The New York Times carried an extremely misleading headline for its lead story on November 22, 2004. The headline read, "Major Creditors Agree to Cancel 80% of Iraq Debt." Debt forgiveness is something that is very much sought after by struggling nations (just ask Bono), since money that does not have to be paid to foreign creditors can instead be used to rebuild crumbling infrastructures and to meet other domestic needs. Since Iraq is now a nation with no infrastructure to speak of, an agreement by its foreign creditors to forgive 80% of its debt would be a very good thing indeed.
Upon reading the November 22 story in more depth, however, one realizes that this is much less of a good thing. In fact, it's not a good thing at all. The agreement to cancel 80% of Iraq debt was made not by all of Iraq's creditors, but only by certain nations belonging to the so-called "Paris Club" (sort of a high-end version of "Sam's Club" for big international creditors). This group consists of large industrialized nations such as France, Germany, Italy, Japan, and Russia. The members of the Paris Club hold only about one-third of Iraq's overall foreign debt ($40 billion out of roughly $120 billion in foreign debt). Thus, a more accurate headline in the Times would have read, "Major Creditors Agree To Cancel 80% of One-Third (About 27%) of Iraq Debt," which would not have sounded anywhere near as impressive.
Who holds the other two-thirds of the Iraqi debt that is not being forgiven? None other than BushAmerica's good buddies the Arab oil sheikdoms, primarily Saudi Arabia and Kuwait. And in addition to the $80 billion in Iraq debt held by the Saudis and the Kuwaitis, they also hold another approximately $40 billion in "reparation" claims against Iraq dating back to the first Gulf War. So far, the Saudis and the Kuwaitis aren't forgiving anything.
Thus, Saudi Arabia and Kuwait are the real beneficiaries of the Paris Club's agreement to forgive Iraq's debts. Since Iraq's debts to the Paris Club nations will be reduced by 80%, Saudi Arabia and Kuwait move to the front of the line of Iraq's creditors and can now claim first dibs on whatever money Iraq will be able generate when it eventually re-builds its oil industry.
The conferring of this multi-billion dollar benny upon Saudi Arabia and Kuwait is rendered even more offensive when one considers where all these Iraqi debts came from. We all know about Saddam Hussein's reign of terror -- the torture, the use of poison gas against Iran and the Kurds. How did Saddam Hussein bankroll all of these atrocities? By borrowing the money from the Saudis and the Kuwaitis, of course. Thus, the very nations that enabled Saddam Hussein to do all of the evil things that he did by loaning him billions of dollars, are now the principal beneficiaries of the debt restructuring brought about by Saddam Hussein's removal from power.
Why am I so interested in the subject of Iraqi debt forgiveness? The reason is because it presents one of the most egregious examples of conflict of interest that the Bush Administration has yet presented, which, considering the history of the Bush Administration, is really saying something. The conflict of interest in this case, however, has gone almost completely ignored in the mainstream media.
In December 2003, Bush appointed former Secretary of State James Baker as the U.S. government's special envoy to negotiate Iraq debt forgiveness. Baker has concentrated most of his energy on twisting arms in Europe and Japan to secure agreements to debt forgiveness. It is those efforts by Baker that have now culminated in the Paris Club agreement recently trumpeted by the Times. Baker has been far less aggressive, to put it mildly, in trying to get the Saudis and the Kuwaitis to agree to debt forgiveness, and as noted, thus far, they haven't agreed to forgive anything. Why do you suppose that is?
Well, it turns out that James Baker is the senior partner of his family's Houston law firm, Baker & Botts. One of the most significant clients of Baker & Botts is none other than the government and royal family of Saudi Arabia. Baker and the firm also have very close ties to the government of Kuwait (and the firm also represents Halliburton, just to complete the cycle). Thus, what Baker has been doing is using the power of the U.S. government to negotiate debt forgiveness deals with the Paris Club that primarily benefit -- to the tune of over $80 billion -- the private clients of his law firm, namely, Saudi Arabia and Kuwait.
I have no idea what kinds of blandishments Baker has been offering to the Paris Club members in order to entice them to go along with this boondoggle. Whatever it is, I suspect that it is likely to be very expensive to U.S. taxpayers. Nevertheless, there is a possibility of a monkey-wrench being thrown into the works, and that monkey-wrench may come from a predictable source. The French government has attempted to condition its agreement to the 80% debt reduction on the existence of agreements to similar levels of debt reduction coming from Iraq's creditors in the Persian Gulf. So far, that ain't happening.
If the French and others continue to press for such reciprocal debt forgiveness by the Saudis and the Kuwaitis, I suspect that Bush/Baker and their cronies will have a Plan B to deal with that contingency. You got a little glimpse into how such a plan might work in a much-ignored story that leaked out in the press last October, shortly before the election. Naomi Klein of The Nation reported that a consortium of private investors had approached the government of Kuwait with a proposal for dealing with the prospect of having its arms twisted by the U.S. to agree to some level of Iraqi debt forgiveness. (The story was picked up by the Guardian in the U.K. and briefly reported by MSNBC). Under the proposal, the private consortium would purchase Kuwait's Iraq debt at a discount, thereby insulating the debt from pressure for debt forgiveness. For a substantial fee, the consortium would then use its connections with the U.S. government to procure compensation for Kuwait for having surrendered its debt at a discount.
One of the major participants in the consortium was to be the legendary Carlyle Group, of which Baker himself is a principal. Others associated with the Carlyle Group include George Bush Sr. and John Major. While a spokesperson for Carlyle claimed that Baker would not benefit from the proposal personally, there was no question that the deal would have been extremely lucrative for Carlyle, including the obtaining of a $1 billion direct investment in Carlyle by the Kuwaiti government.
Interestingly, the Albright Group (headed by Madeline Albright) was also to have participated in the consortium, indicating that the planners of the scheme wanted to hedge their bets on the outcome of the election. This may also be the reason why the Democrats did not make an issue of all of this during the campaign. Everyone, including Albright and Carlyle, bailed out of the proposal as soon as any publicity, no matter how slight, came out.
Now that the election is over, however, I would not be at all surprised to see the resurrection of such a scheme. I would also not be surprised if the mainstream media ignores it.
