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Iraq Sees Prospects Brighten for Financing Reconstruction

By Marian HoukSpecial to The Christian Science Monitor / April 17, 1989



BAGHDAD

DESPITE continuing concerns in the international business community, new optimism is being expressed in Iraq about the country's ability to finance its ambitious postwar reconstruction program. Iraq's cash crunch is easing, an official in the Ministry of Planning says. Forgiveness of war debt, barter arrangements, a stronger currency, and plans for an arms export industry all contribute to the official confidence.

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Still, the expected flood of international businessmen seeking postwar contracts from Iraq has been only a steady trickle due to wariness about Iraq's overall indebtedness. Iraq is currently curbing nonessential imports because of a shortage of foreign currency reserves, and the government has reportedly fallen behind in some of its payments.

``They've been robbing Peter to pay Paul,'' a Western diplomat says.

No official figures are available, but international banking sources have estimated that Iraq owes Western banks nearly $30 billion. Gulf countries, primarily Saudi Arabia and Kuwait, provided $50 billion to $60 billion to Iraq's war effort. But Iraqi officials claim the Saudi and Kuwaiti debts are now being regarded as grants (see story above).

In addition, Saudi Arabia and Kuwait have announced further contributions to the reconstruction of the port cities of Basra and Faw. Saudi King Fahd has also promised to finance the rebuilding of the Iraqi nuclear power plant in Baghdad, which was destroyed in a 1981 Israeli air raid.

Iraq intends to develop an arms industry - one that will be in competition with Egypt, Iraq's partner in the newly formed Arab Cooperation Council (which also includes Jordan and North Yemen).

Iraq is preparing to hold its first International Arms Fair in Baghdad on April 28. It has announced that 120 companies from 26 countries have agreed to participate, including France, West Germany, China, and several Latin American nations.

The United States, however, will not participate, according to an official at the US Embassy in Baghdad, because of existing restrictions placed on military exchanges with Iraq during the war.

Iraq's deputy foreign minister, Nizar Hamdoon, told the Monitor that the purpose of the fair is to present to the international market the arms technology that Iraq developed during the war. He suggested that the Iraqi arms industry could develop into an important source of revenue.

Iraqi officials said the country is not counting on any major increase in oil revenue. They insist that Iraq is sticking to its production quotas assigned by the Organization of Petroleum Exporting Countries.

However, Iraq, with the world's second-largest proven oil reserves after Saudi Arabia, fought hard within OPEC to be granted production parity with Iran, a country with three times Iraq's population. Indications are that the price of oil may be on the rise.

Ghassan al-Aftan of Iraq's Planning Ministry says Iraq's military expenditures have shrunk. ``The feeling on both sides is that the war is over ... and war costs money. Now, we don't need such an allotment.'' As the Iraqi Army is demobilized, the government will have fewer men to feed, clothe, and house.

Iraq apparently intends to give some of its neighbors, including Jordan, oil in repayment of the costs for Jordanian transshipment of Iraqi imports and exports during the war.

Iraq has also reportedly concluded a number of non-cash commodity exchanges with outside suppliers of consumer goods to help relieve its cash position. And other regional suppliers are beginning to show signs of renewed confidence in the Iraqi economy.

The manager of the newly repaired Sheraton Hotel in Basra said that he has located a Kuwaiti supplier of foodstuffs for his hotel who is willing to accept payment in Iraqi currency. In trading on the Kuwaiti exchange, the Iraqi dinar has reportedly risen from 37 cents to 55 cents in the past year. The official rate of the dinar in Baghdad, however, is still more than $3.