Funds to rebuild Iraq are likely to be scarce WAR IN THE GULF

March 04, 1991|By Stephen E. Nordlinger | Stephen E. Nordlinger,Washington Bureau of The Sun

WASHINGTON -- Iraq, once a major power in the Middle East and a leading oil exporter, is emerging from the war with its economy so devastated that experts estimate reconstruction may cost $200 billion -- twice the expected cost of rebuilding Kuwait.

But these authorities said that no funds for reconstruction would be forthcoming from the leading industrial nations while President Saddam Hussein remains in power or if subsequent rulers attempt to resurrect Iraq's military force.

Unlike Kuwait, which has billions of dollars from its vast oil wealth invested overseas and now available to finance reconstruction, Iraq entered the war deeply in debt to foreign lenders, despite its large oil reserves.

Even when its oil production is restored, Iraq may not be able to use much of this revenue for rebuilding because the allied powers expect Baghdad to pay reparations to Kuwait for the enormous damage its military forces inflicted.

The governor of Kuwait's central bank, Sheik Salem Abdul-Aziz al-Saud al-Sabah, said in a Reuters news agency report that his country might demand Iraqi oil as part of reparations.

"Iraq is a very rich country," he said. "We are not asking for immediate repayment, but staggered over time . . . they can easily produce 2.5 million barrels a day."

Before the war, Iraq was the world's second-largest oil exporter, behind only Saudi Arabia. Iraq exported from 3.5 million to 4 million barrels a day.

But much of Iraq's oil production and loading terminal facilities are believed to have been damaged extensively by allied bombing.

Iraq's deputy prime minister, Saadoun Hammadi, has put the damage at $200 billion, the only official estimate, and experts here think that figure may turn out to be correct.

In the 1980s, as Iraq moved rapidly to become a military and economic force in the region, it spent $160 billion on infrastructure. Assuming that most of those facilities were severely damaged or destroyed, a Treasury Department official said, it would cost considerably more than $160 billion in 1991 dollars to rebuild them.

But where such funds would come from and when remain far from clear.

"Don't look to Uncle Sam to make any real contribution," said Marvin Feuerwerger, senior strategic fellow at the Washington Institute for Near East Policy. "We simply don't have the money."

Some believe that Japan might be a likely source. Japan was the largest aid donor to Iraq before it invaded Kuwait Aug. 2.

According to reports in Tokyo newspapers, Japan is considering investing in the mammoth reconstruction of Iraq, an effort that could give it an influential voice in the Middle East.

But the Japanese Embassy here declined to confirm these reports, and U.S. experts, including Mr. Feuerwerger, doubted that Japan or other countries would make any significant commitments for some time.

Eventually, the industrial world and the Arab nations are expected to carry out the reconstruction, most likely spread over many years.

"What happens will depend on the character of the government in Iraq, but the primary source of funds will be Iraq's oil revenue and outside official help," said Sharif Ghalib, a Middle East expert at the Institute of International Finance, which represents major commercial banks. "It is not at all clear that private investment is going to be available for some time."

Secretary of State James A. Baker III has proposed a multinational reconstruction bank to help stabilize the economies countries throughout the Middle East, including Iraq under acceptable new leadership.

Saudi Arabia and other wealthy oil-producing countries in the region would provide 60 percent of the funds for such a bank.

But Saudi Arabia, despite being the region's largest oil producer, has been hard-pressed itself by the costs of the war. Indeed, with their cash reserves depleted, the Saudis may seek large loans from international banks for the first time.

As an indication that the idea of a regional bank may be dying, British Foreign Secretary Douglas Hurd said last week that it was not discussed at his meeting with Mr. Baker.

The World Bank is also not an avenue of funds for Iraq. A spokesman said Iraq became ineligible for aid after it fell $37 million in arrears on interest payments in November.

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