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Iraq: Donors Pledge Billions To Rebuild The Country, But How Much Money Will Actually Arrive, And When?

Billions of dollars have been pledged to Iraq to help the war-torn nation rebuild. But questions remain about whether such aid will come in the form of grants or loans, and how soon the money will actually arrive on the ground to help the beleaguered population.

Prague, 30 October 2003 (RFE/RL) -- At a conference last week in Madrid, international donors pledged about $13 billion in assistance to Iraq, adding to the $20 billion already pledged by the U.S. for reconstruction.

Despite appeals by the U.S., much of that aid is being offered in the form of loans, not grants. Many nations who did not support the U.S.-led invasion but who want to see Iraq prosper believe the country's untapped oil wealth will allow it to eventually repay the loans.

Paul Cornish, the director of the Center for Defense Studies at King's College in London, explained: "There has been discussion about the difference between direct grants and loans, and about whether enough of the money is simply being given and whether or not too much of it has actually been lent. Because, of course, if Iraq has got this struggling economy that is going to take a generation to recover, then it is going to be another burden on that economy to be lending the money and expecting it back with the interest rates and so on."

The situation was complicated when some U.S. lawmakers also expressed their desire to see half of Washington's assistance to Iraq be in the form of loans. U.S. President George W. Bush threatened to veto any such measure.

In remarks earlier this week, Bush appealed to U.S. lawmakers and donor nations not to add to huge Iraqi debts incurred under the ousted government of President Saddam Hussein. "The money we provide Iraq ought to be in the form of a grant, and the reason why is we want to make sure that the constraints on the Iraqi people are limited so that they can flourish and become a free and prosperous society," he said.

U.S. State Department spokesman Adam Ereli said: "The loan issue is an issue. It is something we are going to be working on."

Heeding the administration's call, congressional negotiators finally agreed yesterday to the idea of giving all U.S. aid to Iraq in the form of grants.

As another form of aid, Ereli said the U.S. will also be focusing on convincing other countries to write off debt incurred by the previous government in Baghdad. The World Bank estimates Iraq's foreign debt at $120 billion. That makes it the world's highest debt rate per capita.

World Bank President James Wolfensohn said yesterday that at least two-thirds of Iraq's debt needs to be written off if the country has any chance of succeeding economically. "It will need to be at least that to give the country a real chance of getting back to equilibrium," he told the National Press Club in Washington. Wolfensohn said the World Bank is still trying to clarify how much of the money pledged in Madrid will be in the form of gifts.

But even if Iraq does receive more assistance in the form of grants, foreign aid is often offered with certain conditions attached, further complicating the flow of assistance. "And even when we are talking about money that's been granted, that's been given, the question there is whether it's been tied or made conditional," Cornish said. "In some cases, the money is simply been given into the pot. But in other cases, it is being said, 'We want this money to be used for this reason or that activity.' So that's another area that's got to be established."

Cornish said donors in Madrid could choose between two paths for their funds -- giving directly to the U.S.-led Coalition Provisional Authority (CPA) in Iraq or a special UN fund set up to accommodate those donors who did not want to be seen as contributing directly to the occupation force.

"You are either giving the money directly to the Provisional Administration, in other words, the administration that's been organized by the Americans, or you are giving it to the United Nations. It is, in a way, tied aid," he said. "It's saying, 'We'll give the money provided we see more evidence of the UN taking over administrative functions.' And the other possibility would be to provide money or financial support to Iraq through some sort of international [nongovernmental organizations], such as the Red Cross, provided they all stay there that long."

Before the donor conference in Madrid, some nations -- notably in Europe -- had indicated their preference for providing aid through the UN's so-called multidonor fund. European Commission spokesman Diego de Ojeda spoke for many nations when he said: "So we think it is most efficient if all donors will contribute through this fund and that the managers of which -- basically the UNDP [United Nations Development Program] and World Bank -- will then administer as needs arise."

Whatever path the donated aid takes, it is unlikely to arrive in Iraq immediately but will be delivered in tranches over time, sometimes dependent on certain benchmarks being met by the Iraqis or the CPA.

"In most cases, I suspect, you are not going to see a check being written out for $5 billion. What it's going to be is, 'We'll provide you this amount each month. Or you get this amount for the first six months. And if we think it's going well enough, we'll give you next installment.' So, again, there are more conditions attached," Cornish said.

Many development officials are fearful that, in the end, the nations pledging aid to Iraq might not live up to their promises due to these preconditions. That happened, at least in part, with the $5 billion promised for Afghanistan at a donors conference in early 2002. Less than half of that money is reported to have reached Afghanistan so far.

But Cornish is optimistic about Iraq's chances of achieving long-term international commitment to its reconstruction. "To be quite frank, as far as most of the international community is concerned, Afghanistan is just nothing like as important as Iraq," he said. "If Iraq isn't reconstructed and stabilized, then you got this festering problem right in the middle of the most volatile region in the world. And for that reason, I think, actually, people aren't going to say, 'Well, it's going well enough or I'm not interested anymore.' People are not going to lose interest in Iraq. It is so crucial. And I don't think you could say the same thing about Afghanistan."

Given this suggestion, more developments on reconstruction assistance to Iraq can be expected fairly soon. Wolfensohn said yesterday that the donor meeting in Madrid was what he called a "good start" and that another donor meeting may follow.

The $33 billion pledged at the Madrid conference over the next four years in Iraq was only about half of the $56 billion that experts estimate it will take to get the country back on its feet.