22 September 2003
U.S. to Increase Financing for Security Needs in Afghanistan, Iraq
Larson underscores importance of international support for effort
The United States is preparing to boost its financing for reconstruction efforts in both Afghanistan and Iraq with the aim of ensuring greater security in the two countries, according to Alan Larson, under secretary of State for economic, global, and agricultural affairs. Larson acknowledges that "improvements in the security situation in both Afghanistan and Iraq will be necessary before we achieve the goals of reconstruction."
In a September 21 press briefing at the IMF/World Bank Annual Convention in Dubai, Under Secretary Larson highlighted President Bush's recent proposal for $1.2 billion in U.S. assistance to Afghanistan over the next year and $20 billion for the rebuilding of Iraq.
With regard to the assistance to Afghanistan, Larson said "we will be directing our funds at security improvements, including training of the Afghan National Army and National Police."
He emphasized U.S. support for the Afghan government's efforts to strengthen its reach into provincial areas through block grants for local development. "As people in villages throughout Afghanistan see their lives improve and economic development brought to them with the leadership of their own government, it's going to help the security issue as well," he said.
As for Iraq, both security and infrastructure needs are being addressed. "Those are things that both create jobs because they involve things like construction, but they also help create a better platform for private sector lead growth," according to Larson.
The under secretary also praised the recent proposal of the Iraqi Governing Council regarding trade and foreign investment. "It sends a very welcome signal that the Iraqis [are] taking the responsibility for building the new Iraq now, looking for an approach that will tie Iraq into the global economy, that will make it possible for Iraq to attract investment, both from within Iraq but also outside of Iraq," he said.
Larson expressed optimism about the growing commitment of the international community to help in the reconstruction of Iraq. "It's become clear that many of our partners in the international community want to be a part of helping Iraq and will be looking to the donors conference in Madrid in October," he said.
The Madrid Donors' Conference, scheduled for October 24, will allow various international players to study the needs assessments currently being prepared by the IMF and the World Bank and discuss ways of financing those projects.
Larson said the United States will devote the time between now and the Donors' Conference "to a maximum effort to persuade our friends and allies that this is a task that we cannot shirk, that delay will only increase the cost in the long run."
He expressed the hope that bilateral donors, financial institutions and foreign direct investors will all be involved in the rebuilding process, noting that donors could either work through a trust fund to be administered by the World Bank or the United Nations or through direct investment in projects that are consistent with the overall strategy and priorities of the reconstruction effort.
Following is the text of Larson's press briefing in Dubai:
(begin transcript)
Press Briefing -- General Press Availability
Sunday, September 21, 2003, 5 p.m., Dubai Room, Dubai International Convention Center, International Monetary Fund/World Bank Annual Convention
Undersecretary of State for Economic, Global, and Agricultural Affairs Alan Larson
U/S Larson: If you like, I'd like to make a just a few comments on some of the events of the day, with a focus on both Afghanistan and Iraq. In the case of Afghanistan, there is still underway a very useful meeting of the Afghanistan Development Conference that is being hosted jointly by the World Bank and by the Finance Minister of Afghanistan. I think that has proved to be a very useful opportunity for the Government of Afghanistan to give an interim report on the progress they are making, and, at the same, for them highlight the important work that lies ahead. We believe that it is very important for us build on the progress that President Karzai, Finance Minister (Ghani -- sp.), and their team have made. Towards that end, President Bush has proposed to increase the assistance of the United State to Afghanistan by an additional $1.2 billion over the next year. About $400 million of that is immediately available and coming from reprogramming of other assistance. $800 million of that is part of a supplemental request that the President has submitted to the US Congress. We will be directing our funds at security improvements, including training of the Afghan National Army and National Police. We do feel that moving forward from this conference that is being held right now, that others in the international community will want to do everything in their power to accelerate assistance presently in the pipeline and, where possible, increase the amounts of assistance. Already in the meeting we were just at, a number of countries were talking about accelerating their assistance.
On Iraq, there is a very large and important delegation here from Baghdad, including representatives of the Governing Council, the Interim Finance Minister, the Interim Planning Minister, and the Central Bank Governor. They are having a very active set of meetings with countries and international institutions. You all will be aware of the fact that President Bush has asked the US Congress for an additional $20 billion of assistance for the reconstruction of Iraq. We are presently assessing that the total requirements over the next few years will be on the order of $50 to $75 billion. The World Bank, the United Nations, and the International Monetary Fund have been conducting needs assessments over the course of the summer that have been looking at 14 different sectors of the Iraqi economy, coming up with their best estimates of what needs to be done and how much it's going to cost. Those are being discussed with representatives of the Iraqi Ministries so that there can be an integration or dove-tailing of the reconstruction estimates and plans. We believe that is going to be very important to have a major effort on the part of the international community to support Iraqis rebuilding and reclaiming their country. Certainly, our $20 billion is very, very significant contribution, but we will be looking for others to share the burden given the urgency and importance of the task. With those comments, I'll be happy to try to answer any questions. Yes.
Q: With regard to the amount of money you may be seeking from the international community, are you in fact saying that $75 billion is required, and that you're offering $20 billion of that, and that you'll be looking for $55 billion. That's number one, and number two, in regard to the budget for 2003 and 2004, given that those levels, and reduced levels of oil exports, to what extent what does that mean to revenues and the government's ability to finance the deficit for 2003 and 2004?
U/S Larson: Let me start with your second question, because I think that will help me answer your first. Last week, I testified before the US Congress and said that the current estimates coming from Baghdad suggested that oil exports revenues in 2004 would be on the order of $12 billion and that the estimate is that that will increase to $19 billion in 2005 as well as in 2006. In addition, Iraq gets a certain amount of revenue from other taxes and such so that between oil and their other domestically-generated resources, they will probably roughly cover their operating budget. Their operating budget is likely to be on the order of $13 billion. There will be one of the major investments that needs to be made is investments in continuing to rehabilitate and maintain oil production, transportation, and processing so that these targets not only can be hit but hopefully, in some cases, they can be surpassed.
Now with respect to the financing needs, we believe that it will be important to look both to ourselves and to other international donors. Those international donors should include both bilateral donors and the financial institutions. We also think that Iraq progressively can make an important contribution to its own development financing needs and, as I suggested, while there doesn't seem to be a great deal of domestic financing for reconstruction available in 2004, the situation for 2005 and 2006 looks much, looks like there can be a substantial contribution from Iraq's own resources. In addition to that, there is the potential to draw upon found and seized assets, as well as some possible funds available from the turnover from the oil-for-food program. Beyond that, one will be looking to foreign direct investment as an additional way of financing infrastructure reconstruction. So that it's a very large amount of money, the estimates will be refined over the course of the weeks ahead by the work of the IMF, World Bank, and UN, as well as the work in Baghdad, but it's going to have to be met over a period of time and from the various sources that I mentioned.
Q: You just said $12 billion, from what? Oil production and oil exports? Is that figure reliable?
U/S Larson: The $12 billion I believe is predicated on the export level on the order of 1.5 million barrels a day. I think if you do the arithmetic, it looks like about $22 a barrel fob.
Q: Given the status quo in Iraq, how do you think the IMF and World Bank can help the Coalition in its endeavors to rebuild Iraq. This is number one, and the second question, with $50 to $75 billion as the cost of rehabilitation, what period of time does this amount cover?
U/S Larson: I think the meetings here can help the process of reconstruction in Iraq in several ways. First of all, there are a lot of Iraqis here who are making their case for why and about what they intend to do to reclaim their country and rebuild their country and their need for international help. So that's point one. Second, there is a significant amount of technical work that's going on in the margin of these meetings to help refine the needs assessments sectorally and also in the aggregate. Third, I think it's an opportunity for others who want to help Iraq to begin focusing on the task at hand, and certainly we've hand a number of meetings today already, where it's become clear that many of our partners in the international community want to be a part of helping Iraq and will be looking to the donors conference in Madrid in October and will be looking to these needs assessments as a light that will help show them the way.
Now on the numbers themselves, those are estimates of what needs to be done. And it is a multi-year assessment. That $50 to $75 billion is a multi-year number. How quickly it gets done depends on how quickly the funds are available and how quickly they can be effectively spent.
Q: Mr. Larson, you now mentioned, both in relation to Afghanistan and to Iraq, that in the situation of Afghanistan, you've got an indication that donors wish to accelerate their donations ...
U/S Larson: Right.
Q: ... I believe you said that you also are hoping that people would match your new money. Secondly, that many people you met today want to participate, absolutely yes? Have you seen any indication how much the pledges you've gotten on both sides? Are we talking in terms of millions or billions in commitments of money?
U/S Larson: On Afghanistan, two points. First of all, the meeting is still going on, but secondly, the meeting was not designed to be a pledging session, it was designed to be an opportunity for the Afghan authorities to make the case, to present a mid-term review and make the case that they were effectively using the funds that had been made available so far by the donor community and that they could and wish to do more if more funds were available.
With respect to Iraq, I believe that many donors would want to see the finished product that is been underway by the United Nations, the World Bank, and the International Monetary Fund so that they can assess for themselves the magnitude and nature of the needs that are there. We intend on the part of the United States to use the time between now and the donors conference to a maximum effort to persuade our friends and allies that this is a task that we cannot shirk, that delay will only increase the cost in the long run. So, we will be working very hard on this as well the Iraqis during the next five weeks.
Q: To follow up, so far since the meetings aren't over, you have no new money committed to Afghanistan?
U/S Larson: Well, again, what I said was that this wasn't intended to be a pledging session, it is intended to be an opportunity for the Afghans to make the case that they are effectively using the money that's been provided. Obviously, the United States is signaling an intention to make a major increase in our own funding commitment. I think that there are other countries that are very seriously considering what they will do. Whether they are in a position to make announcements today is not really the issue. What they do between now and the end of the year is what matters.
Q: Regarding pledges of money from other countries. How much you have gotten, millions or billions?
U/S Larson: On Afghanistan, two points. First of all, the meeting is still going on. But, secondly, the meeting was not designed to be a pledging session, it was designed to be an opportunity for the Afghan authorities to make the case, present a midterm revenue and make the case that they were effectively using the funding that has been provided so far by the donor community, that they could and wish to be able to do more if more funds are available. With respect to Iraq, I believe that many donors will want to see the finished product that has been underway by the United Nations, the World Bank and the International Monetary Fund, so they can assess for themselves the magnitude and nature of the needs that are there. We intend, on the part of the United States we intend to use the time between now and then. Any delay will only increase the cost in the long run. We will be working very hard on this, as well the Iraqis during the next five weeks.
Q: The meeting is not over, but so far you have no new monetary commitments?
U/S Larson: Again, what I said was, it wasn't intended to be a pledging session, it was intended to be an opportunity for the Afghans to make the case about the fact that they are effectively using the money that has been provided. Obviously the United States is signaling an intention to make a major increase in our own funding commitment. I think there are other countries that are very seriously considering what they will do, whether they are in a position to make announcements today, it's not really the issue. What they do between now and the end of the year is what matters.
Q: My question is (inaudible) will it be invested and used by the UN or the UN or the Iraqis, number one. The second question is do you believe, with regards to bin Laden and Saddam are free, do you still believe that investors would come and invest in Iraq as it now stands?
U/S Larson: There are going to be many avenues open to donors wanting to make a contribution to Iraqi reconstruction. One of the mechanisms that is under preparation is a multi-donor trust fund that might be lodged in the World Bank, or possibly there could be two; one in the World Bank and one in the United Nations. The international community has a long track record with these trust funds, they are run by a government structure that is really created by the donors, the World Bank ensures, carries out a fiduciary responsibility to make sure the money is used in the right way. This would be one mechanism that would be available for donors to contribute and it would be supporting reconstruction according to broadly agreed on general strategy, but the funds would be channeled through this World Bank mechanism. Some countries may decide for some reconstruction projects they are prepared to just come in and do it themselves, through their own funds and their own contracting procedures and I think that is fine as long as it is consistent with the overall strategy and overall set of priorities. So, there is, certainly we hope that the World Bank will be actively involved on its own account. The United Nations already is playing an indispensable role in the areas where they have expertise so there are many avenues and many channels for making contributions. And your second question was?
Q: Saddam and bin Laden.
U/S Larson: Well, look, certainly, improvements in the security situation in both Afghanistan and Iraq will be necessary before we achieve the goals of reconstruction. At the same time, reconstruction and delivering benefits and opportunities to the people of both countries can be a part of strengthening the security situation. In Afghanistan, for example, one of the things that the government is dong with success is strengthening the reach of the government into the provincial areas, strengthening its control over the resources and bringing more development to the regional areas. We heard from the finance minister today of his plans, the government's plans, to try to reach at least one third of the villages by providing block grants to support local development on the basis of, selected by, recommended by local authorities. This is an example of the sort of thing that, to be sure you need security to be able to accomplish this, but at the same time, as people in villages throughout Afghanistan see their lives improve and economic development brought to them with the leadership of their own government, it's going to help to help the security issue as well.
Q: Did you ask the Gulf countries to help with the reconstruction of Iraq and did you get any response from them? The second question, what response did you get from any Arab countries to stop funding terrorism?
U/S Larson: We are just beginning, we will certainly be asking Gulf countries, and I think the Iraqis themselves will ask the Gulf countries to be major participants in the process of reconstruction and I am sure the Gulf states, along with other potential donors, will want to see the more detailed results of the needs assessments that are underway so it has not been a question of asking countries to sign up on the dotted line this week, but we have had some very good conversations with Gulf countries and are pleased that one Gulf country, the United Arab Emirates, is part of the core group that is helping to prepare for the donor conference that will be held in Madrid on 24th of October. The second question you have is a very broad question and goes beyond the scope of this press conference, but let me answer it this way, for the last two years we have been working very hard with partners around the world to choke off the supply of money that is available to finance terrorist activities...We are pleased by the results of this effort, that started out with a United Nations resolution, an effort to freeze monies that are held in formal banking channels. We welcome the progress that has been made in working on flow through informal channels and on addressing the issue that money for charitable purposes get used for the charitable purposes that the donors intended so those have been very important efforts and we think gathering real force of effectiveness and we are going to continue to press ahead on this issue and one of the most imp areas right now is capacity building, making sure that any country that wants to do a better job choking off the flow of financing to terrorists gets the help they need. The lesson is this, terrorism is not directed to one country. We have seen regrettably, terrorist attacks on the United States, but also on Indonesia, also Saudi Arabic, and because the victims of terrorism come from all countries we believe all countries have a stake in being in the fight against terrorist finance.
Q: Regarding the new Iraqi trade policy, why now?
U/S Larson: We heard earlier this morning from a member of the Iraqi governing council, from the interim Finance Minister, and Planning Minister and Central Bank governor about the decision to really have a regime that would set the trade and investment that is very open and very conducive to making Iraq a full partner in the global economy. It is our understanding, based on what we heard from the Iraqis themselves, that this was an approach that was discussed and debated at great length by the governing council and every paragraph and every sentence of the new policy was approved by the Governing Council. So, I don't know what planning went into the Governing Council. Getting to the point that they were moving forward with this approach at this moment, but I do think though, that it sends a very welcome signal that the Iraqis were taking the responsibility for building the new Iraq now, looking for an approach that will tie Iraq into the global economy, that will make it possible for Iraq to attract investment, both from within Iraq, but also outside of Iraq. That indicates to me that the prospects for a strong recovery provided there is sufficient donor support are very good.
Q: There are reports being published that the CPA basically only has $200 million and beyond that, it is going to go broke. Can you comment on the funds available to the CPA, number one, and the second point, the figures that you gave on Iraq are really predicated on best case scenarios or increased oil production, etc., etc. What is the worst-case scenario? How much is it going to cost? And to what level is the Bush Administration willing to go before Congress and ask for more supplementals?
U/S Larson: I think you would be better off addressing your first question to the Iraqis that are here this week. They've been working on the budget in great detail, and I think they can give you a much better answer on the day-to-day finances than I can. On your second question, I would characterize the estimates that I gave you today and that I gave during Congressional testimony last week as estimates that may be a little bit on the conservative side because we recognize that sabotage and looting continues to be an issue but we do believe that they are reasonable estimates that one can hope to see. We know that oil production has been rising recently and based on the estimates that the Iraqi Oil Minster and the CEO have provided lead us to believe that these are reasonable planning estimates.
Q: First, are you really seriously telling us that you knew nothing about the apparent plans of the Interim Iraqi Government in respect to their call today, and the question of (inaudible)?
U/S Larson: First of all, certainly, we were aware of the discussions and the debate going on about what type of investment regime would be appropriate. Since I was on an airplane for a considerable time in getting here, I was not aware of this until I saw the Iraqis in the first meeting I had this morning that they had resolved that debate and that they were planning on making some announcements today. On your second question, I think in the type of situation one has now in Iraq, it would be very unwise to wait and make no decisions until such time as there have been elections under a new constitution, because that would be the recipe for economic malaise. That would hurt the political process and the process of reconstruction. After a consultative process that was very exhaustive, a governing council was chosen. The governing council took on the responsibility of selecting ministers and these Iraqis have been part of the process of coming forward with new rules on things like foreign investment and trade strategy. In the future, it's always possible for the government to take different courses that could be possible here. But I guess I would turn your question around. It shows a high degree of responsibility for these Iraqis to be grappling with these issues and to be trying to sort out what is the right commercial strategy for Iraq to have at this stage. I think it's a very welcome thing that they've done so.
Q: But can 17 people really be trusted to put together a government structure for an entire country?
U/S Larson: This is setting some rules on how things are going to operate at this stage. I think that it is inevitable that those types of decisions would be made. I think it is being made on a very consultative basis and you all know the process that is being set up that we are moving as quickly as possible to an Iraqi-determined process for writing a constitution and holding elections, and we'd like to see that continue. But in the meantime, we have to and they have to move ahead so that Iraqis can have jobs and have better economic life.
Q: Can you update us about US plans to withhold assistance from Israel (inaudible), specifically on the impact to the exact amount of US loan guarantees to Israel?
U/S Larson: I won't characterize it that way, but let me characterize it this way. As part of the arrangement that we negotiated with the government of Israel on the loan guarantees, we have agreed that there would be deductions from the total amount of the guarantees available and that there would be a sizable deduction related to certain types of expenditures on settlements. So, we announced several days ago that we were going to continue that policy, and that the Secretary of State would make the final decision on the exact size of what those deductions would be. And that's all I think there is to say on it.
Q: I'd like to come back to the subject of Iraq. I'd like to ask the question about foreign direct investment, the question really is that is this corrective, not only for the reasons that aren't outlined, but is there the real possibility that these assets will be seriously undervalued at this stage? No realistic company seeing American soldiers being killed perhaps every day when it all averages out is likely to want to put stock there even if the World Bank puts stock there. It seems they're unlikely to see these things pay for what ultimately, perhaps in six months or a year's time, any fair value for these companies. And, of course, the rate at which these investors will go, as there are no restrictions on it simply, and it's a level playing field, until now. And then you have a draw off, controlled by those few that remain, just like in other countries too.
U/S Larson: Well, again, this decision, as I understand it, to have a door that's relatively open to foreign investment, not a policy that, in any way, forceful on investors to come in. The environment isn't one that going's to be made so that they won't come in and invest. I do think that as a country, along with the United Kingdom that has benefited enormously from foreign investment I happen to believe that the approach that is being adopted is a very sensible one. I don't think that the policy as I heard it described this morning is one that will necessarily result in massive privatization of existing industries. You're talking about two different things here. Foreign investment, first and foremost, is about having the possibility to come in and make investments and create jobs by building, financing equipment, things of that sort. I think foreign investment can make a contribution to Iraq's economic development. I think in the short run, there will need to be a great deal of official assistance. And that's why the $20 billion that President Bush has asked the US Congress for will go largely for improvements in security, including training of security forces, and also for urgent infrastructure needs, like electricity, power, and roads. Those are things that both create jobs because they involve things like construction, but they also help create a better platform for private-sector lead growth. So, I think it's important to recognize that those statements on foreign investment made today are well welcome signals of the direction that Iraqi authorities want to go in the future. I think it's also very important to underscore that in the short run there's going to be a huge need for public funds to help them get to the point where they can attract foreign investment and, naturally, this is in the viewpoint of the donors' efforts underway now.
(end transcript)
(Distributed by the Bureau of International Information Programs, U.S. Department of State. Web site: http://usinfo.state.gov)
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