Iraq's Creditors Form A Long, Unruly Line

Bassam Jammal figures he has already made his contribution to rebuilding Iraq. Not long after Saddam Hussein's tanks rolled into Kuwait last August, some $3 million of Jammal's plywood, steel beams, and other building materials rolled north, spirited away to Iraq in Jammal's fleet of Mercedes-Benz trucks. Another fleet--40 Cadillacs, Lincolns, and Chevrolet Caprices from Jammal's Kuwait City car lot--followed. "I can't even begin to assess how much they took," moans the Kuwaiti-born president of International Trading Group Inc. in Marietta, Ga.

Now, Jammal figures it's Iraq's turn to pay--and he's not alone. The line of claimants for gulf war damages stretches around the world, from U. S. companies to Scud-busted Israelis to Filipino laborers who abandoned homes and bank accounts when they fled Kuwait. Iraq is liable not just for physical damage but for reparations to the hundreds of Kuwaitis kidnapped, tortured, or murdered during the occupation.

TOUGHER LINE. It will be years, however, before claimants see any cash. While Iraq has agreed to pay reparations, the victorious allies can't agree on how hard they want to squeeze Baghdad. The State Dept. views reparations as a political lever: Secretary of State James A. Baker III suggested that claims would be dropped if Iraqis overthrew Saddam's regime. Diplomats can't escape the ghost of post-World War I Germany, which, crippled by punitive reparations, turned to Hitler. "We should avoid any kind of Versailles Treaty humiliation of Iraq," warns a senior Saudi official.

Many others take a less conciliatory view. Claims are coming in not just from Kuwait but from Egypt, Syria, and even Jordan, which sided with Saddam. In the U. S., congressional leaders have told the Treasury they're ready "at any time" to seize Iraq's U. S. assets.

Iraq's estimated $5 billion in foreign assets fall far short of claims. U. S. companies alone are expected to demand at least three times the $1 billion to $1.5 billion in Iraqi assets here. So claimants are hoping to tax Iraq's oil exports.

Setting the rate on such a tax--low enough to let Iraq recover, high enough to deny any future Saddam the funds for another arms buildup--is difficult. And even a fairly stiff assessment won't yield enough to settle claims quickly. At 10%, the tax would net only $1.5 billion a year if Iraq's oil revenues returned to 1989 levels--and that's not likely soon.

With huge claims vying for a limited flow of funds, the allies want to head off a gold rush. On Feb. 21, the Bank of England seized the London branch of Iraq's Rafidain Bank to block attempts by creditors to attach the bank's estimated $314 million in deposits. Lawyers for Consarc Corp. in Rancocas, N. J., a maker of high-tech furnaces, hope for a judgment that will put Consarc's $10.5 million breach-of-contract lawsuit at the head of the U. S. claims list. "Those who are hanging back will lose out," says attorney Ramon P. Marks.

Diplomats would like to design a cleaner process. International law experts see two choices: Turn the job over to a new international court, modeled on the Iran-U. S. Claims Tribunal, or hammer out a deal that allocates the available money among nations. The first option offers political cover. "Governments can say: `We've appointed this distinguished panel to make these decisions fairly,' " says Washington attorney Joseph P. Griffin. Besides, says a U. S. official at the Iran-U. S. tribunal, based at The Hague, "we have this building that's going to be empty in about two years--and it's already bulletproof."

Lawyers who've worked at the tribunal, however, are in no hurry to repeat the experience. The U. S.-Iran court still has more than 100 of its original 4,000 cases pending. With at least 28 coalition partners filing claims against a probably hostile regime, a new tribunal could quickly become a bureaucratic Babel.

HARD BARGAIN. Instead, claims lawyers expect the allies to get together at the U. N. to divvy up the spoils. After they decide how much Iraq can bear, each nation will stake a claim for a share. Then, each government will deal with its citizens' claims. In the U. S., the task would fall to the three-member U. S. Foreign Claims Settlement Commission.

Even that process will require some hard-nosed bargaining. Negotiators would have to decide who gets paid first: Third World workers expelled by the Iraqis, tortured Kuwaitis, or Western corporations. Bankers and governments stuck with Iraq's $54 billion in prewar debt fear that they might get pushed aside altogether. Some Western diplomats suggest Iraq's debts for weapons and chemical plants might be forgiven--sticking France, Germany, and the Soviet Union for billions.

The U. S. "should have gotten its ducks in order and prepared a proposal weeks ago," says University of Virginia law professor Richard B. Lillich. State Dept. officials disagree. They say Baker can't set a strategy while Iraq's political future is so dicey. And the loss of a few weeks isn't likely to matter: Iraq's debt to the world isn't going to be stamped "paid" for many years to come.