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World Bank Chief: Iraq Needs Debt Forgiveness

In an exclusive interview, the head of the World Bank discusses the crisis in Iraq, the country’s $140 billion mountain of debt and the role instability and poverty plays in terrorism.


A freedom statue is erected near Saddam Hussein's former palace, a symbol of Iraq's reconstruction.

Iraq currently has debts of close to $140 billion. Of that, close to $40 billion is owed to the 19 countries that belong to the so-called Paris Club, an informal organization of the most important donor countries, including Germany. In an interview with Deutsche Welle in New York, World Bank Chairman James Wolfensohn made the case for Iraq’s lender states to forgive some of that debt in order to give the country a realistic chance at rebuilding and establishing democracy.

Besides money, what is it that Iraq needs right now?

It needs restoration of stability inside the country. I suppose the No. 1 issue is security. And there the issue is evident in terms of the attacks on the United Nations and on the Red Cross, and that makes it quite difficult for foreign institutions to be of assistance. The second issue of course is debt, which needs to be negotiated. Of course this is a country that has ten times its income in debt. It has a $140 billion in debt. So those are the principle questions and, of course, in the near term, what is crucial is a transference of power to an elected Iraqi government.

Do you recommend that the international community, the lenders should forgive that debt?

I recommend that they do something about it. In the case of the former Yugoslavia ... there was an accommodation as to two-thirds of the debt. This is not just an issue of charity, this is an issue of whether the country has a chance to move forward. Because even if it doubles its income with the doubling of the oil base, to have ten times your income in terms of debt is an impossible burden. So something has to be done. If an individual is making a certain amount of money and he owes ten times that amount, he's probably got no chance of avoiding bankruptcy unless something is done. And that's true of a company and it's also true of a country, so I have no doubt that in the next year there'll be serious negotiations going on to forgive a large part of the debt in order to have the benefit of an active and
democratic country in the future.

This week you stated that the world is out of balance, meaning the number of the very rich people compared to the very poor. What is the basis of your assessment and what has to be done to bring about some kind of global justice?

James Wolfensohn

James Wolfensohn

The key to my assessment first is that there are not two worlds in terms of the rich and the poor countries. Today the true meaning of globalization is that we are all linked and that whether one lives in Germany or the United States or Australia, we can't have a wall around us to absolve us from any interest in what happens in the developing countries. And so we are linked with those countries by trade, by finance, by commerce and by migration as well as by crime and terror. I think we're all coming to that point that we are part of that global family. And if within that global family you have 5 billion people that have 20 percent of the income and 1 billion people that have 80 percent of the income you have a basis of instability which probably cannot last.

It can be solved by migration which you see in Europe as people move from countries without opportunity into countries that have some opportunity. But if you also have the situation that the people in the developing world are growing, so that in the next 25 years, the 5 billion people become 7 billion people and the 1 billion people stays about the same. In fact, Europe as we know it today will be smaller and it will be older. If you do not address the question of equity, if you do not address the question of opportunity, there is no way that you can have stability. And the issue of poverty and equity is not an issue just for the dreamer or the charitable person. It is like a train coming down the track. That is real and we have to address it.

You said some time ago that poverty steals hope, that it excludes people, that it creates anger, violence and terrorism. Do you see a direct connection between poverty and terrorism?

Yes I do. It's not that every poor person goes up and blows up a building, but there is no question that if you have young people, and, let me remind you, that in the world today of 6 billion, you have close to 3 billion under the age of 23. If you have youth, of whom there are probably a billion between the ages of 16 and 23. If you have youth that has no hope, that can't get a job, that has never known stability, it's quite obvious that these people are subjected to and easily vulnerable to people who want to use them, whether in terror, in crime, whatever. And so, there is a direct connection and it's no surprise that terrorists find their greatest havens in poor countries. After all, the Sept. 11 tragedy in the United States was not caused by Afghans, but it was caused by people who were training and working in Afghanistan and where the environment was to be found. And in other areas where you have terror very frequently it is because people are played on because they have no hope. This would be true in Gaza and the West Bank, where you have around 50 percent unemployment. If you are promised a better life in the next world and your family can profit from your death and you have no hope, then it's not surprising that people react in the way they do.

Does that mean that the war against terrorism that the whole world, or at least the West, is currently engaged in is insufficient?

You could kill all the leaders of terrorist organizations, but if you do not deal with the fundamental issues of inequity and stability, there will be another round of leaders. You cannot address it just by killing a 100 or a 1,000 or 5,000 people. Human behavior doesn't work that way. What you need is to address the questions that are fundamental.

In that sense, was Sept. 11 a wakeup call?

For me it was because, I guess, when I grew up, many people grew up, they thought that there was a wall around the rich countries. And for me the image of the World Trade Center collapsing was an image of that imaginary wall coming down.

You’ve led the World Bank for eight years now and you took over at a time when this institution was in a deep crisis. It was harshly criticized basically from all sides, from the left and from the right. Today many of the former critics of the World Bank have gone quiet and seem to recognize that you changed the culture and the agenda. Why has the criticism faded?

Together with my colleagues, we've reoriented the bank in a very human way. Because what is crucial in the area of development, is to get to the human level. It's not a question of theory. It's not a question of analytical economics. It's a question of delivery on the ground. It's also a question of not being arrogant, that you know everything. And it's a question of being open to partnership. The bank cannot do everything on its own. And I think our organization has changed a lot. I think we've become more efficient. And we certainly listen. We're even polite. And we have established partnerships. We're now out on the ground. We have just about a third or our people in the field.

Are you ready for another term to make sure that your ambitious agenda will be realized?

This job is a very important job and it's a job where you can have an influence on the lives of an awful lot of people. That is a privilege that's given to very few people. So I'm going to look at it to see whether I can do it, whether I can do it well, and then some other people are going to have to decide whether my egocentric judgment is valid. But at the moment, I'm not thinking about that. I've got plenty to do.

Interview conducted by Udo Bauer.