Rebuilding Iraq: World Bank President James Wolfensohn

PAUL SOLMAN:

A realization is dawning on those who would reform Iraq: The ancient land is going to need a brand-new economy with brand-new laws to protect buyers, sellers, investors — anyone entering into a contract.

First, though, there's still the obstacle of unrest: Looters ransacking hospitals, museums, banks.

Rick Barton and Sheba Crocker have written a widely noted report of Iraq's emerging economy.

RICK BARTON:

Really, the first issue will be public safety, and we won't even get to the other elements of the law and the sanctity of contracts unless people feel safe.

PAUL SOLMAN:

So at the moment, says Barton, regarding Iraq…

RICK BARTON:

It is literally up for grabs. The good news about looting is that you get to a point when you can only self-loot.

SHEBA CROCKER:

Yeah, there's nothing else left.

PAUL SOLMAN:

Once order is rebuilding can begin, but reestablished, though, rebuilding can begin, but rebuilding what?

PAUL SOLMAN:

What don't we know about the Iraqi economy?

SHEBA CROCKER:

It's fair to say that we actually know almost nothing.

The Treasury Department has a group of people right now working to figure out any little pieces, any little facts they can — how much do people make — because there's a plan to start again paying the civil servants salaries, they need to know what those salaries are, and Saddam has for decades been refusing to release any budgetary information to the IMF, and the World Bank hasn't been in there.

PAUL SOLMAN:

There is, however, says Barton, cause for hope.

RICK BARTON:

Well, the good news in Iraq is you actually have an economy which is different than Afghanistan, Haiti, Bosnia, and almost everywhere else. There are exports. There's actually a legal product which is being exported. So you do have a building block.

It's about $13 billion to $15 billion a year of oil, and that's not a bad start.

PAUL SOLMAN:

Emigre Iraqi businessman Rubar Sandi points to another resource as well: The spirit of enterprise. His sister is an engineer who officially earned $4 a month in Iraq.

RUBAR SANDI:

I said, "How did you survive then? How did you?" She says you have to work odd jobs.

PAUL SOLMAN:

Like what?

RUBAR SANDI:

Going like in the evening — her husband would drive a taxi. Working in the houses, performing some services for people who had the better life or who were probably part of the government elite.

PAUL SOLMAN:

But even if Iraq proves entrepreneurial, as it has been for millennia, even if oil revenues grow quickly, foreign countries and companies will want the lion's share. They claim Iraq owes them money, as much as $400 billion. In short, building a new economy is a huge job.

On the other hand, it has been done successfully before, with Japan and Europe after World War II. Indeed, in Breton Woods, New Hampshire, in 1944, under the direction of the U.S. and England, the International Monetary Fund and the World Bank were created to rebuild the postwar economy. This past weekend during its spring meetings, the IMF and World Bank discussed rebuilding again, this time the economy of Iraq.

JIM LEHRER:

And now to the president of the World Bank, James Wolfensohn. Mr. Wolfensohn, welcome.

Did you and your colleagues at this meeting reach any conclusions about what it's going to take to rebuild the economy of Iraq?

JAMES WOLFENSOHN:

No, we didn't, but the ministers that were present made a decision that at a point in time when it's safe to enter Iraq, that the [World] Bank and the [International Monetary] Fund should do preliminary work to try and come up with a program much as we've done in some other countries that have been subject to war.

JIM LEHRER:

Do you agree with those in Paul Solman's piece who say there's very little known about the economy?

JAMES WOLFENSOHN:

We certainly do. We ourselves finished our last loan there in 1973.

JIM LEHRER:

1973?

JAMES WOLFENSOHN:

Yes. And the Iraqi government joined the Breton Woods Institutions in 1945. We actually withdrew our people there in 1980. And the Monetary Fund has pretty much the same lack of experience since that time.

JIM LEHRER:

Well, how would you describe it in general, what kind of, does it have an economy that fits some description like capitalism, or socialism, or communism, or anything like that?

JAMES WOLFENSOHN:

Well, it was certainly a dictatorial economy, an economy based, as was said in the piece, significantly on oil. We agree that the probable income was $13 billion to $15 billion a year. But what we do know about it is that the standard of living has dropped significantly in the last 20 years. We know that infant mortality and maternal mortality are quite high.

But beyond that we have very little knowledge. What in fact we're doing, Mr. Lehrer, is we are now putting together a team of people from many countries that have actually worked in Iraq so, that we can try and get some on the spot experience from recent times.

JIM LEHRER:

And they're going to go over there?

JAMES WOLFENSOHN:

They will come with us in our team. I've spoken in these last day was the governments of Brazil, Morocco, of some other Middle Eastern countries, even Malaysia, to discover that there are people who have been spending their time in Iraq and we're getting those governments to let them come and work with us for a period of three or six months.

JIM LEHRER:

Well, what about some of the basics? Do they have a currency, a viable currency system?

JAMES WOLFENSOHN:

Well, they have had a currency, but one of the first things that will need to be done by somebody is to reestablish the central bank, reestablish a payment system, get the banks working again. And from the shots that you've seen, the banks are in pretty sore shape.

JIM LEHRER:

But did it have a central bank or does it have a central bank?

JAMES WOLFENSOHN:

It did have a central bank, but we don't know the extent of it now, we don't even know what records it has. It could easily have been looted.

JIM LEHRER:

And as far as any kind of — what about foreign exchange? How did it — there is a huge foreign debt, is there not?

JAMES WOLFENSOHN:

There's a huge foreign debt. Some people have estimated it up to $400 billion. Most of that debt will be bilateral debt, debt to other countries.

The debt to the World Bank is a modest $82 million, which we've had outstanding for years. And no doubt that can easily be cleared. There's very little debt to the multilateral institutions, it's all to different countries that have traded oil and goods with them.

JIM LEHRER:

Now, is the World Bank, you and your colleagues, are you going to try to get some of these nations to forgive that debt?

JAMES WOLFENSOHN:

It would be unlikely that we'll be in that negotiation at an early stage, because all we're authorized to do now by our governors — who are the same governors, by the way, representing the countries that are at the United Nations — all they've authorized us to do is to go and try and get information and try and come up with some appropriate plan.

JIM LEHRER:

I'm sure you noticed that the number two man in the Pentagon, Paul Wolfowitz, over the weekend suggested or last week said that France, Germany and other countries should forgive the debt and those countries immediately said no thanks, Mr. Wolfowitz. What do you make of that?

JAMES WOLFENSOHN:

Well, I heard similar comments in these last couple days. But I don't attribute great weight to this.

At a time when the negotiations are starting it's very unusual for people to say immediately, well, I will forgive something. So I regard it as the beginning of a negotiation, because what I think the world body wants is an emerging Iraq that is viable. And if there are substantial outstanding debts, something will have to be done to bring them into a more manageable position.

JIM LEHRER:

Based on what you picked up at the meetings over the weekend and elsewhere, since before the war, the tensions that existed between the United States and Britain on one side and other permanent members of the Security Council and the others who did not support the war — are those tensions going to get in the way of reconstructing Iraq?

JAMES WOLFENSOHN:

Well, interestingly, at our meetings there was practically no tension. It was extraordinarily civilized.

As you might imagine, I was worried about that when we went into the meetings, but it was done very, very well with the secretary of the treasury, John Snow, and his counterparts from France and Germany, there was very little problem, and Gordon Brown was actually chairman of the meeting, the British chancellor. But this game is not going to be played by finance ministers.

JAMES WOLFENSOHN:

The game will be played at the highest political level to determine who is going to play, who is in fact going to be responsible, who is the government going to be. And fortunately that's not a problem the World Bank will have to decide.

JIM LEHRER:

So they can have all the problems they want to at the U.N. Security Council and that will not affect what the World Bank does?

JAMES WOLFENSOHN:

Well, it certainly will affect our ability to lend. It will affect what we do at the next step. But it's our hope that that will be sorted out before we get to the next step.

I think you know, Mr. Lehrer, that we have worked in Bosnia, in Afghanistan, in East Timor and many of these places and the thing that we bring to the situation in Iraq is a knowledge of how you go about reconstructing a country. Our colleagues in the Monetary Fund specialize in the financial sector. We are specializing in the health, education, infrastructure, trying to get the kids back to school — all that sort of thing that really helps an economy start. That is where we would come in, taking on from the United Nations that typically does the humanitarian work.

JIM LEHRER:

And the United Nations would ask the World Bank to do this? Or the governors, your board of governors, which as you say are the main countries of the world, they would say World Bank go in and take care of this?

JAMES WOLFENSOHN:

In the past that's exactly what's happened, but there's usually then been an agreement between the countries of the world, which has been expressed either at the Security Council or at an international meeting.

In this case we're all aware that there is a lot of jockeying going on as to how the country is going to be run, and we're waiting for instructions. What we've got so far, both my colleagues at the Fund and myself, is an indication that we can go in and get started, get the work done to prepare for everything, and I guess we'll get a further installment from our masters sometime soon.

JIM LEHRER:

Based on what you know thus far, and I realize that there's a lot that is not known about what the problems are inside Iraq, do you consider this a reconstructible country? I mean, it's got a lot of problems. Is there any reason to doubt that it can be put where the people who want it put in a new world — it can actually be put there?

JAMES WOLFENSOHN:

Well, I think it starts with a lot going for it. First of all, it has very intelligent and well-trained people. As was said in the piece before, the Iraqi people have had millennia of culture and of education. So in starting with the people in the country I think you have a very good resource.

Secondly, you do have a $15 billion income on average from oil. But what you have to overcome is the history. The history is that in the last 20 years the standard of living has dropped by two thirds, and you have a difficult starting point even before the bombing and the war.

So what we need to do is to assess what has been destroyed in the conflict. We have to find out who the counter-parties are with whom one can deal, and then I would say that Iraq would be the type of country that would respond very quickly to reconstruction efforts.

JIM LEHRER:

Is there any past experience that you are aware of, either recent or even distant that is parallel with what you see coming in reconstructing Iraq?

JAMES WOLFENSOHN:

Well, of course, there have been reconstructions in countries like Bosnia-Herzegovina, and Kosovo, which also had intelligent people. The difference here is that in those cases there was a unified international commitment, and there weren't the political overlays. This is a somewhat different situation, a situation in which there's been significant conflict and disagreement as to how the future of Iraq will be borne out. And that's something which I think is perhaps more difficult in this case than anything else we've seen.

JIM LEHRER:

But in terms of what has to be done on the ground?

JAMES WOLFENSOHN:

In terms of what has to be done on the ground, Afghanistan would be an example, Bosnia-Herzegovina would be an example, the sort of thing that we're doing already in the territories of Palestine with Israel.

You see the conflict, you have the task of reconstructing, getting people back to work. If you take it altogether, the experience we've had, it can be very easily applied to Iraq and it would be my belief that given the right political environment, Iraq could move rather quickly.

JIM LEHRER:

And the World Bank is ready to do it?

JAMES WOLFENSOHN:

We certainly are, if we're authorized by our shareholders.

JIM LEHRER:

All right, Mr. Wolfensohn, thank you very much.

JAMES WOLFENSOHN:

Thank you.