James Baker's conflict of interest in Iraq: $2 billion

In a special investigation this week, The Nation reports that James Baker is double-dealing in Iraq. On Dec. 5, 2003, George W. Bush appointed the former Secretary of State as his envoy on Iraq's national debt. Baker also happens to be a senior counselor and equity partner in the Carlyle Group, where he holds an estimated $180 million stake.

So?

Here's where the conflict of interest comes in–and it's a whopper. The Carlyle Group, according to private documents obtained by The Nation, is seeking to obtain control of $57 billion of unpaid Iraqi debt owed to Kuwait. In return, the Carlyle Group (along with a consortium of partners) is asking the Kuwaiti government for an up-front investment of $2 billion.

Naomi Klein writes:

In a letter dated August 6, 2004, the consortium informed Kuwait's foreign ministry that the country's unpaid debts from Iraq "are in imminent jeopardy." World opinion is turning in favor of debt forgiveness, another letter warned, as evidenced by "President Bush's appointment... of former Secretary of State James Baker as his envoy to negotiate Iraqi debt relief." The consortium's proposal spells out the threat: Not only is Kuwait unlikely to see any of its $30 billion from Iraq in sovereign debt, but the $27 billion in war reparations that Iraq owes to Kuwait from Saddam Hussein's 1990 invasion "may well be a casualty of this U.S. [debt relief] effort."

In the face of this threat, the consortium offers its services. Its roster of former high-level US and European politicians have "personal rapport with the stakeholders in the anticipated negotiations" and are able to "reach key decision-makers in the United Nations and in key capitals," the proposal states. If Kuwait 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 ten to fifteen years. And the more the consortium gets Iraq to pay during that period, the more Kuwait collects, with the consortium taking a 5 percent commission or more.

The goal of maximizing Iraq's debt payments directly contradicts the US foreign policy aim of drastically reducing Iraq's debt burden."

A cynic might contend Baker is endangering Iraq's future for the sake of enriching his own pocket. Klein notes:

Iraq is the most heavily indebted country in the world, owing roughly $200 billion in sovereign debts and in reparations from Saddam's wars. If Iraq were forced to pay even a quarter of these claims, its debt would still be more than double its annual GDP, severely undermining its capacity to pay for reconstruction or to address the humanitarian needs of its war-ravaged citizens. "This debt endangers Iraq's long-term prospects for political health and economic prosperity," President Bush said when he appointed Baker last December... Bush assured reporters that "Jim Baker is a man of high integrity.... We're fortunate he decided to take time out of what is an active life...to step forward and serve America"...

The day before Baker's appointment was announced, John Harris, managing director and chief financial officer of Carlyle, submitted a signed statement to White House Counsel Alberto Gonzales. "Carlyle does not have any investment in Iraqi public or private debt," he wrote....

On January 21, 2004, James Baker's dual lives converged. That morning Baker flew to Kuwait as George Bush's debt envoy. He met with Kuwait's prime minister, its foreign minister and several other top officials with the stated goal of asking them to forgive Iraq's debts in the name of regional peace and prosperity. Baker's colleagues in the consortium chose that very same day to hand-deliver their proposal to Foreign Minister Mohammad Sabah Al-Salem Al-Sabah--the same man Baker was meeting...

In the eighteen months since the US invasion, Iraq has paid out a staggering $1.8 billion in reparations--substantially more than the battered country's 2004 health and education budgets combined, and more than the United States has so far managed to spend in Iraq on reconstruction.

Most of the 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. 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

Klein's story can be read in full here.

The Carlyle/International Strategy Group documents can be viewed here.