NCPA - National Center for Policy Analysis

Iraq's Post-War Debt

April 3, 2003

Once the war is over, the nation of Iraq will be burdened with debt so enormous as to pose a huge obstacle to reconstruction, economists warn.

Saddam Hussein borrowed heavily to finance his war with Iran, the invasion of Kuwait and the first Persian Gulf war. On top of this, the United Nations Compensation Commission received $320 billion in claims for damages against Iraq related to its invasion of Kuwait.

The upshot is that Iraq's total potential obligation -- from war-related compensation claims, foreign debt and pending contracts -- is $383 billion, according to a report by the Center for Strategic and International Studies.

  • That works out to be $16,000 for every man, woman and child in a country with a per captia gross domestic product of only $2,500.
  • If 50 percent of Iraq's future export income is applied to paying down the debt, it would take more than 35 years to pay off current obligations fully.
  • If Iraq defaults on its debt, foreign investors would avoid putting their capital into the country.

To allow Iraq a chance to recover, the report recommends a five-year moratorium on external debt. Other economists go even further, suggesting that debts incurred by all illegitimate, repressive regimes be made nontransferable to successor governments.

Economic historians are invoking parallels in the case of Iraq with how Germany was treated following defeats in two world wars. Harsh economic terms after World War I, they say, paved the way for Hitler. More enlightened treatment following World War II set the stage for swift and dramatic national recovery.

Source: Alan B. Krueger (Princeton University), " What Will Be the Model for postwar Iraq -- Germany After World War I of World War II?" Economic Scene, New York Times, April 3, 2003; based on Frederick D. Barton and Bathsheba N. Crocker, "A Wiser Peace: an Action Strategy for Pos-Conflict Iraq," January 2003, Center for Strategic and International Studies.

 

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