Baker and Iraq’s debts

James A. Baker III is President Bush’s debt envoy, assigned to renegotiate Iraq’s huge foreign debt. The debt certainly needs restructuring, and Mr. Baker should know a lot about the subject. He helped enlarge the debt and keep it large as secretary of the treasury in the 1980s and secretary of state under the first George Bush.

James S. Henry, a lawyer/economist/journalist, reports Mr. Baker’s connection with the Iraqi debt in a paper titled “Restructuring Iraq’s Foreign Debt – Let’s Hope this ‘Baker Plan’ is more Successful.” He contends that if Iraq’s debt had been restructured when Mr. Baker was secretary of state, Saddam’s 1990 invasion of Kuwait, and the U.S.-led invasion and occupation of Iraq might well have been avoided entirely.

Mr. Henry reports that Mr. Baker actively encouraged the U.S. Department of Agriculture to lend Saddam nearly $5 billion through its commodity credit program. The loans supported exports of American wheat and rice, but their real purpose was to curry favor with the Saddam regime and help it buy weapons.

Much of the present debt is owed to Kuwait, Saudi Arabia and the Gulf States, and was incurred to fight Iran and its threatening populist fundamentalism. Iraq’s eight-year war against Iran not only threw Iraq deeply into debt, it also wrecked its economy, caused hundreds of thousands of casualties and left it burdened by l million soldiers under arms.

Kuwait and Saudi Arabia insisted on full repayment and stepped up oil production, thus driving down Iraq’s oil revenues. Mr. Henry argues that Iraq’s invasion of Kuwait was a desperate attempt to rescue Iraq’s economy. He contends that Mr. Baker could have prevented the invasion of Kuwait by pressuring Kuwait and Saudi Arabia to restructure their loans then.

This is all water over the dam, of course, and Mr. Baker’s mission must succeed if Iraq is to emerge from occupation with a reasonably healthy economy. Restructuring, at this late date, may be too mild a concept. Some debts may have to be forgiven.

Estimates of the total debt vary widely. The World Bank put it at $128 billion as of 1998. Mr. Henry says $47 billion of that figure should not be charged against Iraq because it is for interest accrued in the 1990s, when sanctions interfered with any Iraqi effort to repay debt. That would leave a total of $81 billion, of which $47 billion is the unrepaid loans from the Arab kingdoms. Other debts include $13.5 owed to the former Soviet bloc and $19 billion to France, Germany and Japan and other first-world countries.

So, Mr. Baker is off on an important mission. Fortunately for that mission, the appointment needs no Senate confirmation, so there should be no embarrassing hearings on those ironies of 15 and 20 years ago.