Posted on 04/12/2003 12:22:57 AM PDT by John Lenin
By Mark Egan and Glenn Somerville
WASHINGTON, April 11 (Reuters) - Public quibbling among Group of Seven partners ahead of the war with Iraq has begun anew as talks turn to reconstruction, threatening to hamper efforts to prop up a feeble global recovery.
As G7 finance ministers -- from the United States, Japan, Germany, Britain, Canada, France and Italy -- gathered in Washington for a weekend meeting, there were signs of fresh tension over how to rebuild Iraq and who should take the lead.
Rich nations squabbled for months at the United Nations over how best to tackle weapons inspections in Iraq. That row ended with the United States and Britain heading to war despite stiff opposition from Germany, France and Russia, who wanted the UN to determine how to cope with the country.
Now, analysts say the G7 may be headed toward a new tug-of-war over how to carve up the billions of dollars in rebuilding contracts -- again potentially pitting those who led the war against those who opposed it.
"Our reading of history is that no one ever garnered the spoils of war by not fighting," said economist Carl Weinberg of High Frequency Economics Inc. in Valhalla, N.Y.
He said the weekend G7 session could become "a battleground over who will pay the cost of rebuilding Iraq, who will benefit from it and who will direct it."
SNOW SEEKS FRAMEWORK
U.S. Treasury Secretary John Snow, host of the G7 meeting on the fringes of the spring gatherings of the International Monetary Fund and World Bank, said on Thursday he wants only to shape a "framework" for Iraqi rebuilding, not a final plan.
But sensitivities about the oil-rich country, where the fighting has not even ended, remain tender among the allies and the risk is that political leaders' bruised feelings could spill over to the finance chiefs.
President George W. Bush angered some, especially France and Germany, when he bypassed the UN. Now those countries fear the United States wants to use the World Bank and IMF to lead the reconstruction, denying the UN the top role.
A World Bank official told Reuters on Thursday the British, French and Germans were worried Washington was "using the bank and the fund as a fig leaf for their own unilateral policies."
As evidence grows that Iraq needs massive humanitarian aid quickly and help simply establishing law and order, Russian President Vladimir Putin said on Friday it was vital the UN take the lead in crisis management.
"We stand for the fastest return of this issue to the framework of the United Nations," Putin said after talks with German Chancellor Gerhard Schroeder in St. Petersburg. The two were later scheduled to meet French President Jacques Chirac, who, like them, stood against the U.S.-led war on Iraq.
Schroeder put it more bluntly. "Germany will participate in the reconstruction of Iraq only if the United Nations is involved," he said.
The tussle over Iraq's future comes at a delicate time for the economy -- a period when G7 allies need a cooperative spirit to foster faster growth both globally and domestically.
While the IMF forecasts tepid global economic growth this year of 3.2 percent, it has warned the chances of a worse outcome are high. The United States and Europe are having difficulty restoring robust growth after the 2001 recession, Japan is mired in stagnation, global stock markets are volatile and tensions over potential terrorism look set to linger for years even if the war in Iraq ends quickly.
MUST COLLABORATE
"The greater the uncertainty, the greater the need to collaborate; that is our motto," IMF Managing Director Horst Koehler told a news briefing on Thursday. "Now more than ever is the time for the international community to draw on its strong record of cooperation. We have policy options, and we should seize them. The fund is committed to do its part."
But Koehler and World Bank President James Wolfensohn have both made clear they do not want their institutions to be dragged into a political dispute over Iraq.
"For Iraq, we urge the international community to reach cohesiveness on the necessary framework for the rehabilitation of Iraq," he said.
The United States, which as the largest shareholder in both the IMF and World Bank and is often accused of using the lenders as an instrument of its own foreign policy, is pushing for them to begin work on Iraq right away.
Both Koehler and Wolfensohn have said they are ready to help, but only if all their shareholders tell them to -- the same countries that belong to the UN.
Iraq is not the only topic where the United States is seen as working almost unilaterally.
The issue of how to deal with nations who cannot pay their debts was supposed to be the centerpiece of this week's IMF meetings. This weekend, the IMF's policy-setting board was set to vote on changes to the lender's constitution to set up a sort of international bankruptcy court.
The plan was conceived as a way to avoid messy debt defaults like those in Argentina and Russia in recent years.
But, just days ahead of the meeting, the United States pulled the rug out from under the idea. The U.S. refusal to back the plan, which followed intense pressure from the powerful Wall Street lobby, came despite support for the scheme from 70 percent of the lender's members, including Europe.
With the United States commanding a 17 percent vote at the IMF board and with 85 percent approval needed to make the international bankruptcy court a reality, the U.S. opposition effectively kills the plan.
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