Monday, October 25, 2004

Iraq's Debt, Iraqi Miltary, Spoof of Election -- from Nabil

1) Middle East Economic Survey

No 42

Carlyle Group Proposes To Collect Iraqi Debt For
Kuwait, Says The Nation

An article published in the latest edition of The
Nation examines the conflict of interest confronting
former US Secretary of State James Baker III in his
government role as Special Presidential Envoy on Iraqi
debt and in his private interest as a senior counselor
and equity partner in the Carlyle Group. Together with
the Albright Group (headed by former US Secretary of
State Madelaine Albright) and other international
firms, the Carlyle Group has formed a consortium, The
Nation alleges, for the purpose of persuading Kuwait
to allow the consortium to collect billions of dollars
of unpaid Iraqi debt on its behalf. In the process of
doing so, the consortium would reap substantial
financial benefits for itself.

Citing a copy of a 65-page confidential proposal and
relevant correspondence, The Nation says that the
Carlyle Group is seeking to “secure an extraordinary
$1bn investment from the Kuwaiti Government, with
Baker’s influence as debt envoy being used as a
crucial lever.” The Nation says that the “secret deal”
calls for the transfer of ownership of some $57bn in
unpaid Iraqi debts owed to the government of Kuwait to
a foundation created and controlled by the consortium.
Under the deal Kuwait would give the consortium $2bn
up front to invest in a private equity fund devised by
the consortium, with half of it going to Carlyle. (For
full article see website:

Meanwhile, the Carlyle Group denied on 14 October that
it was ever a part of any consortium or proposal, but
in light of Mr Baker’s connection with President
George W Bush and his family, Carlyle’s statement is
being viewed as damage control as the US Presidential
election enters its final weeks. Other members of the
consortium include: Fidelity Investments, BNP Paribas,
Gaffney, Cline & Associates, Nexgen Financial
Solutions, and Emerging Markets Partnership. The
Kuwaiti Government has not issued any formal reply to
the story so far. According to The Nation, the
“Proposal to Assist the Government of Kuwait in
Protecting and Realizing Claims Against Iraq,” was
delivered to Kuwait’s Foreign Minister, Shaikh
Muhammad al-Sabah, last January by Shahameen Shaikh,
chairman and CEO of International Strategy Group, the
company created by the consortium to manage the deal,
on the same day that James Baker happened to be in
Kuwait meeting with Kuwaiti leaders. According to Mr
Shaikh, the timing was a coincidence.

In correspondence between the consortium and the
Kuwait Foreign Ministry obtained by The Nation, the
consortium warns Kuwait that the debts due to it from
Iraq “are in imminent jeopardy,” and that world
opinion is beginning to favor debt forgiveness, which
it says is shown by President Bush’s appointment of Mr
Baker as his envoy to negotiate Iraqi debt relief. The
consortium has told Kuwait that it stands to lose the
$30bn in sovereign debt that Iraq owes it as well as
$27bn in war reparations stemming from the 1990 Iraqi
invasion. The consortium informs the Kuwaitis that
through its roster of high-level US and European
politicians, who have “personal rapport with the
stakeholders in the anticipated negotiations,” it is
able to “reach key decision-makers in the UN and in
key capitals.” The consortium has told Kuwait that if
it agrees to transfer the debts to the consortium’s
foundation, the consortium will use these personal
connections to persuade world leaders that Iraq must
“maximize” its debt payments to Kuwait, which would be
able to collect the money after 10 to 15 years. The
more the consortium gets Iraq to pay during that
period, the more Kuwait collects, with the consortium
taking a 5% commission or more, The Nation says.

“The goal of maximizing Iraq’s debt payments directly
contradicts the US foreign policy aim of drastically
reducing Iraq’s debt burden,” The Nation points out
and then goes on to ask the opinion of law professor
Kathleen Clark of Washington University, who states
that Mr Baker’s circumstances presents a classic
conflict of interest. “Baker is on two sides of this
transaction: He is supposed to be representing the
interests of the US,” Ms Clark said, “but he is also a
senior counselor at Carlyle, and Carlyle wants to get
paid to help Kuwait recover its debts from Iraq.”
After examining the documents obtained by The Nation,
Ms Clark said, “Carlyle and the other companies are
exploiting Baker’s current position to try to land a
deal with Kuwait that would undermine the interests of
the US Government.” Meanwhile, Jerome Levinson, an
international lawyer and expert on corruption at
American University described the proposed deal as
“one of the greatest cons of all time. The consortium
is saying to the Kuwait Government: ‘Through us, you
have the only chance to realize a substantial part of
the debt. Why? Because of who we are and who we know.’
It is influence peddling of the crassest kind.”
However, The Nation says that in speaking with the
Carlyle Group, the firm claims that neither it nor Mr
Baker wrote, edited or authorized the proposal to the
Kuwait Government, yet it acknowledged that Carlyle
had proposed a deal to the Kuwaitis that would give it
a $1bn investment.

Special Envoy Role

In his role as special envoy Mr Baker has
distinguished between sovereign debt and war
reparations saying that while sovereign debt may be
forgiven, reparations may not because that is under
the jurisdiction of the UN. As it now stands, Iraq
owes up to $200bn in sovereign debt and war
reparations, a figure that severely curtails the
country’s ability to rebuild itself or meet pressing
humanitarian needs. The Nation says that over the last
18 months Iraq has made reparations payments of
$1.8bn, more than Iraq’s education and health care
combined and more than the US has spent on
reconstruction. “Most of the [reparations] payments
have gone to Kuwait, a country that is about to post
its sixth consecutive budget surplus, where citizens
have an average purchasing power of $19,000 a year,”
The Nation says, adding: “Iraqis, by contrast, are
living on an average of just over $2 a day, with most
of the population dependent on food rations for basic
nutrition.” Reparation claims amounting to nearly
$50bn have been awarded by the UN and many claims
still remain to be assessed. These have an estimated
value ranging from $50bn to $130bn. The UN
Compensation Commission puts the figure for unresolved
claims at $82.6bn, only a portion of which is likely
to be awarded.

But the fate of reparations is also in question as
many are beginning to consider the damage done during
the wars resting solely with Saddam Husain and not the
Iraqi people. The Carlyle/Albright consortium sees
this change in attitude as a political and public
relations problem and has informed the Kuwaitis that
if it is going to receive its reparations awards it
will need to cast them in a light that shows them not
to be a burden on Iraq but “as a key element in
working toward regional stability and reconciliation.”
In order to ensure that Kuwait does not lose its
sovereign debt and reparations payments, the
consortium proposes a “three-pronged strategy of
aggressive backroom lobbying, clever public relations
and creative investing and financing,” The Nation
says, and quotes the proposal as saying: “Any solution
for payment of the Unpaid Awards…must be politically
sellable as reinforcing stability and growth in the
Gulf and in Iraq. This proposal provides the strategy,
the architecture and the talent to achieve this goal.”

The proposal suggests a full-time lobbying offensive
directed at Security Council members, using Albright’s
connections, but also other “eminent” people
associated with the consortium like former US Senator
Gary Hart and former US Ambassador to the UN Jeane
Kirkpatrick. “We will first seek to preserve the 5% of
the revenues from Iraqi oil allocated as funding for
payment of the UNCC awards,” the proposal says, adding
that it will do this by making “discreet contacts at
top levels in key capitals of Security Council members
states and with influential representatives,” and
“interventions with UN senior staff to shape
presentations to the Security Council.”

Public Relations Front

On the public relations front, the proposal will
attempt to dispel the notion that reparations are
“diverting resources from rebuilding Iraq to a more
wealthy neighbor.” It suggests that Kuwait must first
assign its unpaid debts from Iraq to a private
foundation controlled by the consortium that will
manage an investment fund that will invest a portion
of reparations payments from Iraq to Kuwait back into
Iraq, such as buying Iraqi state-owned companies. By
doing this, the consortium concludes, the foundation
“establishes a humanitarian rationale for the US and
other countries to continue their support” for
reparations. It also suggests that $1bn of reparations
money be paid into a ‘Kuwait Environmental Restoration
Fund’ that would remind the world of “the gravity of
the environmental legacy facing Kuwait,” and to
“position Kuwait as the region’s environmental
leader.” The fund would be headed by Carol Browner,
former head of the US Environmental Protection Agency
(EPA) and a principal in the Albright Group.

On investment and financing, the proposal says that in
order for Kuwait to maximize the value of its
compensation it would need to place another $2bn in a
Middle East Private Equity Fund. Of that $2bn, “$1bn
would be invested, by way of special agreement, in the
Carlyle Group equity funds,” for a period of at least
12 to 15 years, after which time the return on these
investments, plus whatever the consortium could secure
in reparations payments would be delivered to the
Kuwaitis. According to The Nation, it is an excellent
deal for the consortium. “Its members get to manage a
$2bn investment portfolio, collecting healthy
management fees as well as a percentage of interest.
They also will be paid a ‘retainer’ and 5% of any
debts the consortium gets repaid, and ‘a negotiated
percentage of the value of the returned to Kuwait
exceeding’ the pre-arranged amount.”

The article goes on to point out that ultimately,
because Iraq’s financial resources will be diverted to
Kuwait, the US taxpayer will be paying the bill for
Iraq’s reconstruction. Commenting on the scenario
proposed by the Carlyle/Albright consortium, The
Nation quoted Mr Levinson as saying: “Here you have
two former Secretaries of State seemingly proposing to
use their contacts and inside information to undercut
the official US Government policy,” while Ms Clark
said the proposal “lays bare how former high-level
government employees use their access in order to reap
financial benefits that appear to be enormous.”

2) NY Times on Iraqi Military:
Sat, 23 Oct 2004 16:33:47 +0000

3) Comedy on Election:

4) Salam Pax Blogger on DC Visit:,3858,5044687-112564,00.html

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