Most Donors Honoring Pledges
Germany has paid, Japan is paying - in yen; oil states generous, but timing is imprecise. PAYING FOR GULF CONFLICT
SLOWLY but surely, the United States is cashing in the IOUs it accumulated during the Gulf war. In the previous wars of the 20th century the US, as the world's leading creditor, has paid the tab and even shouldered the costs of reconstruction, as in post-World War II Europe under the Marshall Plan. But during the Gulf war, as one of the world's leading debtor nations, the US had to pass the hat.
To the surprise of many economists, the nations that agreed to help pay the costs of Operations Desert Shield and Desert Storm are doing just that.
"Historically, payment for joint military operations or war reparations has been dismal," says Walker Todd, an economist with the Cleveland Federal Reserve Bank who has written on war-related financing. "Since the end of the Franco-Prussian War , when the victor was actually paid off, the lead nation in the war coalition has always been unsuccessful in getting contributions to defray war costs. The US, on the other hand, has done much better than expected."
To help defray the costs of leading the desert fight against Iraqi aggression, the US secured pledges of $55 billion from its coalition partners and from other nations concerned about maintaining access to Gulf oil. The pledges were made in cash, in-kind contributions, and such host-country support as transportation, food, and gasoline.
According to a Pentagon spokesman, the three Gulf states of Saudi Arabia, Kuwait, and the United Arab Emirates pledged a total of $37 billion. Japan, the principal outside backer, promised $9 billion. The other major contributor was Germany, which has already made good on its $6.6 billion pledge.
Pledges totaling $16 billion were also made to alleviate the plight of the so-called "front line" states, including Turkey, Egypt, and Jordan, which suffered major economic dislocations as a result of the Gulf crisis.
Four months after the end of the war, various Bush administration officials express confidence that up to 80 percent of the US's $60 billion to $70 billion Gulf war outlay will be repaid. But the repayment process has not been entirely trouble-free. One complication has been that the Gulf states, while generous in making financial commitments, have been imprecise on the timing.
"We have always expected repayment, but we don't have any particular timetable," acknowledges the Pentagon spokesman.
Negotiations with Japan have hit two rough spots. One was the technical but potentially costly matter of whether Japan's debt would be paid in dollars or yen.
"When [US Treasury Secretary Nicholas] Brady met with Japanese officials to solicit their financial support for the war effort, he neglected to ask an important question: Which currency would Tokyo use to make its contribution," explains one State Department official. The Japanese Diet [parliament] announced that payment would be transferred in yen. The problem was that, with payments arriving in installments, and with the value of the dollar falling against the yen, the US was getting shortchanged by a s
much as $500 million, according to official US estimates.
The US and Japan also disagreed on whether $700 million of the $9 billion pledge would go to other states, including Britain and France, which contributed forces to the Gulf coalition. American officials say the matter is being resolved through a $500 million transfer by Japan to a UN fund that will cover the US share of such postwar costs as resettling Kurdish and Shiite refugees.
Economists say the high repayment rate is a function of several unique circumstances. One is the fact that backers of the US-led war coalition included some of the world's wealthiest nations, including the oil-rich Gulf states and Japan. Another is that the US had not worn out its welcome by asking for international support for other military ventures in the past.
A third reason for the timely repayments is that, because oil flows were endangered, the Gulf war was as much in the interest of the contributors - producers and consumers alike - as it was of the US. "It's really more of an international interest than a US national interest," says Mr. Todd.
Among the front-line states, Jordan has suffered the most traumatic economic shocks since August 1990. But because of its reluctant support for sanctions, the Gulf states refused economic assistance.
The Bush administration also counseled against helping Jordan, which in the end may be compensated for little more than a quarter of its estimated $4 billion losses during the Gulf war.
The major problem now is that, with memories of the war fading, debtor nations may be tempted to sidestep the rest of their obligations. If that happens, the US will have to increase borrowing, which, in turn, will increase its already-swollen budget deficit.
"I still remain skeptical that the US will be fully repaid," says Todd. "As time passes, the issue is falling off the map."