Wednesday, December 24, 2003

The Bargaining Chip 
Here’s one of Salon’s bloggers, Scott Rosenberg, joining the gleeful pileon over Iraqi reconstruction contracts v. debt forgiveness, in a December 11th post:

Bush's and Baker's new Iraq debt-relief initiative has its knees kicked in before it even starts, as Russian and other leaders scorn the U.S.'s overtures…

Much of this sorry affair is chronicled in today's New York Times. As one official puts it in the Times: "What we did was toss away our leverage." In the short term, it means that Bush will have a much harder time trying to ease Iraq's debt burden; in the long term, it means that the total cost of the Iraq adventure to the deficit-strapped American people will end up far higher.

Is revenge against perfidious "old Europe" -- and lucrative contracts for former employers and pals of Bush and Cheney -- more important than building a financial coalition to share the prodigious cost of Iraqi reconstruction? Or is the train wreck more simply a sign of an administration that can't coordinate important policies at the most basic levels?

Whatever the answer, shouldn't we expect our executive branch to not trip itself up in such bizarrely self-defeating ways?

How's that Kiwi shoe polish tasting, Scott?

Since then, of course, France and Germany have agreed to consider forgiving or restructuring Iraq’s debt, and Russia just offered to completely write off up to half of Iraq’s $8 billion dollar debt to his former patrons. Other members of the Paris Club of creditor nations are talking 90%, according to the Wall Street Journal.

No, Rosenberg doesn’t revisit the issue, although he does find time to devote a couple of paragraphs to the axis of evil of public speakers who read their own slides.

What Rosenberg and others have failed to grasp is that the decision to forgive Iraq some or all of its debt has a logic entirely separate from the comparatively minor issue of reconstruction contracts. Russia, France, and Germany could all read the writing on the wall—their fist-full of Iraq’s star-crossed bonds was rapidly becoming a poster child for odious debt syndrome.

Iraq’s economy has no hope of servicing the debt on its own. The secondary market for Iraq’s debt is about as liquid as a bowling ball. The Paris Club’s fist-full of Iraqi paper was losing value by the day. And everybody knows that absent a major restructuring of the debt in advance, Iraq was going to restructure it for them by defaulting, under the political cover of odious debt. And Russia couldn’t say a word in protest—they defaulted on their own debt themselves as recently as 1998.

The Axis of Weasels was on the wrong side of the bargaining table, and on the wrong side of history here. They and their bankers were faced with a choice: either short-circuit any odious debt default by appearing magnanimous now, or have the Iraqi Governing Council simply tell them to put the full amount of their Saddam debt paper to its highest and best use by wiping themselves with it, as soon as they regained sovereign authority to do so early this summer.

That was the real bargaining chip all along.

Splash, out,


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