$2.7 Billion US Defense Loan Questioned in Parliament

Iraq, August 13, 2016


US Ambassador to Iraq Stuart Jones announced July 21 that the Iraqi government has started withdrawing the $2.7 billion loan secured on June 29. However, the Iraqi parliament had not been briefed on the deal, making it illegal in the eyes of many of its members.

A memorandum of understanding was signed between the Iraqi government and the US administration on military purchases. The deal will allow Iraq to defer payment for the purchase of weapons and military equipment.

Meanwhile, the parliament’s Security and Defense Committee is speaking out on the need to consider the opinion of the legislative branch on such deals and loans. The committee is particularly concerned about the impact of the loan’s interest payments on the state budget.

In a statement June 29, the Iraqi Finance Ministry said that the agreement was to facilitate the purchase of military equipment including advanced weaponry within the framework of the foreign military financing program for ground, air and naval forces.

As part of the deal, the government is set to allocate $200 million for the peshmerga forces to support them in their duties. The Iraqi government has also pledged to use the money to continue supporting and expanding the scope of the operations of the Popular Mobilization Units. Payment will be made in easy installments.

The US Embassy explained in a statement, “This [Foreign Military Finance] facility will allow Iraqi Security Forces to defer payment for the purchase of ammunition and maintenance of its F-16s and M1A1 tanks.”

However, the Iraqi parliament has yet to be officially briefed on the details of the deal, raising the ire of two parliamentary committees.

Ammar Tohme, deputy chairman of the parliament’s Security and Defense Committee, told Al-Monitor, “The deal between Iraq and the US came in the form of a loan, which we have yet to be officially briefed on. This will hinder the control of parliament over the work of the Ministry of Finance, which concluded the deal, and that of Defense, which will be using the weapons coming from Washington.”

He went on, “The 2016 state budget allows the government to conclude agreements and secure loans to cover the deficit. However, this does not mean that obtaining loans ought to be done without consulting parliament and its committees.” Tohme expressed concerns that “the US loan would result in high interest that Iraq would not be able to pay off because of the drop in crude prices.”

Tohme added, “The Iraqi Parliament’s Security and Defense Committee should be briefed on the weapons involved in of the deal with the US, to check their actual price and whether they are an urgent need for Iraq, in addition to all the other military and financial details of the agreement.”

Parliament member for the Islamic Virtue Party Abdel Hussein al-Mousawi in a June 2 statement that the US loan’s interest rate is extremely high, repeating speculation circulating among the parliament. He complained that interest will be 31% of the borrowed amount, and that the loan is intended for the purchase of defense material and equipment only.

Moreover, according to the deal, payment is to be made on a semi-annual rather than annual basis, which could lead to default in payment. Also, the United States is unilaterally and solely entitled to terminate the agreement.

Despite the government blackout on the US loan details, revealing only the borrowed amount, the parliament is keen to learn other details such as the loan’s rates and payment deadlines, according to Sarhan Ahmed, a member of the parliamentary Finance Committee. “The Finance Committee recommended the government reduce expenses so as to cover the deficit in the general budget and to avoid reliance on loans,” Ahmed told Al-Monitor.

The government announced on May 18 that the World Bank had agreed to grant Iraq a loan of $1.2 billion to assist Baghdad in managing its finances, compensating for the decline in oil prices and paying off the increasing expenses of the war against the Islamic State.

Parliament member Ahmed said he fears that “tying Iraq with debts, interests and harsh conditions will lead to the continuation of deficit in the budgets of the country in the coming years.”

He said, “We had hoped that the government would take the opinion of the parliament’s Finance Committee into consideration at the very least. We will work on learning the loan details with Washington to be discussed in parliament.”

Iraq is now caught between its financial and military obligations, while at the same time waging a war against IS, under the legal and parliamentary restrictions resulting from loan interest and the continuous decline in oil prices. The financial and security crises are posing great challenges to Iraqi government, and it would be a serious mistake not to involve the parliament in responsibility for such military deals and loans and share the burden for them.