The Common Good
February 2005

Under IMF's Thumb

by Elizabeth Palmberg | February 2005

Rich countries have decided to control Iraq the old-fashioned way.

A recent study in Iraq found that acute malnutrition in children under 5 has nearly doubled,

A recent study in Iraq found that acute malnutrition in children under 5 has nearly doubled, from 4 to 7.7 percent—that’s 400,000 kids suffering from severe "wasting," often because a contaminated water supply has given them chronic, life-threatening diarrhea. Among their parents, unemployment is rampant. And the desperate economic situation, along with unrestored water and electricity, helps feed Iraq’s violence: When the Coalition Provisional Authority (CPA) closed down radical cleric Moqtada al Sadr’s newspaper in March 2004, it cited an article accusing CPA head Paul Bremer of "starving the Iraqi people."

Instead of pragmatically working to get the lights, water, and jobs back on, the U.S.-led occupation immediately forced on Iraq what The Economist called "the kind of wish-list that foreign investors…dream of": a smaller government workforce and no taxes or restrictions on corporations importing anything, buying anything but oil businesses, or taking any profit out of the country without reinvesting a dime. One of Bremer’s economic advisers called Iraq "something like the California gold rush and the Wild Wild West combined."

Iraqis could clearly see that such "shock therapy" was a recipe for throwing many people out of work fast. For example, Bremer planned to quickly sell Iraq’s 200 state-owned enterprises (other than oil companies); an estimated 145,000 workers, each supporting an average of five family members, would have had to be fired to attract buyers. (To make things worse, because of its aversion to state-owned companies, the CPA steered reconstruction work away from them. For example, the Green Zone’s cement blast walls are expensive imports, not products of Iraq’s 17 cement factories.) And, as we’ve seen in the example of the former Soviet Union, economic "shock therapy" and fire-sale privatizations can lead to oligarchy, corruption, and stagnation rather than the promised economic boom.

A YEAR LATER, the corporate cowboys have been scared off—temporarily. First, Bremer was unable to sell state industries when trade lawyers pointed out that, as journalist Naomi Klein put it, "Bombing something does not give you the right to sell it." The subsequent U.S.-appointed puppet government could sell government assets, but prudently refrained from layoffs that could swell the ranks of violent militias.

So now rich countries have decided to control Iraq the old-fashioned way—by using claims of foreign debt to put the country under the IMF’s thumb. The Paris Club (the United States, Japan, Russia, and various European countries) has offered to forgive 80 percent of Saddam’s roughly $39 billion of debts to them—most of it after Iraq accepts a few modest proposals from the IMF. This "forgiveness" is mainly a favor from the creditors to themselves; Russia’s finance ministry candidly called the Paris Club decision a strategy to "transfer this debt from the ‘hopeless’ into the ‘being serviced’ category."

Moreover, almost all of this debt is "odious"—incurred by a dictator who, with the knowledge of his creditors, used the money to oppress his own people. Iraq should not pay it; creditors should know that they lend to dictators at their own risk, not that of the victims.

All this has not stopped the IMF from seizing the chance to call for Iraq’s government to limit spending to "the minimum adequate level of social support." History shows that IMF minimums are low enough to cause needlessly prolonged recessions, occasional riots, and widespread misery.

The United States must not abandon its recent efforts to negotiate debt cancellation for the world’s poorest debtor nations (efforts that were motivated in large part by its agenda for Iraq). Iraq is an opportunity to reexamine the entire debt system and the persistently wrongheaded advice of the IMF, not to mention rich countries’ anemic foreign aid budgets.

The parable of the sheep and the goats (Matthew 25) tells us we are going to be judged based on how we care for the hungry and the vulnerable. If the rich nations of the West do not want to be counted among the goats, they need to become a lot less wild.

Elizabeth Palmberg is assistant editor of Sojourners.
For the most recent news on debt in Iraq, visit

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