It was supposed to be the mother of all retirement accounts. For more than a decade starting in the mid-1970s, Kuwait stashed away a portion of its hefty oil revenues into a fund that was not to be touched until its oil dried up. But after the 1990 Iraqi invasion, Kuwait liquidated more than half the stocks in the $90 billion Future Generations Fund to finance reconstruction. By selling its holdings when it did, Kuwait missed out on billions of dollars in gains it could have expected from the roaring bull market in stocks that followed the end of the war. Today, almost 13 years later, should Iraq reimburse Kuwait for lost profits?
That's a jarring question at a time when an impoverished, post-Saddam Iraq is trying to rebuild itself after decades of misrule and almost 13 years of international sanctions. But later this month when the governing council of the U.N. Compensation Commission (U.N.C.C.) the body charged with adjudicating Iraqi reparation claims meets in Geneva for its quarterly session, the $84 billion Kuwaiti claim for lost profits will be at the top of its agenda. Officials at the Commission who have been working intensively on the case for the past two years have already tossed out on technical reasons most of the claims. But they're nonetheless recommending that Kuwait receive about $1.5 billion. "They can't just ignore this claim," says John V. Lonsberg, a U.S. attorney who is representing Kuwait.
Finding the money to pay Kuwaiti claims is not exactly a priority for Iraq's U.S. administrators right now to put it mildly. But how to deal with Iraq's financial liabilities is a central economic dilemma of the post-Saddam world. On the one hand, aid groups and some policymakers argue that most or all Saddam-era debts should be waived and the war reparations process shut down in order to speed the nation's economic recovery. "Ordinary Iraqis should not pay for a debt accumulated by a tyrannical regime, borrowing from irresponsible creditors," says an Oxfam report released this month. Adds Frederick Barton of the Center for Strategic and International Studies (CSIS) in Washington: "You can make people who don't need it whole; or you can make Iraqi reconstruction a success. That's a much higher priority."
But if Iraq turns its back on its debt legacy, it will effectively penalize individuals, firms and governments who have been Saddam's victims. That's particularly true of Kuwait, which suffered enormous environmental as well as economic damage as a result of retreating Iraqi troops setting fire to its oil fields. Kuwait has been taking a deliberately low profile in the debate, but Khaled Ahmed al-Mudhaf, who heads the Kuwaiti agency responsible for its war claims, warned the U.N.C.C. council at its last session in March that any break in payments "could be interpreted as the United Nations' failure to abide by its resolutions and their implementation, as well as its failure to hold aggressor states accountable for their wrong deeds."
[an error occurred while processing this directive]
The U.N.C.C. is caught in the middle, because for the past decade it has been the only place to which claimants could turn for reimbursement. The agency, housed in one of the few office buildings in Geneva with a basement big enough to store its millions of documents, is a 1991 creation of the U.N. Security Council; and its governing council consists of representatives of the same nations. It has been able to settle claims because it was allocated 30% of Iraq's oil revenue under the U.N.'s Iraqi "oil for food" program. That amount was cut to 25% in 2000 and slashed again to 5% last month following Saddam's defeat. Significantly, the U.S. and other security-council members didn't stop the funding altogether. "There's a recognition this is an institution that should continue to have some existence and vitality," says a senior U.S. official at the U.N.
So far the u.n.c.c. has awarded almost $44 billion in compensation to individuals and companies. It has paid out about $17.5 billion of the total, including to 2.5 million people whose health or livelihoods were directly affected by Iraq's invasion of Kuwait. For example, people who could prove they had to leave Kuwait or Iraq between the August 1990 invasion and the cease-fire seven months later received a fixed sum of $2,500 for each individual, or $5,000 for families.
But the bulk of the claims upheld but not yet paid in full are for Kuwaiti oil companies. And there is still a whopping $170 billion in claims to process. u.n.c.c. officials say only a fraction of that amount is likely to be awarded. Alongside the Kuwaiti lost profits claim, the biggest outstanding ones are for environmental damage to Kuwait and Saudi Arabia. Once those have been dealt with, an estimated $4 billion in new awards will remain, officials say. About $1 billion is expected to go to several thousand stateless Palestinians who were dislocated or otherwise affected by the war.
The trouble for Iraq is that these sums come on top of its other foreign and commercial debt, estimated at between $60 billion and $130 billion (depending on whether you include interest) and about $30 billion given to Iraq by Saudi Arabia and other Gulf states during its war with Iran. "There's not enough money to pay the debt, let alone pay the debt and reconstruct at the same time," says Nicolas Ulmer, a Geneva lawyer who has argued some corporate claims before the Commission. "It's a political imperative that you can't make all Iraqis pay the debts of the Saddam regime for two generations."
Kuwait and other claimant governments are now under intense U.S. pressure not to collect what they are owed. But with sanctions now lifted, some corporate clients are bound to dust off old claims. Attorneys for J.P. Morgan Chase, for example, have said they were looking to revive a judgment the U.S. bank won in 1991 against Iraq over $50 million in loans. And some big corporation with a sizeable claim may even try to seize an Iraqi oil shipment as payment, to test international law. "I assume there'll be some enterprising lawyer somewhere who'll try it," says Barton of CSIS.
Kuwaiti officials are watching nervously from the sidelines. While the monetary awards are important, they say it's just as significant that there be a precise historical record of the damage Saddam's regime did to their country. Still, says one, "the whole world thinks that if you're rich you deserve to suffer. It's the message we are getting and it's infuriating." Infuriating perhaps, but probably inevitable given the world's current focus on putting Iraq back on the road to Kuwaiti-style prosperity.