Iraq – Bank and Fund in no man’s land

26 May 2003

The potential roles of the World Bank and IMF in post-conflict Iraq have been much debated in recent weeks. Their Spring Meetings in mid-April saw sparring between US and European ministers over when and how the institutions might get involved. Discussions there and subsequently have focussed on assessments of the economic and development situation, oversight of oil revenues, debt relief and reconstruction finance.

One of the key issues is what sort of government needs to be in place in order for the Bank and Fund to operate in a country. Many people, including representatives of the UK government and of the G-24 developing country grouping, said before the Spring Meetings that UN regime recognition was vital before Bank and Fund involvement. By the end of the meetings, however, the US government had persuaded others that the IMF and World Bank could soon start to be active in Iraq regardless of such legal questions.

In early May the Bank’s Board formally recognised this, agreeing that the Bank could send a team to conduct assessments in Iraq on assistance priorities and lay the groundwork for economic recovery and growth without waiting for a formal Board vote. The Bank says it is waiting for a safer situation in Iraq and an invitation from a government there or from the international community. The IMF has already provided general advice on the currency and monetary policy, and has signalled that it is prepared to undertake a needs assessment.

The US government is also pushing for the World Bank and IMF to play a part, with the UN, on an advisory board to oversee how Iraq’s oil revenue is spent. The US wants the Security Council to lift its sanctions against Iraq, phase out the oil-for-food programme over the next four months and install an international advisory board on oil revenues. A joint statement initiated by Focus on the Global South, a campaign group based in Thailand, demands, however: “The UN-held escrow Iraqi oil account must not be used to foot the bill for reconstruction of the damage caused by the illegal war and UN sanctions. The funds must be held in trust for the Iraqi people until there is a legitimate and genuinely representative government elected by the people.”

The US has also argued for the cancellation of the debt burden accumulated during the Ba’athist regime. While campaigners have condemned the hypocrisy of this – the US has bitterly opposed such write-offs for the Democratic Republic of Congo and other countries – they agree that the Iraqi people should not be forced to pay illegitimate debt. They also hope that if this happens in Iraq it will set a useful precedent for other heavily indebted countries. Most of Iraq’s estimated $400 billion debt is owed to other Middle Eastern countries, plus Russia and Germany. Obligations to international financial institutions such as the Fund and Bank amount to less than $200 million.

These existing debts must be repaid before the Bank and Fund can get involved with reconstruction financing. In the case of Afghanistan, Britain and other countries repaid the outstanding debts so the World Bank could resume lending. Campaigners who have signed the Focus statement are calling for “the full costs of all reconstruction, compensation and reparations for the physical, social, economic, psychological, ecological, cultural and heritage destruction caused by the US-led invasion of Iraq to be borne by the aggressors.”

The statement also argues that governments and NGOs should not profit from the illegal invasion and occupation. However this is already happening. Many contracts have already been awarded directly to US companies. They include a $680 million deal for Bechtel “to rebuild Iraq’s infrastructure” and one for $7.9 million for the Research Triangle Institute “to rebuild local governance”.

Many people see Iraq as an instructive case of how US influence can be brought to dominate nominally multilateral institutions. Unlike the UN Security Council only the US has the ability and votes to throw its weight about effectively in the Bank and Fund. And with the secrecy of their Boards it is not possible to know what positions different countries are taking.