Reconstructive Surgery

The initial reports from the recent Iraq donor conference in Madrid, Spain, provide plenty of new ammunition for members of Congress who oppose President Bush's request for an immediate $20 billion in new aid. Simply put, Iraq can't absorb that much aid in the coming year. Giving proconsul Paul Bremer a blank check would only feed the worst forms of crony capitalism and wind up lining the pockets of favored U.S. contractors.

So far the opponents of the aid portion of the president's $87 billion package have based their reluctance on a very pragmatic concern: How will they explain to voters that the U.S. government can afford to pay for Iraq's police, firefighters, schools and roads but that the cupboard is bare for similar needs at home?

Their preferred solution is to turn half the aid into a loan, which would have to be repaid by future Iraqi oil revenues. Given that Iraq is already anywhere from $95 billion to $150 billion in debt to foreigners, grants versus loans is a meaningless debate over a phony distinction. The United States is already owed money by Iraq from loans made during the Reagan administration; the best we could hope to do by giving Iraq more loans now would be to continue standing in line with the rest of the creditors -- Japan, Russia, France, Germany -- that gladly lent money to Saddam Hussein's regime.

Russia, France and Germany are already balking at participating as donors. Their rhetoric harkens back to their opposition to the war and the Bush administration's abject failure to build a meaningful international coalition. But many of their concerns now also stem from raw self-interest. As Deputy Foreign Minister Yuri Fedotov of Russia (which is owed $3.5 billion) told the BBC: "Iraq is not a poor country and has oil, agricultural and industrial resources. Russia is not planning to make a donation."

If Congress actually forced the Paul Bremer-led occupation to adopt a loan policy, it would rank as one of the more heartless foreign-policy decisions of recent decades. The United States has already handpicked the provisional government. It is moving far too slowly in giving local Iraqis real authority. Forcing the interim authority to sign on to new loans -- while the United States controls the country's spending -- would only breed more resentment, anger and violence against U.S. troops.

There is a way out of the Bush administration's dead-end policies. First, the United States should take the lead in writing off sovereign debts owed by Iraq and encourage other members of the so-called Paris Club (rich industrial nations), which are owed about $42 billion in total, to do the same. America should also ask our allies in Kuwait and Saudi Arabia, which are owed anywhere from $20 billion to $40 billion, to write off their debts. Private creditors (the Halliburtons of the world, who are owed anywhere from $8 billion to $13 billion) should be forced to take a "haircut," as they call it in the bankruptcy trade.

Second, the United States must get serious about gaining international support for the rebuilding project in Iraq. A new report from Gayle Smith, a National Security Council special assistant in the Clinton administration who is now at the Center for American Progress, recommends placing the U.S. contribution to rebuilding Iraq under international control. As the major donor and the de facto power on the ground, we'd still have the major say over how the money gets spent.

Predictably, though, the Bush administration, wedded to its go-it-alone strategy, wants two donor agencies, one for the U.S. contribution and one for the international-community effort. As Smith points out, dueling agencies would breed waste and inefficiency by forcing the fragile Iraqi government "to reckon with two international bureaucracies instead of one."

Moreover, the U.S.-run agency would always be suspect in Iraqi eyes. A report released Thursday by the United Kingdom-based group Christian Aid charged that $4 billion of Iraqi oil revenue has already disappeared into "opaque bank accounts administered by the Coalition Provisional Authority," which Bremer and the United States control.

Finally, Congress should sharply cut back the $20 billion request, perhaps by half. A World Bank assessment of Iraq's needs released earlier this month placed total aid required over the next three years at $56 billion, with only $17 billion coming in the first year. The United Nations' oil-for-food program is already picking up $1 billion of that, and, if the rebuilding project shows any type of success, Iraqi oil revenue will start picking up billions more.

Moreover, the best estimates out of Madrid are that the international community will pony up about $5 billion to $6 billion in new aid for Iraq. Under a worst-case scenario, then, the United States would be left with only $11 billion to $12 billion of the next year's tab. And that number should decline in future years.

Chris Patton, representing the European Union at the conference, warned that Iraq will not be able to meaningfully absorb more than the $5 billion to $6 billion in the coming year. Moreover, he said, "We'll want to revisit this a year from now." Congress should cut its donation in half, and say the same thing.

Merrill Goozner is a Prospect contributing editor.

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