The headache's just beginning for America

BY LIM SAY BOON

THE awesome task facing the United States in Iraq today was summed up by Vice-President Dick Cheney in 1992, when, as Secretary of Defence, he explained why he didn't go for Baghdad: 'If we'd gone to Baghdad and got rid of Saddam Hussein - assuming we could have found him - we'd have had to put a lot of forces in and run him to ground some place. Then, you've got to put a new government in his place and then you're faced with the question of what kind of government are you going to establish in Iraq? Is it going to be a Kurdish government or a Shi'ite government or a Sunni government? How many forces are you going to have to leave there to keep it propped up?'

Welcome back to the future, Mr Vice-President.

Let's start with the cost of war. The Congressional Budget Office reckoned a short war would cost between US$44 billion (S$78 billion) and US$60 billion. And a protracted war could cost US$100 billion.

All right, since US troops already control the airport at Baghdad, let's go for the short war scenario - that'll still add about 10 per cent to the US current account deficit. But that's only the beginning.

What happens after the war? In an earlier column, I referred to the US Army's chief of staff, General Eric Shinseki, who reckoned that any post-war occupying force would need 'several hundred thousand soldiers'. And the US Congressional Budget Office put the cost per peacekeeper at US$250,000 a year.

Bosnia, much smaller, less populous and ostensibly less hostile than Iraq, still needed the presence of about 50,000 troops to maintain order. Estimates for Iraq range from 100,000 to 200,000 troops. That suggests anything between US$25 billion and US$50 billion a year.

Then, there's post-war reconstruction to come. If the US is to achieve its objective of 'change' in Iraq - to set the country up as a model of economic and social progress for the Middle East - it is going to have to spend up, big.

Let's start with demobilising a huge segment of the 500,000 Iraqi soldiers. If you cannot integrate them back into some semblance of dignified existence, they will become a source of discontent and potential future conflict.

And then there is Iraq's foreign debts, which are estimated at US$60 billion to US$80 billion, with Russia, France and Japan its biggest creditors. Could the US encourage the Iraqis to default under the so-called 'Doctrine of Odious Debt', which argues that states should not be held accountable for 'personal debts' run up by a regime against the interests of the state?

Yes, that might be 'just desserts' for the French and the Russians as far the Americans are concerned. But they still need their votes on the United Nations Security Council to get things done in the post-war period, not least to lift the sanctions on Iraq.

Then, the US has to arm-twist Kuwait to write off its outstanding US$100 billion to US$200 billion in damages claims against Iraq for the 1990 invasion.

Even the ostensibly 'positive' developments will prove a headache. For example, an influx of repatriated funds, and the spending of a relatively affluent occupation force will drive inflation through the roof. Will the US subsidise food prices for the vast majority of poor Iraqis? There could be between seven and 10 million Iraqis in desperate need of basic survival assistance. How will the US persuade the UN to pick up the tab without coming to terms with the French and the Russians they now so disdain?

The glib answer might be 'oil revenues'. The problem with that in the near term is that there are severe output constraints in Iraq at the moment. It may be sitting on the world's second largest oil reserves, but it can only get out a miserable 2.8 million barrels per day. And that figure is declining at an estimated rate of 100,000 barrels each year due to neglect.

It is going to require tens of billions of dollars of investment to boost capacity. But oil companies may not be in a rush to invest if the contracts are with an 'interim' regime. And sorting out existing contracts signed by Mr Saddam will slow things to a crawl.

Mind you, all these problems are relatively small and can be overcome provided the US can quickly stabilise Iraq. That is, if Iraqis come out to cheer the invading troops once the menace of Mr Saddam is removed.

The problem with that scenario is the Iraqis really don't have much of a history of welcoming foreigners - Turkish or British. Why should the Americans, who are associated with two wars against them and a decade of privation between those two wars, be suddenly any more welcome in Iraq than the Ottomans or the British? And they have a history of hostility to foreign-installed rulers, too.

Remember T.E. Lawrence? Yes, 'Lawrence of Arabia'. Well, he engaged in a bit of regime meddling between the two world wars when he got the British to install his Hashemite buddy Feisal as king of several former Ottoman provinces - cobbled together to form what is now called Iraq. After a few decades of unrest, the Iraqis ended up slaughtering the Hashemite royal family in the late 1950s.

But long before that, the British had to invade Iraq in another 'regime change' exercise during World War II, a little more than a decade after it granted sovereignty to Iraq. And a decade or so after that adventure, the British found their hold over the region falling apart again - with the rise of Arab nationalism and Islamic fundamentalism and turmoil across the region.

As for the Americans, their biggest gamble is not on the outcome of the war. More than money and economics, the US has wagered prestige, American public morale, and possibly the future of Pax Americana on Iraq being another Kosovo and not another West Bank.

The writer is director of OCBC Investment Research.
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