Thu, 02 Oct 2003

Funds needed for poverty, not Iraq

Jeffrey D. Sachs, Professor of Economics, Columbia University, Project Syndicate

America wants the world to pledge billions of dollars to Iraq's reconstruction at a donor's meeting to be held in October in Madrid. The world's answer should be an unequivocal "No!" Iraq's long-term reconstruction does not need foreign financial assistance. What it needs is a political settlement, and that will be possible only with the withdrawal of America's occupying army. The billions of dollars that the U.S. seeks should be directed towards true global emergencies, such as the fight against the Acquired Immune Deficiency Syndrome and hunger.

The Bush Administration probably launched its war against Iraq because it intended to make the country a new base for long-term military operations in the Gulf region. After the terrorist attacks on the U.S. of September 2001, it wanted to withdraw troops from Saudi Arabia, and it presumably chose Iraq as its new long-term base of operation. This is why America is so opposed to a quick transfer of sovereignty to Iraqis. A truly sovereign Iraq might well tell the U.S. to withdraw from the country.

As long as America remains an occupying force in Iraq, political stability there is unlikely. Without political stability, Iraq's economic recovery is unlikely, too.

The U.S. is seen by many Iraqis as a colonial occupier, and is therefore the target of attack not only by loyalists of Saddam Hussein, but by Iraqi nationalists of various sorts, as well as by Arab fighters from neighboring countries.

The attacks against the U.S. occupation are destroying the Iraqi economy as well as lives. The attackers have successfully stopped the flow of a large part of Iraq's oil exports. Indeed, Iraq is reportedly pumping 1 million to 2 million barrels of oil a day rather than the 2 million to 3 million barrels that the country could quickly achieve in peaceful circumstances.

This shortfall in oil earnings, not the lack of foreign assistance, is the real cause of Iraq's financial crisis. Each reduction of one million barrels per day translates into lost revenues of around US$30 million per day at today's world market price of $30 per barrel. This implies that if Iraq increased its oil exports by one million barrels a day -- which it could quickly achieve with a cessation of attacks on its infrastructure -- it would have around $10 billion per year in additional revenues to begin reconstruction.

Iraq's oil production could probably rise to around five million barrels per day within three years. That would represent an extra 3 million to 4 million barrels per day on top of today's production, or roughly $30 billion to $40 billion per year -- enough not only to restore basic services, but to achieve big improvements in living standards and economic growth in the medium term.

At that level of production, Iraq would be a middle-income country, with a gross national product per person of several thousand dollars per year, including non-oil production. It would not need official development assistance at all.

The biggest costs in Iraq are not for reconstruction but for U.S. troops. America is paying an astounding $51 billion per year to station 140,000 troops there, a staggering cost of around $360,000 per soldier per year. The U.S. could save itself tens of billions of dollars per year by withdrawing its troops from Iraq. If the U.S. were then to give just a fraction of the financial saving to Iraq in 2004, there would be plenty of incremental revenues to run the Iraqi government and to support the recovery of oil production.

By focusing global attention on an economic crisis that does not really exist, it has diverted attention from serious crises that do. The world would cheer if the U.S. called upon the October donor meeting to address truly life-and-death issues like the battle against AIDS and hunger.

Consider the battle against AIDS, tuberculosis and malaria. Around eight million impoverished people will die of these three preventable and treatable diseases in 2004. In 2001, the world created a Global Fund to Fight AIDS, TB, and Malaria. Yet for fiscal year 2004, the Bush Administration is committing $71 billion to Iraq and just $200 million for the Global Fund.

For every dollar that it is giving to the Global Fund, the Bush Administration is committing $350 to Iraq. These are grotesquely distorted priorities. Worse, the U.S. is encouraging other donor countries to misspend as well.

It's time for the world to tell America some hard news. Other countries won't pay for America's occupation of Iraq. The U.S. has to make clear that it plans to withdraw its troops quickly and entirely. Moreover, the U.S. should stop wasting so much money on military spending and redirect its efforts towards the world's poorest people. That's a financial effort that the world can and should join.