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5 Jul 2005 : Column 47WH—continued

Iraq (Debt)

12.30 pm

Harry Cohen (Leyton and Wanstead) (Lab): I thank Mr. Speaker for granting me this Adjournment debate on the Paris club arrangements for Iraq's debt. It is a good time for the debate, with the G8 leaders meeting this week, although they will focus on Africa. I support the Government's aid, trade and debt relief programme to make poverty history on that continent, but the United Kingdom and, of course, the United States of America have an even more direct responsibility in Iraq. The sanctions and the war and its aftermath have deeply impoverished that country, and it is still on the way down.

Several of the G8 countries were keen to ply Saddam Hussein with loans to fund his military machine to fight Islamicists in Iran. Until the invasion of Kuwait, they did not mind the weapons being turned on his own people. The UK gave loans for arms sales and, despite all the subsequent events—despite Saddam Hussein being vanquished—has not given up on retrieving that money. Many other states and private creditors who funded him have hung around as vultures in the same way.

I express concern that the G8 leaders will not get to grips with Iraq's economic and debt crisis and will take the opportunity to shirk their responsibilities under the cloak of the Africa agenda. They may also pretend that the Paris club decision of last November has set the framework to meet those responsibilities and put Iraq on a sound footing. It has done no such thing. The headline figure was 80 per cent. debt relief, but that disguised much. First, the debt is hugely overblown by interest and arrears. Secondly, it takes no account of the massive ongoing reparation payments required by the United Nations Compensation Commission. Thirdly, there is debt owed to non-Paris club nations, which show no willingness to write it off. The same is the case with private creditors, to whom a large amount is owed. Put simply, the 80 per cent. does not cover the full $130 billion of Saddam-era debt. Furthermore, the Paris club relief, which will take place only in phases—over which time more interest will accrue—is highly conditional. After all that, Iraq would still be left with a debt and liabilities burden that would take half a century to pay off.

Set against the priority of paying off Saddam's debts is Iraq's enormous social crisis. We are talking about the doubling of child malnutrition and the deterioration of health and education provision and, indeed, of the country's vital infrastructure. The debt hampers—that is too kind a word—any Iraqi Administration's ability to tackle those problems. That adds fuel to the poor security situation and leaves a burning resentment among Iraqis who are ill-treated and robbed of their resources.

My hon. Friend the Minister will gather that I do not consider the Paris club deal agreed by his predecessor to be anything to proclaim. The morning after the debt package was announced, Saad Salih Jabr, the chairman of the Iraqi National Assembly's economic committee said in the Assembly:

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He was taking into account the factors that I have mentioned. The Foreign Minister, Hoshyar Zebari, said the reduction should have been higher

Jubilee Iraq, which has campaigned on the issue and to which I pay tribute, stated that the Paris club's offer

The IMF is imposing conditions that are draconian and bullying, and it is neglecting the social consequences. The conditions include privatisation and foreign ownership, the end of food rations and fuel subsidies, and restrictions on salaries and pensions. What a time to do that, when unemployment is so high, malnutrition rising, fuel shortages considerable and many Iraqi families increasingly vulnerable.

But the policy is even worse than that. It takes control over the economic situation away from any democratically elected Iraqi leadership. The Financial Times stated:

Naomi Klein, the author of "No Logo", stated in The Big Issue in December last year:

The Paris club has spurned that consideration.

The IMF is due to announce its stand-by agreement for Iraq soon. The agreement is required by the Paris club as a condition for debt relief. It should give details of the economic structural adjustment policies that are required. Can the Minister tell us what it contains and indicate the UK Government's position? For example, did they support the wholesale privatisation package?

The reparations bill, which was not taken into account by the Paris club, is gross. About two thirds of the claims have been settled at $46 billion, of which $19 billion has been paid from the oil for food fund. Five per cent. of Iraq's oil revenue is still used for reparations, even after the end of the oil for food programme. There was the irony of the UN calling for $259 million to meet a shortfall in humanitarian relief while its compensation commission simultaneously announced that it would take a further $600 million from Iraq this year.

Since the fall of Saddam, Iraq has paid more than $2 billion of reparations, much more than it has been able to spend on health care. Not reported in this country was the two-week fast outside the meeting of the United Nations Competitions Commission in Geneva recently to demand an end to unjust payments. One of the fasters, an Irishwoman named Caomihe Butterly, stated:

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I pay tribute to those protestors.

Then there is the odiousness of the debt, which consists of the personal debts of a particular regime, in this case Saddam's. There is legal precedent for debts to be classified in that way. They were contracted without the consent of the people, and the money was not spent in their interests. There was enough criticism of the regime over the years to ensure that all the creditors were well aware of what was being done with the loans that they provided. They bankrolled the regime's bullets, but now refuse to accept the consequences regarding the nature of the debt. Applying the odious debt law would send a clear message to those who would loan to dictators. George Soros has said that

The law should apply.

The Minister should not pray in aid the 2003 Madrid conference, at which aid promises for Iraq were made, as an excuse for there not being a full debt write-off. Few of the countries that attended that conference fully honoured their promises. In fact, the US led the backsliding by diverting funds promised for reconstruction to war fighting. All sorts of conditions have been added that have effectively halted allocations.

Another quirk of the Paris club debt relief is the fact that it has been classified in Treasury accounts as overseas development aid. So, there we have it: loans for the sale of guns to the dictator Saddam Hussein end up in UK accounts as development aid. That is quirky indeed.

Let me treat the Minister to four quotes from Americans whom I would not normally quote. The first is John Snow, the US Treasury Secretary, who said that

Right-wing Republican Richard Perle said:

Paul Bremer, the former US supremo in Iraq, said that the debt is a result of

and that mountains of unpayable debt contributed heavily to the instability that paved Hitler's path to power.

Finally, a US commanding General observed that last autumn there were up to 160 attacks a week in Sadr City, which is on the outskirts of Baghdad, but that in early 2005, the number levelled at less than five to zero a week. His point was that the key factor in that change was not winning battles, but cleaning the place up and restoring electricity, sewerage and water. They fought, but when they started delivering services that Iraqis in Sadr City had never had, the terrorist recruiting of 15 and 16-year-olds came up empty. The debt impedes the real way to achieve security.

I have one final quote from a source whom I cannot disclose. In his e-mail to me from Iraq, he said:

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That is an example of the IMF drunk with the power facilitated by the Paris club nations.

The debt and reparations still to be paid after the Paris club decision are not acceptable because they plunge the Iraqi people into poverty and hardship, because of their effect on Iraqi democracy and freedom, and because they do not give the post-Saddam Administration a clean slate and a clean start. The Minister, the G8 leaders, Paris club members and all creditor nations need to reconsider the Paris club formula. It simply is not good enough by a long way. There needs to be a 100 per cent. write-off of all of Saddam's debt. There should be no more reparations—indeed, there should be a UN resolution, pronto, to ensure that that is the case. There should be no more damaging conditionality of the sort that the IMF wants to impose, and there should be proper funding for reconstruction that involves, benefits and employs Iraqis. I say to the Minister, the Government and the G8 leaders, think again.

12.44 pm

The Financial Secretary to the Treasury (John Healey) : I congratulate my hon. Friend the Member for Leyton and Wanstead (Harry Cohen) on securing the debate and on taking us through his objections to the arrangements that have recently been put in place or that are in prospect to help Iraq to rebuild its economy and improve its economic position. He did so in the way that we have come to recognise and expect from him: he was very direct, forceful and clear in his criticisms of the approach taken by the international community and—by direct and indirect implication—of the role played by the United Kingdom Government. I shall try to respond to some of his specific points, not least because some of his assertions are not entirely correct. Then, I shall respond in more general terms and fill him in on the details of the present position and the prospects as I see them.

The Government accept that we have a special responsibility to Iraq, as my hon. Friend argued from the start. In part, that is a product of our historical relationship with that country; in part, it is in recognition of the special circumstances of Iraq's economy at present. My hon. Friend completely dismisses the value of the Paris club agreement, with the 80 per cent. debt write-off at its heart, but that view is not shared by elected representatives in Iraq. That is particularly true of the new Minister of Finance, who has been to the Treasury in the past month to meet my right hon. Friend the Chief Secretary to the Treasury. In that discussion, Mr. Ali Alawi made it clear that he and the Iraqi Government appreciate the UK's help in putting the Iraqi economy on a sensible footing and the work that we have done on the Paris club agreement. They also recognise that the aid that the UK is putting directly into Iraq is being put to good use. On our part, we welcome our close, continuing dialogue with the Iraqi Government. As my right hon. Friend made clear, we are ready to consider further requests from the Iraqi Government as part of our contribution to their country's reconstruction and economic rehabilitation.

I promised to pick up several of my hon. Friend's points that I felt were not strictly correct. First, no UK export credit guarantees were granted for weapons—there were no credit guarantees for the sale of guns, as
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he put it. Some guarantees were related to defence expenditure, but not to the purpose that he suggested. Secondly, as a result of the Paris club deal, debt is set to be restructured over 23 years, not 50, and no payments at all will fall due until 2008. Thirdly, as I am sure my hon. Friend appreciates although it did not come through clearly in his remarks, the International Monetary Fund programme to which he referred critically was negotiated with Iraq, not imposed on it. The stand-by agreement, to which he also referred, is in the process of being negotiated. Like other Governments, we must await the outcome of the IMF's negotiations with Iraq to see the SBA's precise content. My hon. Friend raised a couple of points about that, but, in all honesty, I would expect certain conditions and a reduction in fuel subsidies to be part of the stand-by agreement once it is settled with Iraq, for the simple reason that a system of subsidies such as the one for fuel in Iraq creates strong economic incentives for smuggling and corruption. I think that he, like me, would want that to be stamped out.

Harry Cohen : As I understand the point about fuel subsidies, it is the timing that is crucial, because there are extensive fuel subsidies at present and the Iraqi economy cannot get going. However, I want to draw the Minister out on the conditionality in respect of privatisation. Are the Government in favour of the IMF conditionality as part of the Paris club deal that there must be wholesale privatisation of the Iraqi economy?

John Healey : My hon. Friend is slightly overstating his argument, which, as I am sure he would accept, he is occasionally prone to do. Some stand-by agreements include an element of privatisation, but we do not yet know whether that will be an element of the SBA that is negotiated with Iraq through the IMF. We will simply have to wait and see.

My hon. Friend referred to odious debt law, but there is no such thing as established and accepted odious debt legislation. Were we to pursue the odious debt route, rather than doing what we have tried to do with the Iraqi Government—which has been to take a pragmatic, practical approach to quickly securing the debt relief and aid that the country needs—we would be likely to provoke a series of legal challenges that would tie up efforts to help Iraq for a decade or more.

My hon. Friend made a passing, welcome, reference to his strong support for the debt relief and aid programmes that the Government have put in place for Africa. He and I share a sense of pride that the Government have led the international efforts to put in place a comprehensive programme of significant levels of aid and debt relief for the poorest countries, including the recent fresh agreement among G8 finance Ministers.

Iraq is not considered to be one of the world's poorest countries. Nevertheless, as my hon. Friend pointed out, it faces immense social and economic challenges and hardships. Although Iraq's first democratic elections were an historic occasion, with 58 per cent. turnout and almost 8.5 million people voting, the upsurge of violence since the formation of the new Iraqi Government only adds to the challenges. Not only does Iraq face the challenge of establishing a truly inclusive political
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process, drafting a constitution that reflects its diversity and building security, but it faces a significant reconstruction challenge. Iraq has one of the largest estimated petroleum reserves in the world, but years of economic mismanagement, international sanctions and the recent conflict have hit economic activity hard. My hon. Friend vividly described the impact on Iraq's people. Social development that was once well ahead of the regional average has now well fallen behind to be one of the lowest.

Neither my hon. Friend nor the Government underestimate the challenges that Iraq faces in rebuilding the economy or the challenge that we face in trying to assist. Under Saddam Hussein, mismanagement and embezzlement of Iraq's resources was rife. The oil sector was starved of investment and the regime built up huge debts. Infrastructure, public services and industry were left in a poor state, unemployment was high and 60 per cent. of the population were dependent on food rations. Overall, GDP per capita is estimated to have fallen from more than $3,000 in the early 1980s to about $500 by 2003. It was then, through analysis by the IMF and World Bank, that Iraq's external debt—approximately $120 billion at that time—was judged to be unsustainable. The UK Government have therefore worked hard with the Americans and others to devise what we regard as a fair and sustainable solution to Iraq's debt problems.

We have also been at the forefront of international efforts to rebuild Iraq's economic institutions. In passing, I pay tribute to a number of officials from the Treasury and from HM Revenue and Customs who served for periods in Iraq to help with that rebuilding effort, in some cases putting themselves in danger in the process. Specific economic achievements have included some recovery in oil production, the stabilisation of inflation and the exchange rate, a financial management law, a new currency and an IMF emergency post-conflict assistance package of $436 million. However, by far the most important achievement with the most significant long-term gain was the negotiation of a debt relief deal with the new Iraqi Government. That is the view of the Iraqi Government, albeit not that of my hon. Friend.

The Paris club deal in November 2004 was an agreement to give to Iraq 80 per cent. debt relief, to be delivered in three tranches, linked to Iraq's economic reform. The first 30 per cent. tranche of relief was delivered on 31 December 2004. More than £340 million of Iraq's debt to the UK has already been written off. Part of the Paris club agreement was a moratorium on debt repayments until 2008, and part was a rescheduling of debt over 23 years. The latest reports from Iraq indicate that good progress is being made with other creditors, and even though a number of technical issues have to be resolved we feel that the risk of Iraq's not achieving comparable treatment with its other creditors, which was one of the conditions of the deal, is low.

Once the agreement is fully implemented, Iraq is expected to receive almost $100 billion of debt relief. The US and a few other creditors have offered to give 100 per cent. debt relief; we welcome that generosity, but we have taken a different view. The UK intends to focus its resources on maximising the immediate benefits to the Iraqi people through aid, and we have pledged $544 million in direct aid over three years to March 2006. That money is being put to good use now,
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as the Iraqi Finance Minister made clear to my right hon. Friend the Chief Secretary when they met last month. It is being used to rebuild facilities and to set up new infrastructure and new institutions, particularly in southern Iraq, as well as to provide support to key ministries of the new Government. If the UK offered 100 per cent. bilateral debt relief, some of that aid money would have to be diverted, Iraq would not feel the benefit of further debt relief until 2008 because of the moratorium on payments, and the benefits would be spread over 23 years, rather than concentrated now, when the need is greatest. However, as I said to my hon. Friend, we have an historical relationship with Iraq and therefore stand ready to consider any request for aid or debt relief that the Iraqi Government might make of us.

Despite the difficulties, there is real hope of progress and hope for the future of Iraq. It is not merely a country beset by severe economic difficulties but one with the prospect of and potential for a sound economic future. However, my hon. Friend will recognise that the deep damage done by decades of a repressive regime cannot be rectified in one, two or three years. It will take time to build Iraqi institutions and to improve infrastructure, and for the private sector to flourish. We hope that by 2008, Iraq will be in a position not only to start repaying the remaining debt, but to become the major economy in the region that it once was.

My hon. Friend said that the Paris club debt relief deal was not acceptable to the Iraqi people, but it is acceptable—

Mr. Jimmy Hood (in the Chair): Order. Time is up.

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