At the end of World War I, John Maynard Keynes, later to become the founder of modern macroeconomics, returned from the Versailles Treaty negotiations disappointed by the outcome and wrote a forceful little book, The Economic Consequences of the Peace. Its message was simple: the burden of reparations imposed on Germany would lead to economic crisis and social and political turmoil—and the result would not be good for Europe. Keynes turned out to be right.
Today, after a decade of isolation and a devastating war, Iraq faces the daunting task of reconstructing its economy while moving from a form of ersatz socialism to market capitalism. The United States waged war in Iraq without significant assistance from other countries, spending $80 billion or so on ordnance, equipment, humanitarian aid, and troops, and has so far remained almost alone as it tries to make peace. Now, the Bush Administration argues, it is time for others to pitch in. The important thing at this point, U.S. officials suggest, is to get Iraq on its feet again economically, because then the country will be able to tap into its immense oil wealth, making further international assistance unnecessary.
The problem is that Iraq today is encumbered by huge debts—with estimates totaling anywhere from $60 billion to the hundreds of billions, which includes reparations imposed on the country after the 1991 Gulf War, earlier debts incurred because of ammunition purchases, and obligations assumed under contracts signed during Saddam Hussein's regime. As Iraq's oil starts to flow again, much of the revenue it generates may go directly into the hands of international creditors, greatly impeding reconstruction efforts. Iraq needs a fresh start, and the only real way to give it one would be to free the country from what some call its "odious debts"—debts incurred by a regime without political legitimacy, from creditors who should have known better, with the monies often spent to oppress the very people who are then asked to repay the debts. Most of Iraq's current debt was incurred by a ruthless and corrupt government long recognized as such—although complicating the matter is the fact that the Iraqi regime appears to have received some support from the United States under Ronald Reagan.