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Corporate Slush Funds for Baghdad Plugging Iraq into Globalization

Plugging Iraq into Globalization

by STEVE KRETZMANN And JIM VALLETTE

In early April, during the initial assault on Baghdad, soldiers set up forward bases named Camp Shell and Camp Exxon until Pentagon PR realized that didn’t look very good and ordered them renamed. Those soldiers knew the score. Several months and dozens of lives later, Bechtel, Halliburton, and a host of oil companies are ensuring that the fledgling "free market" in Iraq will be particularly free for US corporations.

The ultimate prize in Iraq, of course, is oil, and the Bush/Cheney gang has uncoiled a vastly underreported legal and financial cord that plugs U.S corporate control into these resources at least through the year 2007. The basic wiring has two prongs and is already complete. The first part, created by the UN under US pressure is the Development Fund for Iraq­ which is to be controlled by the US and advised by the World Bank and the International Monetary Fund (IMF). Unsurprisingly, this is looking more and more like a slush fund for corporate welfare. The second is a recent Bush executive order that provides absolute legal protection for U.S. interests in Iraqi oil. And a third and final prong is being crafted to ground the whole system and get as much profit as possible out of it.

The Corporate Slush Fund for Iraq

By promising the United Nations a threadbare role in the reconstruction of Iraq, and giving the World Bank and International Monetary Fund accounting oversight, the U.S. managed to buy the world’s largest multilateral institutions into an incredible deal for private U.S. interests.

On May 22, the UN Security Council unanimously adopted Resolution 1483, which ended sanctions and endorsed the creation of Development Fund for Iraq, to be overseen by a board of accountants, including UN, World Bank, and IMF representatives. It endorsed the transfer of over $1 billion (of Iraqi oil money) from the Oil-for-Food program into the Development Fund. All proceeds from the sale of Iraqi oil and natural gas are also to be placed into the fund.

The fund, controlled by U.S. viceroy Paul Bremer, has swelled to $7 billion, thanks to a $3.1 billion contribution from the U.S. Congress, and billions of dollars more in seized assets of the Iraqi government.

And to who have the occupying powers pledged these riches? The UN resolution states that the fund "shall be used in a transparent manner to meet the humanitarian needs of the Iraqi people." John Negroponte, the U.S. representative at the United Nations, told reporters after the vote, "the intent is to use Iraq’s resources and to dispose and dispense Iraq’s resources to the benefit of the people of Iraq." That paternalism towards Iraq’s people is mighty white of Ambassador Negroponte.

This is the sound of the other shoe dropping in Iraq. As soon as the Pentagon, acting as the armed wing of the Washington consensus, clears the way, the international financial institutions come running into the power vacuum. In the creation and expected implementation of the Development Fund for Iraq, one finds the extension of global economic restructuring as first envisioned by the Reagan administration in the 1980s, and implemented en masse through the 1990s. World Bank and IMF programs, backed by the rigged rules of the World Trade Organization, have imposed dramatic financial restructuring upon much of the world. Developing countries have amassed huge debts in exchange for selling out their natural resources to powerful Northern corporations. This paradigm cloaks corporate welfare and neocolonialism in terms of "poverty alleviation" and now in Iraq, "humanitarian assistance".

The World Bank needs these cloaks to work, because the dirty little secret here is that oil extraction rarely alleviates poverty and inequities in developing countries. In countries whose economies are heavily dependent on oil exports ­ like Iraq – drilling for development leads much more commonly to increased poverty, civil war, and totalitarian rule. Oil does generate a lot of cash ­ but it rarely makes it beyond greedy oil companies, crushing payments on debts to the international financial institutions, and corrupt government officials.

New debt will accrue through the very program that Ambassador Negroponte said would "benefit the people of Iraq." The Development Fund, derived from actual and expected Iraqi oil and gas sales, apparently will be used to leverage U.S. government-backed loans, credit, and direct financing for U.S. corporate forays into Iraq. Some of the funds will finance reconstruction projects approved by viceroy Bremer. But other funds will also be used as collateral for projects approved by the U.S. Export-Import Bank (ExIm), whose mission is not development or poverty alleviation, but rather the creation of US jobs and the promotion of American business abroad.

On June 19, the U.S. ExIm announced that it was open for business in Iraq and would begin considering applications by subcontractors (that is, companies hired by Bechtel and Halliburton) in Iraq for working capital guarantees. Corporations have found it impossible to obtain private bank credit for work in Iraq, due to the ongoing insecure environment. But ExIm has stepped in to take a lead role in facilitating U.S. business in Iraq.

"The primary source of repayment," explained an ExIm release, "is the Development Fund for Iraq, or another entity established under the auspices of the Coalition Provisional Authority with access to foreign exchange and protection from claims of creditors of the former regime." In other words, the US government is happy to provide credit to any US business wishing to do business in Iraq ­ especially because the money comes from Iraq.

A corporate coalition, whose ranks include Bechtel and Halliburton, welcomed the Bush/Cheney administration’s moves to use Iraqi oil to benefit its membership. Edmund Rice, president of the Coalition for Employment Through Exports, told Reuters on June 25 that "we have received strong support from the administration" for his group’s proposal to leverage oil sales as collateral for bank loans.

Not surprisingly, Bo Ollison, an Exim spokesman, called this "one proposal that a lot of people are interested in and a main focus of the Bank." Controlled by the Americans but funded by the Iraqis ­ how chillingly perfect.

Pushing oily immunity

Despite the promise of free public money, Iraq has been a hard sell. Corporations have had two major concerns, both of which the Bush administration has obligingly dealt with. First, Iraq is quite obviously a very dangerous place right now, and a lot can go wrong (witness the ongoing sabotage of oil installations). Second, there’s the small legal matter of who actually owns the oil ­ the Iraqi people, the countries and corporations to whom Iraq owes billions of dollars (read: Russia and France), or Bremer and his Development Fund. The answer, of course, is shaping up to be Bremer.

Hours after the UN endorsed the Development Fund for Iraq, Bush signed an executive order that was spun as implementing Resolution 1483, but in reality, went much further towards attracting investment and minimizing risk for US corporations in Iraq.

In order to encourage the flow of oil revenues into the Development Fund, the UN Security Council declared that Iraqi oil and gas are immunized from legal proceedings until Dec. 31, 2007. The intent was to immunize the oil and gas only "until title passes to the initial purchaser" and further does "not apply to any legal proceeding… necessary to satisfy liability to damages assessed in connection with an ecological accident."

Bush went way beyond this language in Executive Order 13303. With a stroke of his pen, he decreed that "any attachment, judgment, decree, lien, execution, garnishment, or other judicial process is prohibited, and shall be deemed null and void", with respect to the Development Fund for Iraq and "all Iraqi petroleum and petroleum products, and interests therein."

True to form, the Bush order makes no exemption for ecological accidents. Further, while the UN restricted the immunity to the point of initial sale, Bush granted Iraqi oil a lifetime exemption provided US companies are involved in the oil’s production, transport, or distribution. His order applies to Iraqi oil products that are "in the United States, hereafter come within the United States, or that are or hereafter come within the possession or control of United States persons." Under U.S. law, corporations are "persons."

In other words, if ExxonMobil or ChevronTexaco touch Iraqi oil, anything they or anyone else does with it is immune from legal proceedings in the US. Anything that has happened before with oil companies around the world ­ a massive tanker accident; an explosion at an oil refinery; the employment of slave labor to build a pipeline; murder of locals by corporate security; the release of billions of tons of carbon dioxide into the atmosphere; or lawsuits by Iraq’s current creditors or the next true Iraqi government demanding compensation ­ anything at all, is immune from judicial accountability.

Bush unilaterally declared Iraqi oil to be the unassailable province of U.S. oil corporations. In the short term, through the Development Fund and the Export-Import Bank programs, the Iraqi peoples’ oil will finance U.S. corporate entrees into Iraq. In the long term, Executive Order 13303 protects anything U.S. corporations do to seize control of Iraq’s oil, from the point of production to the gas pump.

The third and final prong needed to plug Iraq fully into the global economy is perhaps the most ironic of all. While ensuring that the Development Fund will be used to deepen Iraq’s debt to the US, the Bush administration is demanding that the Gulf States, Russia, France, and the international financial institutions forgive Iraq’s existing $60 billion-plus debt. If it’s done, we will surely hear the pundits praising the lifting of this burden from the backs of innocent Iraqis.

The debt burden is indeed crushing to ordinary Iraqis, and to the formation of the next Iraqi government. The irony is that this is the same rationale used by groups like Jubilee 2000 who, for years, have been mostly unsuccessfully calling for the alleviation of debt throughout the developing world. The consensus among the Washington elites was that prior debts would have to be paid by people in post-apartheid South Africa, and by the survivors of military regimes and dictatorships in places like Argentina and the Philippines. The difference is that in Iraq today, the debt is also a burden for the US government and oil companies.

Steve Kretzmann and Jim Vallette are analysts with the Sustainable Energy & Economy Network of the Institute for Policy Studies.