The International Monetary Fund (IMF), one of the most powerful architects of the world economy and controlled by the planet’s wealthiest nations, marked its return to U.S.-occupied Iraq with a new loan worth $436 million.
The IMF Executive Board approved the loan late Wednesday as Emergency Post-Conflict Assistance (EPCA), to the loud praise of the United States, the main power broker in the Arab country.
"This action by the IMF Executive Board is an important milestone in the international community’s support for Iraq," said secretary of the U.S. Treasury, John Snow, in a statement Thursday.
The White House has worked hard to generate good news from Iraq where more than 100,000 U.S. soldiers fight to quell a deadly, growing insurgency prior to the Nov. 2 presidential election.
Washington, which invaded Iraq in March 2003 and says it handed over "sovereignty" to an interim government June 28, is a major influence behind Iraq’s 2004-2005 economic and monetary program, on which the IMF based its new loan.
Snow said granting the loan is an essential step on the way to resolving the Iraqi debt, a longtime U.S. demand, by the end of 2004, as agreed by the Group of Eight (G8) most industrialized nations.
Washington wants creditors to forgive at least 90 percent of Iraq’s enormous $120 billion debt. But Russia and France, the country’s main creditors, have said they are only prepared to write off up to 50 percent of the debt, on the grounds that Iraq is an oil-rich nation.
Watchdog groups and activists say the new IMF loan simply shifts Iraq’s debt from a few countries to the multilateral institutions where Washington exerts enormous influence.
"I think that it’s very much the case that America wants Iraq to remain indebted because debt is a way of exerting control. I think that’s part of the reason America is happy for Iraq to receive new loans and is not insisting that all financing to Iraq is in the form of grants," said Justin Alexander of Jubilee Iraq, a group lobbying for arbitration on Iraq’s huge "odious" debt.
The United States is the biggest shareholder in both the Washington-based IMF and its sister institution the World Bank, which hold their annual meetings here this weekend. Debt forgiveness for the world’s poorest nations is expected to top the agenda.
According to the budget office of the U.S. Congress, the country’s share in the World Bank which lent $18.5 billion to spur development worldwide in 2003 is roughly 14-22 percent, while its share in the IMF lies between 17 and 22 percent. The IMF lent $40 billion in 2003.
The IMF loan to Iraq is also a green light for commercial lenders to start doing business with the country.
The announcement will "serve to catalyze much needed financial and technical assistance from the international community, and will facilitate the process of reducing Iraq’s external debt to a sustainable level," according to IMF Deputy Managing Director Takatoshi Kato.
He complimented what he called Iraq’s "progress" toward a market-oriented economy.
Washington wants to make Iraq a model for the neo-liberal economy in the Middle East, an area the United States, under the right-wing administration of Republican President George W. Bush, has increasingly viewed with what some observers say are near-colonial ambitions.
The IMF has already been providing extensive technical assistance and training to U.S.-appointed Iraqi officials in a number of areas, including tax policy, budget preparation and execution, central banking and the creation of a treasury bill market.
The interim Iraqi government of Iyad Allawi has said it will seek international loans and focus on implementing key structural changes, including tax and financial sector reform, restructuring and privatizing state-owned enterprises, and enhancing the oil sector, all of which serve the IMF’s goal of promoting the local and international private sector in the country.
The loan comes as the Open Society Institute’s Iraq Revenue Watch project released a report saying that recent audits expose serious failures in U.S. oversight of Iraq’s revenues and spending of U.S. reconstruction funds. It also raises questions about the new government’s ability to deal with additional funds, like the IMF loan, transparently.
The OSI is financed by George Soros, the billionaire who has pledged to spend more than $18 million to try to defeat U.S. President George W. Bush in November’s presidential election.
The Iraq Revenue Watch report says that U.S. and UK companies received 85 percent of the value of all reconstruction contracts for Iraq. Local firms, by contrast, received just two percent of the value of contracts, which were paid for with Iraqi funds, it adds.
"Government favorites such as Kellogg, Brown and Root benefited at the expense of Iraqi companies, whose workers badly need jobs," said Svetlana Tsalik, director of the Revenue Watch project.
The report also criticized the interim government for following the model of its U.S. predecessor by providing scant information about how it is managing Iraq’s revenues.
"The new government is basically behaving the same way the CPA [the U.S.-led Coalition Provisional Authority] did: not accountable, not transparent and not keeping good records," said the OSI’s Sarah Miller-Davenport.
But the IMF pledged to track the funds as it does with other borrowing countries. "Of course we will monitor it, like we do with all members," said IMF Managing Director Rodrigo de Rato, who met with Allawi and other Iraqi officials over the past week.
"But I think that from our discussions yesterday with the responsible economic team, they have a very clear strategy for that," he added.