Arab states reluctant to forgive Iraq debt

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Oil-rich Gulf Arab states resisted pressure from the United States and Iraq yesterday to forgive Iraq tens of billions of dollars in prewar debt, amid concerns about how the Baghdad government spends its growing oil revenues.

The Washington Times recently reported that the Iraqi government is investing billions of dollars earned from oil sales in U.S. Treasury securities instead of spending the revenue on vital reconstruction projects.

The issue incited outrage in Congress, but it was barely mentioned yesterday when Secretary of State Condoleezza Rice met in Bahrain with foreign ministers from the Gulf and urged them to cancel their share of Iraq's debt.

"The terms have long been known," Miss Rice said after the Gulf Cooperation Council meeting. "This is just a matter of getting the negotiations done."

Iraqi Foreign Minister Hoshyar Zebari, who also attended the meeting, made his case for debt forgiveness and said he will raise the issue again today at a meeting of Gulf states and outside observers in Kuwait.

"Debt relief is a standard request for Iraq. The foreign non-Arab countries have forgiven Iraq its debts, so of course Iraq will expect from its brothers to do more," he told reporters. "Still, they have not yet given any firm commitment."

The United States forgave all $4.1 billion in debt that Iraq held before the 2003 invasion, and most non-Arab countries agreed to cancel about 80 percent, totaling more than $60 billion.

The State Department estimates that up to $80 billion in Iraqi debt remains. More than half of that is owed to Saudi Arabia, Kuwait, Qatar and the United Arab Emirates.

None of the Gulf states agreed yesterday to forgive any debt.

Iraq's use of oil revenues, which have swelled as a result of high oil prices and improved security in the country, has become a hot-button issue on Capitol Hill.

"We believe that it has been overwhelmingly U.S. taxpayer money that has funded Iraq reconstruction over the last five years, despite Iraq earnings billions of dollars in oil revenue over that time period that have ended up in non-Iraqi banks," said a letter to the Government Accountability Office signed by Sen. Carl Levin, Michigan Democrat and chairman of the Senate Armed Services Committee, and Sen. John W. Warner of Virginia, a top Republican on the committee.

U.S. officials and outside analysts blame the collapse of Iraq's political and physical infrastructure on Baghdad's failure to spend the money on projects that would help restore stability. One official said yesterday that Iraq lacks the "bureaucratic capacity to absorb" all oil revenues.

A GAO report said only 4.4 percent of Iraq's $10 billion budgeted for capital projects last year had been spent as of August.

The Bush administration disputed the report, saying the spending was at about 24 percent.