Donors Unlikely to Bridge Funding Gap for Iraq

This week’s U.N. resolution, and new pledges of aid for Iraq totaling $2.7 billion from Japan, Britain and Spain raised the Bush administration’s spirits as it heads into an international donors conference in Madrid, despite the vast gap between what has been pledged and the estimated cost of rebuilding.

Washington hopes that the U.N. resolution aimed at stabilizing Iraq by speeding the transfer of political power to Iraqis, and the international legitimacy it confers on the U.S.-led occupation, will spark a wave of donations. Some countries had been reluctant to give without such a resolution, both because they did not want to be seen as legitimizing the occupation and they did not want the money to be administered by the U.S.-run Coalition Provisional Authority.

Still, the Bush administration faces an uphill battle to marshal an estimated $55 billion for rebuilding and thousands of troops to allow it to draw down U.S. forces now in Iraq.

Even if the United States secures substantial pledges next week, the administration faces the daunting task of persuading Iraq’s international creditors to forgive an estimated $300 billion to $400 billion in debt racked up by Saddam Hussein’s regime.

Washington has yet to formulate a strategy for tackling the thorny long-term debt issue, a senior administration official said Friday. That debt includes an estimated $199 billion in unpaid war reparations the United Nations ordered Iraq to pay Kuwait and Saudi Arabia after the 1991 Persian Gulf War -- a touchy political issue.

The administration’s immediate focus is on raising funds that can be delivered quickly to speed a reconstruction effort whose pace and cost have become political liabilities for President Bush.

“You can only pile on so much,” the official said. “Right now the pile on is for Madrid, and it’s for money. The pile on a little bit down the road is going to be for debt relief.”

About 75 nations are sending delegations to the Madrid conference that will begin Thursday, and the administration has been scrupulously careful not to estimate how much money it expects to be raised there.

But clearly, the pledges made this week -- $300 million from host Spain, $900 million from Britain and $1.5 billion from Japan, with hints that more might be coming -- exceeded the administration’s expectations.

Just last month, when Secretary of State Colin L. Powell was grilled by senators in a private briefing devoted to, among other things, how much of the Iraq bill America would have to pay, he refused to predict that other nations would contribute more than $600 million.

On Friday, Powell sounded upbeat when talking to reporters aboard his plane heading toward Bangkok, Thailand, for a meeting of the Asia-Pacific Economic Cooperation forum.

“I’m more encouraged and optimistic than I was a week or so ago, and I think the [U.N.] resolution will help quite a bit, especially with the international financial institutions, the World Bank” and the International Monetary Fund, Powell said.

Still, officials do not expect to emerge from the conference having erased the gap between the $55 billion that the U.S. and the World Bank have estimated will be needed over the next five years to rebuild Iraq and the amount pledged so far. Before the U.N. resolution passed, the European Union had pledged $230 million for 2004, and the World Bank promised $2.4 billion to $5 billion over the next five years. The administration is seeking congressional approval for $20 billion.

Bathsheba Crocker, who has been studying Iraqi finances at the Center for Strategic and International Studies in Washington, said she would be surprised if participants were to pledge more than a combined $1 billion in Madrid.

In an effort to encourage contributions, Washington is not imposing conditions or making suggestions about how countries should donate, the senior administration official said.

“We’re saying, ‘Just give,’ ” the official said. “Our view at the present time is, man, any aid is good aid.”

The World Bank is expected to set up a donor fund for Iraq at the Madrid meeting, so that donors who do not wish to hand their checks to the American-run occupation authority will receive assurances of financial accountability from the institution.

A critical question for the conference is how much the Persian Gulf states, notably Saudi Arabia, the United Arab Emirates, Kuwait and Qatar, will contribute.

So far, Riyadh, the Saudi capital, has been silent. The Saudi Embassy in Washington did not return telephone calls Friday requesting comment.

The UAE, Kuwait and Qatar have the deepest pockets in the gulf and typically give money as a group, but State Department officials said they had no idea how much to expect from the emirates.

France, Germany and Russia have announced that they did not intend to contribute financial aid or troops, because the Security Council resolution did not go far enough in putting the U.N., not the U.S., in charge of Iraq.

Pakistan has said it would not send troops, and India said Friday that although it welcomed the resolution, any decision to send peacekeepers would depend on the situation in Iraq. In the past, India said it would send troops only under United Nations command.

In Washington, the departments of State and Treasury, as well as the IMF, are working on a comprehensive plan for Iraqi debt relief, officials said. The IMF has been polling its member nations to tally Iraq’s total debt but has not published its findings yet.

In an assessment of Iraqi finances that was issued in January, Crocker and Frederick D. Barton concluded that Iraq owed $383 billion. That consisted of $127 billion in foreign debt, $57 billion in unpaid contracts and the $199 billion in Gulf War reparations. The State Department released its own figures Friday night -- estimating that Iraq owes $100 billion to $125 billion, excluding reparations.

“The numbers on the debt side are so enormous that they would just eat up any revenues that come out of Iraq’s oil industry, or any other revenues,” Crocker said.

Her estimated $127 billion in foreign debt includes the $21 billion owed pre-1990 to 19 countries in the Club of Paris, a group of creditor nations. Almost all of it is in arrears, and the interest owed is nearly double the principal. The largest creditors are Japan, owed $4.1 billion; Russia, owed $3.5 billion; France, owed $2 billion; Germany, owed $2.4 billion; and the United States, owed $2.2 billion, all excluding interest, according to the Club of Paris.

The club is a logical forum in which the U.S. may plead for debt relief for Iraq. However, the Japanese, Germans and Russians have traditionally been opposed to debt relief, and club rules require such decisions to be unanimous, sources said.

Perhaps even more touchy is the question of whether Washington will pressure Kuwait to forgive the massive war reparations that Iraq owes the emirate for Hussein’s 1990 invasion.

“It has been raised with Kuwait,” the senior administration official said. “Their attitude is, ‘Hmmmm.’ It gives them pause.” Ultimately, the issue will have to be settled in the Security Council, which authorized the reparations.

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Times staff writer Paul Richter in Washington contributed to this report.