Angslan

At Day's End, It's All About Money and Influence

Cogicophony, it seems, is a tad disappointed or disheartened at the recent decision of the White House to bar France, Germany, Russia and others from bidding for United States administered prime contracts for the reconstruction of Iraq, not to mention the impact of that announcement on the upcoming talks for Iraqi debt relief.

Cogicophony is, of course, by no means alone in his concern.

Angslan, however, tends to wonder what these people really expected was going to happen. It's not my job to apologize for the Administration's actions, nor am I necessarily convinced that the decision made was optimal. It does, however, seem pretty obvious to me what the thought processes were, when this decision was made. It's also not obvious to me that the timing of the addnouncement was a mistake, or evidence of some sort of war between Defense and State in the White House.

So, reconstruction and debt relief, where to begin? Let's begin with the spark that set off this current blaze-- the contracts themselves. The necessity of awarding these contracts was by its eistence a problem dumped in Washington's lap to be solved. There are only four options to be had in this situation:

1) Keep all the contracts to American contractors.
2) Open all contracts up for bidding to all comers.
3) Open up contracts only to those we deem strong supporters.
4) Open up contracts only to those we do not deem supporters.

The fourth option, obviously, is offered for completeness sake only. The idea that we would open up contracts for bidding only to North Korean and Cuba, or even only to Germany, France, and Russia, is too ludicrous to discuss further. Those options also discount chicanery such as cooking the books-- opening to all, but secretly preferring only our friends. That's a scandal waiting to happen.

Likewise, the first isn't really appropriate, either. Not only is it not clear that the United States has all the required manpower and skill available on hort notice to do this, it rather rudely shoves aside those who supported us steadfastly. I would not want to face down Britain and Australia and tell them they are unwelcome.

Thus we're left with the second and third options-- the United States, her strong suppoertors, and possibly others will be invited. The question really comes down to a simple one-- who eats at the table all together in a big happy family? If we invite everyone to the table, then our strong supporters, the Britains, the Australians, the Italies, are going to be rather annoyed. Here we are doling out pieces of the pie, even if the pie is as small as choice contracts, and those who made the victory difficult to achieve through various means are rewarded equally? I know I would be annoyed. It might not make the papers, but the Blairs and Howards and Berlusconis would likely rethink the risk/reward rations the next time we ask for help. If there is no need to risk in order to gain reward, why should they risk? Likewise, the Chiracs and Schroeders will continue their behaviour, believing that genteel opposition (perhaps because it is genteel, and delivered with a smile and kiss) will continue to earn rewards as well.

The other option, America and her supporters only, gives us what we have today, which is France and Germany donning the pan-European mantle of universal outrage, while Britain, Italy, Spain, and others are thinking, "Wise decision. Very wise."

This was, of course, a deeply political decision to make. It's a pity that we've come so far that I consider it refreshing that the Administration did not try to hide that dimension, but actually trumpetted the political aspect. At least someone stands by a decision they made. Then again, I thought Clinton should have published MPEGs of himsef bathing in the bong water, too. This was a political decision, and the politics was simple reward and punishment-- those who really support us will have rewards. Those who did not, will not.

There are, in addition, a few facts worth pointing out which are not exactly hidden, but which have received far less attention from the press than the controversy itself:

First, those nations are not barred from all Iraqi recontruction prime contracts. They are barred only from those paid for by United States tax dollars. Internationally funded reconstruction efforts are open to all comers. Reconstruction efforts funded by Britain are subject to Britain's rules.

Second, those nations are not at all barred from bidding on subcontracts, even when the United States awards prime contracts directly. There is a certain logic to this decision-- it allows each rewarded ally to determine the measure of his largesse and forgiveness. If Berlusconi picks up a good prime contract for Italy, it is his to determine whether he wants to score points with France and Germany, or continue the punishment on his own.

All we're left discussing now, really, is whether the line was drawn in the right place. I have some reservations over excluding Canada, and especially Russia, but my reservations are colder and more calculating thatn Cogicophony's are ever likely to be.

Having discussed the contracts themselves, there remains only the issue of Iraqi debt forgiveness. One key point to remember is that the ultimate decision of debt payment rests with no one other than Iraq itself, and to a degree the United States so long as we are their patron-- the patron with a sizeable number of troops in their lands. Debt repudiation after regime change is hardly unheard
of.

(Christ, just look at Argentina's Kirchner, who took office in May after peaceful elections, trying to write down some 170 billion dollars in international debt to 25 cents on the dollar! Always remember, if I owe you a thousand dollar, I have a problem. If I owe you a billion dollars, you have a problem. But dont' get me started about South American politics. Jesus Christ, what a fucked up place.)

It would be pretty easy for Iraq to claim that certain financial documents were (ahem) looted and burned, and therefore they're not paying.

It should also be noted that Germany, France, Russia and Canada are not the sole holders of Iraqi debt-- the total debt is estimated at 120 billion dollars. Estimated numbers for the combined debt of Russia, France and Germany come in at about 9 billion dollars of principle, and as much again in unpaid interest (which is the method by which we arrive at the 120 billion dollar total to begin with.) People really should remember that France and Germany are not synonymous with Europe, let alone the entire world.

Traditionally, there are three things you can do when someone borrows money and fails to pay it back. First, you can go rough them up, and perhaps cart off anything you can find. The aforementioned patronage of the United States makes this a practical impossibility. Second, you can sue them, except in this case there is no sufficient authority to compel repayment. Third, you can cut off their credit. Which sounds like an option, until you realize that this freezes those nations out from some extraordinarily lucrative oilfield development financing contracts. This is harsh, but very likely an acceptable calculation in Washington's eyes.

This presupposes, of course, that all debt forgiveness everywhere is off the table forever, which is something I tend to doubt. Much analysis has given the position that the timing was either stupid, or an accident-- announcing closed contracts just before asking for debt forgiveness. But it's just as easy to interpret this as a very harshly worded imperative on the side of debt forgiveness. Russia, for instance, is hardly going to forgive its debt to Iraq unless there is something on the table for it to gain. Likewise, considering Russia's opposition to the United States over the Iraq issue from the beginning (stemming in no small part from the debt issue to begin with, along with oil contracts Hussein had sorta given, sorta not!) they're not going to get lucrative contracts unless they give something up. And we're not talking about piddling reconstruction contracts, we're talking about extremely lucrative oil development contracts which go to the heart of Russia's geopolitical strategies... and which are roughly on par, in magnitude, with the debts they are claiming they will not forgive.

It's worth noting that McCllelan and Boucher both, in almost identical language, made the claim the list of nations eligible for prime contract bidding can change with circumstances. If that's not a clear signal that this list was a negotiation gambit, I don't know what else would be. Unless it would be reports that Canada will be removed from that list, which has also happened.

Again, I suspect I would have made a decision that came down in favor of the Russians and Canadians, while still letting the Germans and the French hang. My calculus of risk and reward with regards to Russia is very different than the White House's and I think we're missing an opportunity not likely to come around again to get privledged investment in Russia's various natural resources sectors. I think the White House has one too many old Cold War staffers in high positions to think about potential rewards in Russia down the line, rather than just countering possible threats. I would also prefer to use issues like this to divide Russia from France and Germany rather than push them together.

As a final position, this would leave much to be desired, but McClellan and Boucher both made it very clear that regarding this as a starting position was exactly correct. As a negotiating position, it is not the one I would have chosen. I don't think it's the complete bungling irrational act that some would have it, either.

Posted by John Novak at December 11, 2003 10:37 PM