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25 Feb 2004 : Column 121WH—continued

Iraq

3.30 pm

Mr. David Stewart (Inverness, East, Nairn and Lochaber) (Lab): I am pleased to have the opportunity to make the case for debt relief for Iraq. Reconstruction of Iraq is one of the most important issues facing the international community. Nye Bevan once said that


I believe that debt relief is also a crusade.

My involvement with this issue is twofold. First, I have been committed since my election in 1997 to the Jubilee 2000 campaign, and thoroughly support and praise all the individuals, the non-governmental organisations and the Churches that have lobbied for decades for the cancellation of unpayable developing world debt. I also support Jubilee Iraq and Oxfam, which have campaigned specifically for debt relief for Iraq. Secondly, on a personal front, I had the opportunity in September, through the armed forces parliamentary scheme, to spend three days in Basra, where I met Royal Air Force personnel and ordinary Iraqis, so I have some first-hand experience of the state of that country. There is clearly a great need for infrastructural growth and for new work to go into central services to promote sustainable development in Iraq.

I should like to share one word-picture with the Committee. Near the end of my time in Basra, some of the RAF officers and I left the secure compound to go just outside the gates. We were dressed in body armour and camouflage fatigues, and as I walked out of the gate, I passed a bus-load of young Iraqi children entering the base. I was not sure what sort of response we would receive, as they obviously considered us all soldiers. In fact, the response was immediate and unanimous: every single one gave us a thumbs-up sign. Some cynics might say that they could have presented another sign to us, but it was quite gratifying to me because they saw that having armed forces there was not just about the military aspect, but about breaking away from Saddam towards reconstruction.

I strongly believe that the Iraqi people will be free from Saddam's legacy only when we can break the chains of debt that he created. How do we do that? Iraq needs the oxygen of economic growth to tackle its shocking poverty. We need to improve employment rates, standards of public service, health and education. Of course, the international community understands that: it is committed to provide about $32 billion of aid to Iraq to rebuild the cities, towns and villages, and to create the climate in which to grow new jobs. The Madrid conference in October 2003 was a good step towards Iraq's recovery. However, Iraq continues to be crippled by unsustainable debt, which threatens to undermine reconstruction efforts. Iraq's debt is not practically repayable: repayment would effectively involve the next 20 years of Iraq's oil revenues. That would mean less money for hospitals, schools and sanitation in a country that is desperate to rebuild.

I am aware, of course, that Iraq has potentially the world's second biggest oil revenues, but that is not much comfort to ordinary Iraqis, who earn about $2 a day. International assistance, not least from the United

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Kingdom, will have a central role in Iraq's reconstruction. The danger is that creditors' demands will lead to over-dependence on aid. In his classic analysis of the treaty of Versailles, "The Economic Consequences of the Peace", John Maynard Keynes wrote:


If debt repayments and reparations—the other important factor—continue to be required of Iraq, the country will have to pay out a large proportion of the aid that it is receiving, which will mean that plans to reduce poverty and rebuild the country will be seriously compromised. Beyond that, I believe that there are moral and legal grounds on which to justify the cancellation of Iraq's outstanding debts, enabling its full recovery. The truth is simply that Saddam never spent the money that he received from creditors for the benefit of his people. Ordinary Iraqis had no say. Iraq's debts were accrued under Saddam Hussein for his purposes only. Why should Iraqi people repay a debt accumulated by a tyrannical regime, which borrowed from creditors that lent to Saddam with their eyes open? Surely, with the fall of the dictatorship, Saddam's debts should be wiped out to enable Iraqis, who gained nothing from Saddam's spending, to start afresh. Thus, I call for debt relief for Iraq on the basis that the loans were odious and the debts are illegitimate. Put simply by Mohammed Kamil, of the Iraqi Prospect Organisation:


The principle of odious debt is important. It is borrowing that is undertaken by a regime without the consent of the people and not spent for the benefit of the people. The doctrine of odious debt goes back to 1927, when it was developed by the Russian lawyer, Alexander Sack. More recently the International Development Committee referred to it in its report on debt relief. Oxfam argues a specific point. It says that what is needed is an internationally agreed framework to deal with odious debt as it arises. It proposes an independent, UN panel of economists—the analogy could be made with our Monetary Policy Committee—to rule on the legitimacy of Iraq's debt. Will the Minister respond to that in his summing up? That seems to be a sensible, constructive idea worth supporting.

Let me take the Chamber back in time to 1979 when Iraq had $36 billion of cash reserves and no foreign debt. Over the past 24 years, under Saddam's rule, Iraq fought three wars, suffered 13 years of sanctions, and has suffered gross state mismanagement of the economy and human rights abuses. Three million people have died and infant mortality has doubled in just over a decade. Average incomes have fallen from $9,000 to as little as $200 a year. The World Food Programme reports that one fifth of Iraq's central and southern population is chronically poor, and unemployment in some areas reaches 50 per cent. The Iraqi people have clearly gained nothing from Saddam's rule.

Estimates vary, but the Government's estimate is that Iraq owes about $120 billion of debt and $80 billion in reparations and compensation payments, particularly to Kuwait. Therefore, each Iraqi owes about $11,000, despite the average income being as low as $2 a day. The

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Gulf states and western and former Soviet countries provided export credit. Some of that funded arms; some funded non-military purchases. It enabled Saddam to channel his oil revenues into the oppression of his people and increased military spending. Under the previous Administration, Britain provided about £623 million, but the overall figure is now estimated to be about £1 billion if interest payments are also taken into account.

I put on record my thanks to the Chancellor for the positive work that he has done generally on debt relief, which I recognise and welcome. With regard to Iraq, some progress has been made in the past 10 months in measuring the scale of the debt and obtaining agreements from most creditor countries that, in principle, debt should be reduced.

Nick Harvey (North Devon) (LD): The hon. Gentleman just quantified the Iraqi debt to the UK as about £1 billion. The UK has pledged just over £500 million to Iraq for assistance with its recovery, which is most welcome and I echo the words of the hon. Gentleman in drawing our attention to that. However, does that contrast not highlight the problem? The UK has pledged £500 million but is owed £1 billion. The UK could give a great example to others if we were to face up to the sheer illogicality of that and wipe out that debt.

Mr. Stewart : I thank the hon. Gentleman for his contribution; I know that he has a great interest in the subject and has worked very hard on debt relief issues. There is a danger of giving with one hand and taking back with the other. That is a good point. I am just about to touch on the Paris Club and the International Monetary Fund.

As hon. Members will be aware, debt relief to Iraq is at present being tackled through the IMF and the Paris Club, which are looking at restructuring initiatives. As I understand it, the scenario is for two-thirds debt "forgiveness", which will leave Iraq with at least $40 billion still to pay. There are some worries about that, because the Paris Club conditions—that is the list of creditors, effectively—depend on what it calls economic "conditionalities". That may mean, for example, the privatisation of a lot of Iraqi industry. There are big issues involved about the ultimate independence of Iraq.

Professor Rowat of Birmingham university said:


Although I welcome the move of the IMF and the Paris Club, the fundamental issue of the illegitimacy of the debts has not been properly addressed. If the loans are odious, surely there is a strong argument for not simply restructuring but cancelling them altogether. No debt has yet been written off, but the Paris Club has agreed a comprehensive treatment of Iraq's debt by the end of the year to give a fully rounded picture. No arrears of debt are currently being sought, as I understand it.

I welcome the Evian report, which, under the Paris Club arrangements, is looking to adopt longer term solutions for countries with serious debt. Again, that appears to be sensible. The Government have pledged to ensure a fair and sustainable solution to Iraq's debts, but surely, in the disagreement between Iraqi people and the creditor nations over the legitimacy of Iraq's debts, the only fair way forward is through the process of arbitration.

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In conclusion, my hope is for a future in which a democratic Iraqi Government work with the international community to rebuild and reconstruct their country, which has been shattered by wars and strangled by Saddam's oppressive regimes. Iraq is a country of stark contrasts: on the one hand, there was fabulous wealth, privilege and palaces for Saddam's inner circle; on the other, there was the poverty, starvation and torture endured by ordinary Iraqis.

My call is for a cancellation of odious debt, an independent UN panel of economists to rule on the legitimacy of Iraq's debt, and debt negotiations that are fair, with a strong Iraqi voice. That will give ordinary Iraqi men and women such as those I met in Basra the opportunity to win the peace.

3.42 pm

The Economic Secretary to the Treasury (John Healey) : I congratulate my hon. Friend the Member for Inverness, East, Nairn and Lochaber (Mr. Stewart) on securing this debate and on the way in which he presented his case. His speech was not only heartfelt and passionate, but widely referenced, well informed and erudite, reflecting his long-standing interest in issues of debt and development, and his active interest in Iraq. As he said, in September, he and the hon. Member for Huntingdon (Mr. Djanogly) were among the first Back-Bench Members of this House, Mr. Cook, who—

Mr. Frank Cook (in the Chair): Order. I would be remiss in my responsibilities if I did not call the attention of the House to the fact that, in this Chair, the title of the first three members of the Chairman's Panel is Deputy Speaker.

John Healey : Mr Deputy Speaker, I seek—

Mr. Frank Cook (in the Chair): That is okay; just continue.

John Healey : I have not paid you due respect, and I apologise.

I was commending my hon. Friend the Member for Inverness, East, Nairn and Lochaber for the commitment and interest that he has shown in Iraq, particularly as in quite early days, he and the hon. Member for Huntingdon were among the first Back-Bench Members of this House to stay in Basra as part of the armed forces parliamentary scheme.

My hon. Friend raised the issue of debt relief with my right hon. Friend the Chancellor at the most recent Treasury questions. As my hon. Friend has said, the question of Iraqi debt is one of the most important international issues facing us today. I welcome the chance to debate his concerns more fully than was possible at that Question Time.

I welcome, as the Government do, the wider Jubilee debt campaign to cut the debts of the poorest countries around the world. My hon. Friend has also recognised the role that the campaign, other charities and Church groups have played, which has been tremendously important in shifting international opinion on the issue.

I hope that my hon. Friend will be reassured to know that the UK Government have made it clear that our goal is a fair and sustainable solution to Iraq's debt

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problems, although that is just one essential element in our overall aim of helping Iraq back on to the road of long-term peace and prosperity.

Iraq should be a wealthy country. It has the second greatest oil reserves in the world—some 110 billion barrels. However, as my hon. Friend so vividly explained, because of Saddam Hussein's tyranny, wars and mismanagement, Iraq's people are now desperately poor. The population has an average income per head of only $500 a year, which, as was said, is less than $2 a day. That is particularly depressing when we consider that more than 20 years ago, its per capita income was $3,600 a year.

On a more optimistic note, however, Iraq's abundant human and natural resources offer the potential for a rapid return to relative prosperity if the right conditions are created in the short and medium term. In order to access its potential wealth, Iraq needs to have in place the right economic conditions and institutions, which is why the Department for International Development's objectives for the next two years are to support economic growth, bring about effective and accountable governance and encourage much greater social and political cohesion and stability.

My hon. Friend is right: to achieve that objective, Iraq's debts must be brought back to sustainable levels so that it can start to invest and grow again. He is also right about the scale of the challenge, and his figures are correct too. Iraq's debt to the international community currently stands at about $120 billion. As the UK Government have already made clear, our view is that creditors will have to write off the vast majority of Iraq's debt to restore economic stability. I say to the hon. Member for North Devon (Nick Harvey), whose intervention I also welcome, that the Government stand ready to make a full commitment to do so.

I must say to my hon. Friend the Member for Inverness, East, Nairn and Lochaber that we believe that the most effective way to deliver that commitment is through the Paris Club, which has already announced that it intends to agree a comprehensive treatment of Iraq's debt problem by the end of 2004. We will then work with the international community to ensure that other creditors offer comparable treatment. The plan is to deal with the debt under the Paris Club's new Evian approach, which he welcome and endorsed this afternoon. In our view, that approach offers a long-term solution for countries with the most serious debt problems, including debt reduction where the need is clearly demonstrated.

The Paris Club is the only forum in which major creditor countries work together to negotiate fair and sustainable debt treatments in a timely manner, drawing on assessments of needs, resources and obligations from the International Monetary Fund, the World Bank and other responsible international organisations. My hon. Friend may be aware that preparations are now well advanced and that we hope to see a solution in the Paris Club following the transfer of power to a transitional authority in Iraq. In the meantime, I can confirm to him and the House that the UK will seek no repayment of debts.

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Let me also be clear about the scale and nature of Iraq's debts to the UK Government. The Export Credits Guarantee Department has unrecovered claims of £623 million arising from insured commercial export contracts with Iraq signed prior to the first Gulf conflict in 1991. With interest, that figure could increase up to about £1.15 billion. Of those claims, only a small fraction—about £26 million—relates to defence cases, all of which had export licences from the Department of Trade and Industry and none of which directly involved arms.

The ECGD can provide insurance on repayment risk, the premiums for which are based on the risk of default. It is important to stress that under the business principles introduced in 2000 by this Government, the ECGD now carries out rigorous environmental and social impact assessments of its cover decisions. For the poorest countries, the ECGD would issue guarantees only if the project contributed to the social and economic development of the country and did not lead or add to an unsustainable debt burden.

I recognise that many argue the case for an automatic 100 per cent. write-off of debt and that they do so, as my hon. Friend has this afternoon, on the basis of the Iraqi people's suffering under Saddam Hussein's regime. We expect the vast majority of Iraq's debts to be written off. Our aim is a settlement that will bring Iraq back to debt sustainability so that it can invest and grow again.

In the long term, however, Iraq is not comparable to the poorest countries of the world that are granted debt relief under the heavily indebted poor countries initiative. Although Iraq is extremely poor now, as my hon. Friend has pointed out in the past and as I have tried to underline this afternoon, in the long term, its prospects for prosperity are good. It has the second largest oil reserves to draw on.

Any further debt relief beyond what is needed to make Iraq sustainable has to be considered against the country's other pressing needs: humanitarian relief and reconstruction. The Government have worked very actively to promote understanding of Iraq's needs in the international community. We have keenly supported the US presidential envoy James Baker. During recent months, his work has led to the building up of a G7 consensus that there should be substantial debt reduction for Iraq in the Paris Club this year. He has also persuaded several other large creditors to commit themselves to grant substantial debt reduction as part of the $32 billion pledged towards Iraq's reconstruction needs at the Madrid donors conference in October. That includes the Saudis and the Kuwaitis, who together hold more than 30 per cent. of claims on Iraq. The work is ongoing, and the UK actively participates and contributes financially. Our total reconstruction commitment in Iraq since April 2003 now stands at £544 million.

I now turn to the matter of odious debt, which my hon. Friend dwelt on in his speech. I understand the moral concerns that underlie that concept. The Government believe that the most appropriate response to such moral arguments is to ensure that Iraq is in the best possible position to support its people now and in the long term. That means that we must focus on pragmatic and practical means that can deliver a sustainable debt solution. As he will be aware, there are thousands of individual debts and it is not practicable to

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go through them one by one. To do so would plunge the Iraqi people into a legal minefield and damage the prospects of finding a long-term, sustainable solution. There are also serious concerns about the workability of odious debt as a legal concept and the impact on other developing countries' ability to raise much-needed finance.

We believe that the multilateral process that we are supporting will lead to the writing off of the vast majority of Iraq's debt in the shortest possible time. We would welcome the involvement of the UN as an observer in that process. The Government also share the concern expressed by many groups, including Oxfam and some with which my hon. Friend is well connected, that we should work together to ensure that developing countries do not build up unsustainable debts in the future.

Mr. Michael Connarty (Falkirk, East) (Lab): I hoped that my hon. Friend would move on to talk about the individual components of the debt. Just before the conflict began, I went to the Kurdish enclave in the north. I took Foreign Office information about the £1 million a day it was costing the allies to keep the no-fly zone in place. Will the Minister give an assurance that when we add up the debt owed by Iraq, we will not charge the cost of that no-fly zone policy to the Iraqi people, and through them to the Kurdish people in Iraq?

John Healey : I welcome my hon. Friend's intervention and the expertise and interest that he brings to this debate, but he may have missed my point that the UK Government, at this stage in the process of preparing to take decisions about the amount of debt that we should write off as a country through the Paris Club process, will in the meantime require no repayments of existing debt.

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With regard to the importance of the institutions and interest groups that want a long-term solution and a return to prosperity in Iraq, the Government welcome the work of the IMF and the World Bank on debt sustainability in low-income countries, which we expect to be completed over the coming months.

In conclusion, I should like to stress that the Government's overall aim is a peaceful and prosperous Iraq. That requires actions and commitment on many fronts, including debt relief. Finding a sustainable solution to Iraq's debt problems, essential though it certainly is, should be seen as only one part of our efforts towards that end.

I am keen to draw this debate to a conclusion on a more positive note, despite the scale of the challenges that are undoubtedly faced in Iraq. I say to my hon. Friend the Member for Inverness, East, Nairn and Lochaber that he will know from his practical experience in Iraq that progress is being made. He touched on it himself: the coalition has launched more than 17,000 reconstruction projects; food distribution systems were restored soon after the conflict; almost all the 240 hospitals in Iraq are functioning; water and sanitation projects are providing cleaner water; schools across the country reopened in October; and power supply surpassed pre-war levels in October. Against this background, the UK's commitment and work to help Iraq will continue. If the right measures are taken now and the economy is able to grow, Iraq's human capital and oil reserves should enable it to meet its future needs without significant external grant assistance.

As my right hon. Friend the Prime Minister said in the House earlier this month:


We recognise that we have a big role and responsibility to help nourish that hope, and debt relief will certainly play a central part in that.

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