Donors promise Iraq $54 billion, smashing expectations

By DAVID CHANCE and MONA MEGALLI

MADRID - International donors pledged at least $54 billion in aid and loans over the next four years to help rebuild war-ravaged Iraq as the response to a US-led drive for funds far outstripped expectations.

Spanish Economy Minister Rodrigo Rato said the combined offer -- made at a gathering of more than 70 nations in Madrid -- was equivalent to twice Iraq's annual national income and was a global vote of confidence in the country's future.

"If you take the American contribution which is hopefully totally a grant, then we have at least US$33 billion, of which US$25 billion is grants," said Marek Belka, a former Polish finance minister who is spearheading the fund raising efforts of the US-led Coalition Provisional Authority.

"All in all we are overwhelmed, we are very happy, it surpasses all expectations," Belka told Reuters.

He said the figure took the lowest likely contribution from the International Monetary Fund and World Bank and excluded trade finance and grants in kind.

The highest estimate for pledges from non-US donors came from the Iraqis themselves. Planning Minister Mahdi Hafez told reporters they had matched Washington's promise of US$20 billion.

That is on top of US$20 billion promised by Washington and is far in excess of what had been expected a few weeks ago, when political divisions threatened the existence of the meeting.

"A little over six months ago Iraq was the black sheep of the international community," Iraq Governing Council President Iyad Allawi told a news conference. "Today I am again proud to be Iraqi."

But elation was clouded by the treacherous security situation in Iraq, from where aid agencies and international organisations have pulled out or cut staffing to a minimum.

Two US soldiers were killed in a mortar attack on Friday, bringing to 108 the number of US soldiers killed in Iraq since Washington declared major combat operations over.

"Security is not going to be a permanent hindrance to reconstruction," Secretary of State Colin Powell said. "It is making it a little harder now but...it will improve."

EU External Affairs Commissioner Chris Patten cautioned that past experience had shown there was often a huge lag between promises and delivery of aid. "We need to get the money out of the bank and into Iraq as quickly as possible," he said.

The aid conference had struggled against scepticism from critics of the war. Indeed, international fault lines that were opened by the conflict were still apparent in Madrid, with France, Germany and Russia bringing no new aid.

The US$33 billion falls short of the US$56 billion the World Bank and United Nations have said is needed over four years to rebuild an economy torn apart by war and sanctions, but future oil revenues, foreign direct investment and a refund on the oil-for-food program could narrow the gap.

Pledges from governments and agencies came in a confusing mixture, including humanitarian and reconstruction aid, export credits and project finance, and covered up to five years.

The World Bank said it would make between US$3-5 billion available up to 2008, while the IMF promised support of up to US$4.25 billion over three years.

Japan made the largest offer after the United States, pledging a further US$3.5 billion in medium-term loans to bring its total promised aid to US$5 billion.

Saudi Arabia announced a US$1 billion financing package and promised to look at reducing Iraq's debt burden, estimated at US$120 billion, within a wider framework of debt forgiveness.

A State Department official said Washington had wanted as much of the assistance to be in the form of grants, rather than loans, but declined to criticise any of the countries -- like Saudi Arabia -- that chose to offer loans.

"Obviously we would prefer the maximum amount in grants, but every country has to make (the) decision of what it can afford," he said.

The EU said its combined aid for Iraq in 2004 had risen to some 700 million euros (US$826 million), overtaking its contribution to Afghanistan last year.

Total pledges from the EU budget and member states from now until 2007 stand at 1.3 billion euros.

Iraq received a wide-ranging offer of help from former enemy Iran, against which Saddam fought a war between 1980 and 1988.

Tehran promised a credit facility of up to US$300 million, offered cross-border electricity and gas supplies and said it would let Iraq export oil through Iranian terminals.

Pledges piled up from poorer nations too, with Vietnam offering US$500,000 worth of rice and Sri Lanka 100 tons of tea.

- REUTERS

Herald Feature: Iraq