Normally, this is a place for me to rant about stuff which I might care about,
but can’t really claim to be any kind of an expert on. I’m breaking with tradition
here, however, to pick on Dick Cheney for one thing he said in tonight’s vice-presidential
debate. This from the transcript:
EDWARDS: You know, we’ve taken 90 percent of the coalition causalities. American
taxpayers have borne 90 percent of the costs of the effort in Iraq.
And we see the result of there not being a coalition: The first Gulf war cost
America $5 billion. We’re at $200 billion and counting.
IFILL: Mr. Vice President, you have 90 seconds to respond.
CHENEY: Well, Gwen, the 90 percent figure is just dead wrong. When you include
the Iraqi security forces that have suffered casualties, as well as the allies,
they‘ve taken almost 50 percent of the casualties in operations in Iraq,
which leaves the U.S. with 50 percent, not 90 percent.
With respect to the cost, it wasn’t $200 billion. You probably weren’t there
to vote for that. But $120 billion is, in fact, what has been allocated to
Iraq. The rest of it’s for Afghanistan and the global war on terror.
The allies have stepped forward and agreed to reduce and forgive Iraqi debt
to the tune of nearly $80 billion by one estimate. That, plus $14 billion
they promised in terms of direct aid, puts the overall allied contribution
financially at about $95 billion, not to the $120 billion we’ve got, but,
you know, better than 40 percent. So your facts are just wrong, Senator.
Now it just so happens that the one thing I really do know about is Iraq’s
sovereign debt: I just wrote a 6,600-word cover story on the subject for the
September issue of Euromoney. But before I get to the debt, let’s just see what
Cheney is doing here. When he says, for instance, that "The 90 percent
figure is just dead wrong", he’s simply lying. Quite clearly, according
to the transcript, Edwards talked about "the coalition casualties".
Only by including the Iraqi casualties can Cheney bring that number down –
and, frankly, I’m surprised he wants to go there, given the enormous number
of Iraqi civilian casualties that the US has caused.
Cheney then points out, correctly, that the cost of the war in Iraq so far
is $120 billion, not $200 billion. On the other hand, the total projected
cost of the war in Iraq has actually reached $200 billion. You pays yer billions
and you takes yer choice, I suppose. Cheney then decides to compare the $120
billion figure with $95 billion that he says "the allies" are giving
as their "overall contribution". And that’s where he starts moving
into the realm of complete and utter fantasy.
Cheney’s $14 billion figure I have no idea about: it’s not footnoted on the
official Bush-Cheney debate
facts page, and I haven’t been able to Google it. Maybe it’s true, maybe
it isn’t. But the $80 billion figure is just crazy. Here are the facts.
Firstly, "the allies", as that term is generally understood, can’t
possibly reduce Iraq’s debt by "nearly $80 billion", because they
don’t even have that much in Iraqi debt. The US is owed about $4.4
billion, the UK is owed less than $2 billion, and all of eastern Europe combined
is owed maybe $6 billion – mostly to countries like Bulgaria, who weren’t
part of the coalition in the first place.
Secondly, no one’s "stepped forward and agreed" anything. Some of
Iraq’s major creditors, including France and Russia, have paid lip service to
the principle of reducing Iraq’s debt, promising a "substantial reduction"
or suchlike when Iraq goes to the Paris Club of bilateral creditors later this
year. In the world of debt restructuring, a "substantial reduction"
can mean anything from 35% to 95%. Indeed, if there was any kind of agreement,
Cheney wouldn’t need to be citing estimates: he could just cite the agreement.
But there is none.
Thirdly, there are certainly people out there who think that Iraq’s debt will
be reduced by $80 billion. But that’s all in the future: it hasn’t happened
yet. Cheney’s verb tense ("have agreed") is unambiguous: he’s saying
this has already happened. It hasn’t. The talks haven’t even started yet. Even
if a Paris Club agreement is concluded by the end of this year (a very big if),
the Paris Club in total accounts for less than $42 billion of Iraq’s foreign
debt. And it doesn’t take a former CEO to know that you can’t reduce $42 billion
of debt by $80 billion.
More broadly, Cheney is comparing apples with oranges. Consider the hypothetical
case of a French contractor who built a hospital in Iraq in the 1980s. Iraq
was tardy on its payments, and eventually, after the invasion of Kuwait, stopped
them entirely. Of the $20 million total cost, let’s say only $10 million was
paid. Because the contract was supported by French export credit guarantees,
the French government took on the debt, paying the contractor itself. Today,
with past-due interest, the $10 million that Iraq owed has grown to $20 million.
If France agrees to write off 75% of that debt, then, by Cheney’s calculus,
it’s contributing $15 million towards Iraq, $15 million which is entirely comparable (if you’re Cheney)
to $15 million in real US taxpayer dollars which is being spent by the US government
on troops and munitions and reconstruction and the like.
Remember that the $15 million which France may or may not write off is basically
little more than an accounting entry. It costs the French taxpayer nothing:
it’s simply a recognition of the fact, which has been obvious for years, that
Iraq is never going to pay its creditors all that they are owed.
Look at it another way: let’s say that back in 1984, when interest rates were
high, I lent my uncle Ted $100, at 10% interest, for a period of time we both
thought wouldn’t be much more than a year. He then disappeared entirely: maybe
he joined an ashram in India, or something. Whatever: he was impossible to contact,
and I mentally gave up hope of ever getting my money back. But then, out of
the blue, he turns up one day, saying that he’s trying to rectify everything
he’s ever done in his life, and offering me a crisp $100 bill. By Cheney’s calculation,
accepting that bill in payment of his debts is functionally equivalent to giving
him $573 in cash.
To be sure, the $100 loan has compounded so much over the past 20 years that
Ted would need that much extra to pay me past-due interest. But there’s no doubt
that there’s a huge difference between me accepting that $100 bill in payment
of his debts, and my cousin Fred lending Ted $500 in brand-new cash. But if
my cousin Fred was related to Cheney, he could say something like "well,
I might have given Ted $500, but Felix has given him even more: Felix has given
him $573". In reality, of course, I never gave Ted anything of the sort,
and in fact I never even lent him that much to start with.
I can tell you where Cheney’s $80 billion figure comes from. Iraq’s total debts
come to about $120 billion, the vast majority of which are bilateral. The general
consensus among people who know about such things is that by the time everything
is worked out, Iraq will receive at least two-thirds forgiveness of its debts
– and two thirds of $120 billion is $80 billion.
But bear in mind, here, that somewhere between $55 billion and $70 billion
of that $120 billion headline figure is owed to other Arab states, who helped
to finance Iraq during the Iran-Iraq war. The degree to which that money was
grants, rather than loans, has never really been formalised: these things are
usually agreed verbally between ministers, and reliable records can be impossible
to find. Never mind that these Gulf states certainly don’t seem to count as
"allies" for the purposes of Cheney’s rhetoric: if they simply decide
that the money they gave Iraq in the 1980s was, well, money they gave Iraq in
the 1980s, and money they don’t expect to be repaid, then suddenly "the
overall allied contribution" has been bumped up by something north of $50
In other words, if the Kerry campaign tells you that the US is bearing 90%
of the costs in Iraq, and the Bush campaign counters with anything along the
lines of what Cheney said today, you can rest assured that the Kerry campaign
is right and the Bush campaign is wrong. I’m sure the same is true on many other
issues as well, but this is the one I really know about. Any questions about
Iraq’s sovereign debt – just ask. I’m your man.