will be a kind of favouritism and

  When such things are presented to the Iraqi side and the Planning
Ministry, especially since we will be witnessing international tenders, we
will be careful to handle them in an atmosphere of transparency and free
competition. We will not allow any favouritism towards any foreign side.

  (Khayyat) You want international aid. Money is always attached to
political conditions and not to goodwill. Since you are at the receiving
end, you are not in a strong negotiating position. Take, for example, the
cellular phone project, it has been implemented the way the Americans want
and according to their conditions has become a reality. The same thing may
be repeated with other projects.

  (Al-Hafiz) The cellular phone law has been forwarded to the Governing
Council. A study of this law will be conducted soon. No decision has been
taken yet on this law. Certainly, there are many views, such as the view you
have put forward. But there is serious concern that this issue should be
carried out based on controls that give a serious chance to national capital
and Arab capital. Therefore, it is premature to pass judgment on this issue.
But I would not hide from you the fact that the Iraqi arena is now open and
it is influenced by many Western and Arab sides. There are missions and
teams sent by huge international firms and there is an intense conflict. We
are going through a critical period. We are trying as much as possible to
lay down a rule for this competition in a way that serves the interest of
the national economy.


  (Khayyat) There is a national feeling in the Iraqi establishment that is
trying to restore a great part of its sovereignty, but there are also
pressures by foreign capital, perhaps with the participation of some
officials in the US and British civil administrations. How can you impose
your view? We hear about a lot of cases of bribes received by some US
officials in some military units and some cases of favouritism. Can a law
against bribery be issued, for example, which will be a part of efforts to
impose transparency in Iraq? Are you going to launch an initiative to
protect investment?

  (Al-Hafiz) We are at the first stage of work. The country is still
occupied. There is an authority that represents the occupation countries.
There is also a national authority which does not have complete powers. But
it has great chances to go forward and wrest many powers in the future. This
is the big challenge ahead of us. Our option is to take this road, armed
with the support of the political forces, the masses of the people and Arab
public opinion.

  The things you have mentioned may happen. Indeed, they may have happened.
I cannot confirm or deny this, but I do not dismiss it. We are required in
the next stage to try to immunize the Iraqi authority against any attempts
at foreign influence, whether through financial corruption or political
pressure, and even military pressure. This is because real independence
cannot be achieved unless there is immunity for the national economy. We are
fully eager to provide the controls that lead to this. We do not exaggerate
this and we are not pessimists, but we believe that facing this challenge
should be through restoring national independence and restoring political
decision-making in full. I believe that the experience of the recent months
has proven that the Iraqi side has managed to achieve a great deal, and it
is proceeding towards its goal steadily.

  (Khayyat) Can a law against bribery and financial corruption be a part of
development plans?

  (Al-Hafiz) No doubt this is a very important issue. We will not tolerate
this issue. One of the most serious diseases that afflict the national
economy of any country is the spread of bribery and financial corruption.
This phenomenon exists in many developing countries and even in countries
that are advanced economically. Therefore, we believe that one of the basic
guarantees for protecting the national economy is to issue a law to fight
bribery and all forms of financial corruption. This is a fundamental issue,
which we are careful to implement.

  (Khayyat) Have you already adopted this idea?

  (Al-Hafiz) We have adopted it and we are keen on implementing it. But no
one should imagine that we are going to perform miracles. Therefore, I have
to say that we have numerous challenges and obstacles. We hope that we will
make achievements over several stages, because our circumstances are
difficult and the balance of power is tilted. Also, the country is still
under occupation. However, we are confident that the nation is going

  Human resources

  (Khayyat) The planning process needs sufficient human resources. Do you
have these resources?

  (Al-Hafiz) Human resources are a very important part of Iraq's wealth.

  (Khayyat) At the ministry and in planning?

  (Al-Hafiz) I think that the correct plan is to make use of all the
energies and resources that exist, whether inside or outside the planning
agencies. One of the things that I take care of personally is to conduct a
survey of these resources and to employ them in different forms, and not
necessarily as part of the official employment of the ministry. For example,
they could provide advice. We may also benefit from the expertise as part of
training courses, seminars and preparing studies. These are essential
things. This country could benefit from its sons, without discrimination
based on religious or nationalist considerations or bigotry. The Planning
Ministry will be at the service of all Iraqis. On my first day at the
ministry, I announced this to all the employees. I said: This ministry is
for all Iraqis. It must be a field of competition among them in order to
make use of all their energies and resources in a constructive manner.


  (Khayyat) If we speak about planning growth, there is population growth
and economic growth. Therefore, you must count the population. Are you
planning to conduct a census?

  (Al-Hafiz) This is one of the basic missions we will undertake within the
coming months. We are going to hold parliamentary elections. We think that
holding these elections after drafting a constitution will be the second
basic mission in the political march in the country, which will lead to the
formation of an elected government that would lead to the restoration of
national sovereignty in full. The census will take place in the coming
period. We have started to think about this issue, not only because
developing the country and achieving economic growth require this, but
because we must prepare voter records and this is a very important issue
politically. In addition, the requirements of comprehensive sustainable
development dictate that we should have a successful picture in front of us
of everything related to the situation of the population: the democratic
picture of the country, which would form the basis of any economic options
we adopt in the field of development.

  End of oil-for-food

  (Khayyat) You said that the oil-for-food programme would stop in two
months. Does this mean that the ration card and the government subsidy will
stop as well?

  (Al-Hafiz) The ration card that is associated with the programme will
stop, but there is a study to find an alternative to this. This study would
meet the purpose, which is not to expose people to hardships. It must be
completed within a short time.

  (Khayyat) What is the expected time period for such a study?

  (Al-Hafiz) This must be prior to the end of the programme, which ends in
November, as I have said. The truth is that some money will be returned to
Iraq, which will be around 2bn dollars, as Sevan, director of the programme,
said in his last interview. At the same time, however, we must draw up a
plan for this and this plan must be turned into legislation so that the
citizens will not face any new hardships.

  (Khayyat) Do you plan to expedite the census so as to serve an alternative
plan to the oil-for-food programme?

  (Al-Hafiz) The purpose of the census, politically, is to prepare for the
parliamentary elections by preparing voter lists. This is a very pressing
political issue. The second purpose is to re-evaluate the particular
features of the needs of the national economy, at the level of the
governorates or at the level of the country as a whole. Therefore, any
vision of the development of the country cannot be realized unless we have a
complete picture of the demographic situation in the country.

  (Khayyat) Where does tourism fit in all of this? Tourism does not require
a lot of capital to employ in generating jobs.

  (Al-Hafiz) Tourism is linked to security and stability. So as not to have
any illusions, unless the country is stable and immune against the dangers
of terrorism and violence, it is difficult to have optimistic prospects for
tourism. Certainly, there is religious tourism, which is an important source
of income. But this issue needs controls as well. We feel that this issue
should be addressed in the near future. We should seek to maintain security
and restore stability in a serious and comprehensive manner. These are two
basic conditions for foreign investment in tourism to develop the economy
and enable people to enjoy a normal life under the general climate, which
the Iraqis look forward to.

  Security and foreign capital

  (Khayyat) The civil administrator Paul Bremer told Al-Hayat-LBC (Lebanese
TV) that even if Saddam Husayn were to be apprehended, this would not stop
the violence. It may reduce it. If the rate of violence does not drop, this
means a climate that is not appropriate for foreign investment. Perhaps, you
have one, two or three years before foreign capital feels a desire to come
to Iraq. In this case, what will your position be?

  (Al-Hafiz) No doubt, this is a great challenge. I do not think that
matters will require all this time. I think that security and stability will
be achieved when the Iraqis have the ability to return national authority.
This is not an illusory issue because many signs have started to emerge. For
example, there is now a draft resolution at the Security Council, which
stipulates providing a timetable for ending the authority of the coalition
and handing over authority to the Iraqis. The dispute is whether the
Governing Council should set this timetable. For the United States to accept
such an option is in itself a big step forward because pressure comes from
other countries. It comes from France, Germany, China, Russia and also from
the Iraqi side. The Iraqi political forces are unanimous on the need to
regain authority in full, as soon as possible. Therefore, I believe that the
door will be opened soon for the possibility of regaining authority as soon
as possible and handing over powers to the Iraqis. This is the first point.
Second, the United Nations will have a big role in the ongoing political
process in Iraq through the deployment of multinational international forces
under UN supervision or perhaps there will be a bargain that allows US
supervision. This has not been determined yet. It is being negotiated at the
Security Council. This resolution is expected to be issued within a week or
10 days. This is why I believe that the key to resolving the problem of
security and stability in Iraq lies in restoring Iraqi national sovereignty
and enabling the Iraqis to address the issue of security through an
effective role for the national police and the civil defence agencies. This
issue was recently discussed and there is agreement about it. I have a great
hope and confidence that we will be able to advance on this road.


  (Khayyat) Do you practically believe that there is a possibility of
achieving your hopes? I do not want to say that pessimism is required, but
is it possible under these circumstances and the minefields you are passing
through; to finish your job? You plan and then ask (for support), but
support does not come in advance. And you cannot plan based on fixed
resources that exist in advance. This is sometimes exhausting, especially in
light of changing circumstances. Does this mean that you can achieve
something practical?

  (Al-Hafiz) This is a correct and accurate description. We are walking
through a minefield, but our walk represents a real national option based on
our study of the situation of the country and the characteristics of the
regional and international situation. We feel that this option is the safest
situation because we represent the opinion of the majority of people, who
aspire to restore stability and security to restore national independence
and end the occupation and to enable the country to rise once again. This is
the safest option, considering the other options.

  We cannot follow certain methods, as some people are trying to do. Car
bombs, sabotaging oil pipelines, striking the United Nations and political
assassinations will not lead to any result. These acts harm the interests of
the country. Our option is based on a conviction and the political forces
are agreed on it. No one disavows this option, except a few people. We
believe that the future provides a lot of guarantees. As I have told you,
the international situation is changing in our favour. The same goes for the
Arab situation. Also, the domestic situation is progressing in favour of
giving more powers to the Iraqis. We are optimistic that this road will lead
to results. Therefore, the issue of resources and foreign capital is
dependent on the success of the political process. Inasmuch as this process
succeeds, we will be able to say that the investment climate in Iraq will be


  (Khayyat) What about the international agreements with the rest of the
countries or with the outside world and with the WTO (World Trade
Organization) and others? What will the fate of the banking sector be? Is
there a plan to develop it?

  (Al-Hafiz) Of course, Iraq is not a member of the WTO, but there are
agreements with other countries which are being studied so as to comply with
them based on mutual interests and standards. When drawing up a plan for the
future, no doubt these things will be studied and we will come up with a
clear plan which will turn into official policy. Reforming the banking
sector will also be on our agenda in the near future. There is a trend to
encourage the banking sector and again study the problems from which it
suffers. There is also the problem of security. Regarding the banks, there
is also the problem of the new currency and how to deal with it. There is
the problem of guarantees for depositors because a lot of depositors still
do not have confidence in the existing banks. At the same time,
restructuring the banks is very important because what had existed in Iraq
was not really a banking sector that enjoys a sound position. I will give
you an example of what used to be the case. One of the former assistants of
the Central Bank recalls that issuing currency or reprinting currency, which
prevailed at that time, was not done based on the needs of monetary
circulation, but based on the technical and printing capacity of the
machine. This is a disaster. This means that this used to take place based
on the personal whims of this or that ruler. You know how things were on the
level of the political authority, since currency used to be printed in light
of the capacity of the machine, and not the need for monetary circulation.

  Frozen money

  (Khayyat) How much money was returned to Iraq or is currently frozen and
will be returned to Iraq?

  (Al-Hafiz) There are initial estimates. The total of what is expected to
be in Iraq's possession is around 18bn dollars. These funds are either money
frozen abroad in the United States and European countries, or some funds
that are deposited at some banks that are associated with some trade
transactions and agreements, such as Lebanon and Jordan. At the same time,
around 2bn dollars is in the oil-for-food programme. There are some amounts
in some Gulf states that are associated with economic or trade agreements
that have not been implemented. All this makes our initial estimates around
18bn dollars.

  (Khayyat) An FBI team is investigating the funds of the former regime.
Also, some of the detainees who are held at the (Baghdad) Airport from the
regime officials have confessed to where some of their money is stored. Does
the sum of 18bn dollars include these funds that will be retrieved? What is
the total of these funds, which the Americans will contribute to retrieving?

  (Al-Hafiz) I have no information about any investigations. I heard about
this from newspapers. But the 18bn dollars have nothing to do with these
sources. Perhaps there are other sums that are being dug up discovering the
accounts of some aides or secret accounts of the former authority. I do not
rule out the discovery of things which might sound imaginary, because the
way in which the money of people and state funds were manipulated under the
former regime has no match in any other country.


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