June 8, 2006

US urges Arab states to use oil profits for Iraq

By Sue Pleming

WASHINGTON (Reuters) - Arab nations should use some of
their windfall profits from high gasoline prices to help
rebuild Iraq and forgive most of the $40 billion in debt owed
to them by Baghdad, a senior U.S. official said on Thursday.

The State Department's Iraq coordinator, James Jeffrey,
told lawmakers the Bush administration had been campaigning to
get Arab states such as Saudi Arabia and Kuwait to follow
through on pledges to help rebuild Iraq and to forgive debt.

"They understand that reconstruction and stability in Iraq
is absolutely critical and they are the beneficiaries of large
windfall profits (from high oil prices)," Jeffrey told a
hearing on Iraq reconstruction at the House of Representatives
International Relations Committee.

Oil prices have soared in recent months to more than $70 a
barrel, due partly to the violence in Iraq and concerns Iran
could turn off the taps in its dispute with the West over its
nuclear intentions.

Jeffrey said he had traveled to the Gulf region several
times to appeal directly for more aid and for debt forgiveness
from Arab nations as had Secretary of State Condoleezza Rice.

"The president feels exactly the same way and he has
charged us to get this debt removed," said Jeffrey, when pushed
by lawmakers who said the Bush administration was not putting
enough pressure on Arab nations.

Jeffrey said one reason Arab nations had not come forward
with significant amounts was because they had been waiting to
see if a stable political system could be established in Iraq.

"We have obtained that and so I can give you no further
reason why it could not move forward," he said, referring to
the formation of Iraq's elected government.


Gulf Arab states are owed about $40 billion by Iraq, with
the bulk of the debt owed to Saudi Arabia and Kuwait and
Jeffrey urged them to follow the lead of the Paris Club of
creditors and forgive 80 to 100 percent of that money.

Iraq's main creditors at the Paris Club of wealthy nations
agreed in November 2004 to cancel 80 percent of Baghdad's debt
to them in three steps over four years.

The Paris Club's 19 members include the United States,
Japan, Canada, Germany, Britain, France and Italy, as well as
other Western European states, Russia and Australia.

Lawmakers complained the United States was left to shoulder
the bulk of the reconstruction effort in Iraq while its
oil-rich neighbors held back. The United States has pumped more
than $20 billion into Iraq's reconstruction.

"If the American taxpayer would know that Arab countries
which are getting billions in windfall oil profits are not
meeting their puny obligations to participate in the
reconstruction of their fellow Arab nation of Iraq, they would
be outraged," said California Rep. Tom Lantos, the ranking
Democrat on the committee.

About $13.5 billion was pledged at a donors conference for
Iraq in Madrid in October 2003 but only about $3 billion of
that had been disbursed so far, said Washington's special
inspector general for Iraq reconstruction, Stuart Bowen.

Bowen's latest report on Iraq reconstruction said Kuwait
was involved in "small-scale" humanitarian programs in the
south but had not moved much of its $565 million pledge and
Saudi Arabia and the United Arab Emirates were holding off.