Sun, Jun 27, 2004 - Page 1 News List

Reconstruction funds used to pay debt

THE OBSERVER , LONDON

The US is proposing to divert funds earmarked for the reconstruction of Iraq to pay off the war-torn country's massive US$150 billion international debt and reparations bill.

A leaked letter from the US State Department recommends deducting up to US$640 million from the US$18.4 billion reconstruction budget to pay the cost of canceling Iraqi debt run up by former president Saddam Hussein.

The move will anger campaigners who believe the country should not be made to pay for the deeds of Saddam. Justin Alexander, coordinator of Jubilee Iraq, said: "This is an unexpected development, but it is an indication of US cynicism.

"Even with the best deal rich countries are likely to offer Iraq, its debt will still exceed the country's health and education budget and will devastate a country that is desperately poor and in danger of civil war," Alexander said.

Meanwhile, the UN is expected this week to increase Iraq's reparations bill from the US$30 billion already outstanding. Protests are expected at UN offices in Geneva in coming days.

Iraq is already heading for an economic meltdown, which would wreak further devastation on the country, as a result of the debt and reparations bill. Increased oil revenues are too uncertain to prevent it.

US National Security Adviser Condoleeza Rice last week said Iraq would have to draw up a long-term program of privatization to pay back debt.

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