Arab states still wary of investing in Iraq

Before the rule of Saddam Hussein, Iraq was the most highly developed country in the Arab world. During his brutal reign, the country was the recipient of vast sums of money from the United States and the Persian Gulf Arab states, eager to finance a rival to Iran.

But five years after the overthrow of "the Lion of the Arabs," and his replacement by a Shiite and Kurdish-led democracy wracked by violence, Iraq remains an outcast in the Arab world. It owes between $56 billion and $80 billion in foreign debt – mostly to neighboring countries – which Prime Minister Nouri al-Maliki entreated them to forgive at a UN conference on Iraq in Sweden Thursday.

Most Sunni Arab governments say they are still too concerned about Iraq's security environment to open embassies in Baghdad or invest there.

"The region has got to wake up to the reality that there was a real, fundamental change in Iraq," insisted Adil Abd Al Mahdi, vice president of Iraq, at the World Economic Forum of the Middle East earlier this month. "This is not going to go away. Everyone had better deal with it now."

Arab states have steered clear of devoting resources or personnel to Iraq since a car bomb attack on the Jordanian Embassy in 2003 killed 17 people. The kidnapping and murder of the Egyptian ambassador in 2005 reinforced that position.

Since then, the US troop surge and establishment of the Sunni Awakening Movement have made significant progress in reducing insurgent attacks. But Arab officials say they are still uncertain about the staying power of the new Iraqi government.

"The Arab states have been waiting," says Hoshyar Zebari, foreign minister of Iraq. "For a long time, they were not convinced that Iraq was going to come out of this turmoil, but we have stood our ground."

Gulf Arab states, which helped fund the 1980-88 Iran-Iraq war, hold about half the country's remaining outstanding foreign debt. About $66.5 billion of debt has already been forgiven, according to US State Department estimates, most of that from members of the Paris Club, a group of the world's 19 wealthiest nations.

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