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A timeless illustration

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On February 5, 2003, Colin Powell presented a dossier to the UN Security Council with reasons for why the world should go to war against Iraq.

One reason was the existence of a chemical weapons plant, ‘chlorine plant Faluja 2’, 50 miles outside of Baghdad, a plant which the US claimed was a key component in Iraq’s chemical warfare arsenal and which even the cautious Hans Blix, the former UN Chief Weapons Inspector, had reported to the Security Council might have to be destroyed.

Given that that dossier was used not only by the United States but also Britain as a justification for war, it is somewhat ironic that it was the British government that had been responsible for building the £14 million factory 17 years before. In 1985, the British Export Credit Agency ECGD, a government agency that funds or insures British corporations wanting to do business in high-risk areas, had provided insurance to a British subsidiary of a German company, Uhde Ltd, so that it could set up the plant in Iraq.

Did the British government know that this plant they were underwriting with British taxpayer money, could be used to develop chemical weapons? Uh, yes. At the time, senior government officials wrote that there was a ‘strong possibility’ that the plant was intended by the Iraqis to make mustard gas. Meanwhile, the British Ministry of Defence warned that the plant could be used to make chemical weapons, noting that the chlorine the factory would produce could ‘be used in the manufacture of phosphorus trichloride, a key nerve agent precursor’. Richard Luce, a foreign office minister, went so far as to express concern that this deal would ruin Britain’s image if news of it were to get out, and counselled: ‘I consider it essential everything possible be done to oppose the proposed sale and deny the company concerned ECGD cover.’ The Tory British Trade minister at the time, Paul Channon, nevertheless revealed all too clearly where the British Government’s priorities lay: ‘A ban would do our other trade prospects in Iraq no good,’ he said.

Those ‘other prospects’ turned out to be lucrative arms deals. The radio manufacturer Racal shipped several sophisticated Jaguar V radios to Saddam’s army in 1985 thanks to ECGD insurance of £42 million, radios that enabled Saddam to overcome enemy jamming on the battlefield. In 1987, Marconi was given ECGD funding to sell Armets – the Artillery Metrological System, crucial for accurate artillery fire – to the Iraqi army; Tripod Engineering was given ECGD backing in 1988 to sell a fighter pilot training complex to the Iraqi air force and Thorn EMI was given ECGD backing for a contract to ship Cymbeline mortar-locating radar to the Iraqi army. The British government even continued to issue export credits to Iraq after a British journalist, Farzad Bazoft, was executed by Saddam in 1990.

And it wasn’t just the British whose Export Credit Agencies (ECAs) were underwriting sales by domestic companies to dubious and dangerous projects in Iraq during Saddam’s reign or even financing the entire deals themselves. Pretty much the whole world was at it.

At the same time as the British were smoothing the way for Uhde to set up a chemical weapons facility, the White House, for example, was pressuring its ECA, the US Export-Import Bank (Ex-Im), to approve financing for a new oil pipeline in Iraq, a pipeline that Bechtel would build if the deal went ahead. ‘The State Department has exerted strong pressure on Ex-Im to make additional credits available, including for this pipeline,’ noted Bechtel official H.C. Clark in an internal memo on February 29, 1984. This despite the fact that the horrors of Saddam’s reign were well-known, and reports of his gassing of thousands of Iranian troops with chemical weapons during the Iran-Iraq war had received public attention.

With Donald Rumsfeld, then Reagan’s Middle East Envoy, and George Schultz, Secretary of State at the time (and former Bechtel President), both playing key lobbying roles, their efforts paid off. On June 21, 1984, Ex-Im’s board of directors approved a preliminary commitment of $484.5 million in loan guarantees for the pipeline project.

But hang on a minute. Is there some connection between deals like those struck by Uhde, Racal, Thorn EMI and Bechtel and our story of debt? Yes. Because when such deals go sour – following the commencement of hostilities in Kuwait, for example, the Iraqi government stopped honouring their contract with Uhde – the Western Export Credit Agency, the underwriter of the deal, pays the corporation almost all the monies owing it and assumes the debt itself. And then this debt is added to the outstanding bilateral debt owed by the debtor country to the country from which the ECA hails, thus becoming a significant part of the bilateral debt the developing world owes. Around 95 per cent of the debt owed to the UK government by developing countries, for example, is export credit debt. While 65 per cent of all debt owed by developing countries to official creditors is to ECAs.

Much like a department store that provides its own charge card so that people on credit can buy the store’s own products, government ECAs facilitate loans for foreigners so that they buy the lending country’s own products. The more the ECAs sell, the happier the domestic firms from the ECA’s home country are, but also the more debts the foreign countries run up.

And Saddam’s Iraq made Western arms dealers very happy. Of the $26 billion plus currently owed by Iraq to the British, the French, the Germans, the Japanese and the Americans, most of the debt was run up in the 1980s after Saddam came into power. Most of it undoubtedly resulting from military equipment procurement and weapons programmes – funding the various international military manufacturers whose sales were underwritten by these creditors’ respective ECAs.

And now the Iraqi people are being told to repay this debt. Or at least that proportion of the debt that creditors feel they will realistically be able to squeeze out of them. The nation that suffered so much under Saddam that its cause became one of ‘liberation’ is being told to repay debts which were racked up with the express encouragement of Western companies and Western governments for purposes of oppression, violence and genocide. Debts that were clearly odious in nature.

But is the Iraqi situation an anomaly? How widespread are ECA loans in the first place? And how usual is it for them to be used so ill-advisedly?

IOU: The Debt Threat and Why We Must Defuse It

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