JIM LEHRER: Our economics correspondent of WGBH-Boston reports the Iraq story.
PAUL SOLMAN: In the wake of war, Iraq not only faces the very visible challenge of rebuilding the country, but also of paying off unseen claims of some three to four hundred billion dollars, obligations that date back before the first Gulf War of 1991, when Iraq invaded Kuwait.
In fact, you can divide Iraq's obligations into three distinct chunks: reparations from '91, straightforward debts, and pending contracts Iraq is still presumably obliged to honor. The biggest item is reparations: the claims of individual Kuwaitis mostly, attacked in the '91 war, says Robert Hormats...
ROBERT HORMATS: ...whose father or brother were killed by the Iraqis; whose house was destroyed; whose shop was looted and destroyed.
PAUL SOLMAN: Investment banker Hormats is a consultant to the State Department on Iraqi finances. We interviewed him recently at a Middle Eastern restaurant in Queens, New York.
ROBERT HORMATS, Vice Chairman, Goldman Sachs International: The Iraqis were originally told by the U.N. that as a result of claims by Kuwaitis and others who were damaged or, or victimized during the Iraq-Kuwait war that they had to pay $40 billion plus. They've paid a certain amount of it. They owe about $27 billion more.
PAUL SOLMAN: Before the recent war, Iraq was paying off these reparations at $4 billion a year, through the U.N.'s 'Oil-for-Food' program. The U.N. sold Iraqi oil and used the proceeds to distribute food and compensate the victims of '91. But the $27 billion still owed individuals is dwarfed by $172 billion worth of further 1991 Gulf War claims that haven't been resolved: for damage sustained in Kuwait by governments, companies and international organizations. That would bring the reparations subtotal to about $200 billion. Sheba Crocker, co-author of a major study on Iraq's obligations, continues the tally.
SHEBA CROCKER, Center for Strategic and International Studies: The claims are one part of it, and then you get to the debt, which is the part that we know a lot less about, and the estimates range wildly, $60 billion to $130 billion in debt.
PAUL SOLMAN: These are commercial debts racked up over the decades -- to foreign banks, companies, governments -- much of them for the purchase of arms. The high-end estimate -- $130 billion, including some $50 billion of accrued interest -- ups the subtotal of Iraq's obligations to about $330 billion.
And then there's the third category, pending contracts: with Russia's Luk Oil, for example, which helped develop Iraq's oil fields, in exchange for future considerations. There are something like $60 billion or so of these. Add it all up and Iraq could conceivably owe as much as $390 billion, though some claim the figure is much lower.
But the big debate isn't over how much Iraq owes; it's over how much Iraq should pay. And many people think it shouldn't pay at all. Consider the reparations of 1991, starting with the $172 billion in claims that the U.N. hasn't yet settled, says Rick Barton, co-author of the Iraq debt study.
RICK BARTON, Center for Strategic and International Studies: If Iraq is going to have a future, you have to pretty much shut down those claims and probably put a moratorium on those that have already been settled, in terms of the payments, because you just cannot afford to have that kind of money going out of Iraq at a moment when you need the catalytic boost inside the country.
PAUL SOLMAN: But how fair would that be, Bob Hormats asks.
ROBERT HORMATS: If you're a Kuwaiti shopkeeper and your brother was killed or your shop was looted and the U.N. has awarded you this money, you're saying to yourself, why should I give that up just to help the future growth of Iraq?
PAUL SOLMAN: Now debates over debt are as old as the hills ' or in the case of this footage, the Andes. Back in 1986, a newly elected government took office in Bolivia and asked economist Jeffrey Sachs to tell its creditors, represented here by the NewsHour economics correspondent of that era, that it shouldn't have to honor the debts of its predecessors.
PAUL SOLMAN: My shareholders and my depositors have given me their money, which I've loaned to you, and I need it back.
JEFFREY SACHS, Economist: But I must insist that a new fledgling democracy struggling with incredible economic hardships should not jeopardize democracy, should not jeopardize the health and well-being of very poor citizens to make good on commercial bank loans.
ROBERT HORMATS, Vice Chairman, Goldman Sachs International: It's exactly the same argument. When bad guys are displaced, and they've incurred a lot of debt, the new government comes in and says don't hold us responsible for paying that debt. If you do we'll never get back on our feet. So give us forgiveness. Give us a grace period. Lower the repayment terms - now -we'll rebuild our economy - and later on - five years, ten years down the road we'll be in a better position to pay you at least some of the money we owe you.
PAUL SOLMAN: So one option is for Iraq, with regard to its actual debts, is to 'reschedule' them: issue new IOU's in exchange for its old ones. Another option: Iraq could simply default' repudiate the debts of its so-called 'odious' predecessors. This IOU was issued in 1912 to build Russia's Kahetian Railway, with an 'absolute guarantee' of repayment, and 4 ½ percent annual interest, by the Tsarist government. On the back, you can see the first 12 interest coupons were clipped and redeemed. The 13th, dated August, 1918, was clipped too, but stapled back on to a now-worthless bond because...of the Russian Revolution, when the Bolsheviks renounced the debts of the Tsars.
ROBERT HORMATS: Russian bonds were never paid; Chinese bonds of the earlier government before the revolution were never paid. In many cases, bonds have not been paid. American bonds of the Confederacy, when the Confederacy collapsed, were not paid. So there's a history of sovereign debt default.
PAUL SOLMAN: As to who's left with such truly 'junk' bonds, in 1918, it was mostly French creditors that Russia stiffed. Today, Russia and France are united, because between them they're owed as much as $20 billion by Iraq -- as are all sorts of creditors, all over the world.
IBRAHIM GHENEM: I know some Egyptians work in Iraq, has family, has house, he has car. The war starts, everybody go back without nothing.
PAUL SOLMAN: So you would get them the money before Russia, before France.
IBRAHIM GHENEM: Right.
PAUL SOLMAN: Now we came to this part of New York so we could add the perspective of the Arab Street -- quite literally: Steinway Street in the 2800-block in Astoria, also known as 'Little Egypt.'
PAUL SOLMAN: So should Iraq pay its debts?
NOUREDDINE KHDAIDI: In my opinion, Iraq should file a Chapter 7 and 13 and out of business. They're gone. They have no money. They got nothing. So who you gonna hold -- that criminal, Saddam. Catch him and hold him responsible for everything.
PAUL SOLMAN: If this Moroccan entrepreneur was arguing for canceling Iraq's debts, his neighbors next door at the pediatric clinic were against.
PAKISTANI MAN: They should pay back their money with the oil which they are going to dig out.
EGYPTIAN WOMAN: I think they have enough oil to afford for everybody. Iraq is a very rich country.
PAUL SOLMAN: And at the local hookah parlor'where, with the war over, they were back to watching old movies'some thought Iraqis should pay, some thought they shouldn't.
MAN: Right now they, they're really in bad situation after the war. But the debts, the French and the Russian - they put themselves in that position.
SAID KASTEM: In case of Iraq with their resources and oil and the potential of money that they have, they should pay every penny.
LABIB SALAMA: They have enough oil. Everybody knows that they have enough oil.
PAUL SOLMAN: 'Oil.' Again and again, that was the reason we heard for why Iraq should honor its obligations. But Bob Hormats, listening in on these interviews, put the oil money in economic perspective.
ROBERT HORMATS: The fact is that oil revenues now are only about $15 billion annually. For the moment, their oil money is simply not enough to pay for the reconstruction of the country which is going to be 20 to 25 billion dollars a year.
PAUL SOLMAN: And certainly not enough to pay off all Iraq's obligations. Now it's not like Iraqis don't sympathize with creditors. In fact, their ancient ancestors, who created the cradle of civilization, were the first creditors in recorded history.
JOAN ARUZ: Tamairya and Ish Punaman owe 6 minas of silver to Asuridi.
PAUL SOLMAN: Historian Joan Aruz at New York's Metropolitan Museum, translating one of the thousands of existing clay records, next to its 'envelope,' of commercial loans ' this one for about 6 pounds of silver, at the usual interest rate, back around 1800 BC, of 20 percent a year with an extra 10 percent late fee. A broken envelope suggests the debt was paid, the matter settled. An unbroken envelope?
JOAN ARUZ, Metropolitan Museum of Art: If the tablet is still inside the envelope, one would assume that the debt was not yet paid.
PAUL SOLMAN: And how often do you find unbroken envelopes?
JOAN ARUZ: Quite often, quite often.
PAUL SOLMAN: Today, millennia later, Saddam's multi-billion dollar debts may wind up be buried in Babylonia. Indeed, the Bush Administration has suggested canceling the debts of the odious Saddam Hussein. But the fact is default itself could prove expensive, says Bob Hormats.
ROBERT HORMATS: There's a risk that if other countries don't get compensation for the money owed them, they can go out and seize Iraqi oil shipments on the high seas in order to obtain satisfaction for their debts by selling that oil.
PAUL SOLMAN: In fact, Russia's Luk Oil might well do so.
SHEBA CROCKER, Center for Strategic and International Studies: LUK Oil has already threatened to bring a suit at the Arbitration Court in Geneva, so basically what they've said is the minute they see a ship leaving a port with oil, they are going to get the court to issue an order stopping the shipment.
PAUL SOLMAN: There would be, in other words, many specific problems were Iraq to default. But the general one may be the most important: if France, Russia, and so on don't get paid, says Hormats...
ROBERT HORMATS: That's going to be very acrimonious, because the country that has the greatest stake in rescheduling other than Iraq is the United States -- since if there's not a rescheduling, we're going to have to pay even more for the rebuilding of Iraq than we already are going to have to pay.
PAUL SOLMAN: In the end, then, we can be pretty sure of two things: that the rebuilding of Iraq will cost billions and billions. And that the end of the shooting war will coincide with the beginning of the struggle over Iraq's billions and billions of financial obligations.