NCPA - National Center for Policy Analysis

Congress Debates Loans or Grants to Iraq

October 15, 2003

Some in Congress are demanding that U.S. assistance for reconstruction of Iraq be extended in the form of loans to be repaid by its future government from oil revenues, instead of outright grants, as the Bush administration proposes.

Asking Iraq to repay the United States $20 billion in reconstruction aid has obvious public appeal, says USA Today, but demanding reimbursement for rebuilding the devastated nation jeopardizes efforts to establish a prosperous Iraq. And forcing Iraq to accept a loan before it has a sovereign government smacks of heavy-handed colonial rule.

The aid would go for such things as restoring water facilities, upgrading health clinics and creating a modern banking system. Among the problems a loan would pose:

  • A new Iraqi government will already face a staggering foreign debt of as much as $130 billion accumulated by Saddam Hussein, plus $100 billion in reparations owed from the 1991 Gulf War.
  • The Bush administration wants other nations and international organizations to contribute another $35 billion or more to rebuild Iraq -- but those nations could question why they should pledge large contributions to a fund that might be used to repay the United States.

On the other hand, loan supporters point out, Iraq has oil reserves valued at $3 trillion -- the second largest in the world.

Source: Editorial, "Forced U.S. loans could crush Iraq's rebuilding," and Bart Gordon, "Loans Make Sense," both USA Today, October 15, 2003.


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