TIME: Almanac 1993/TIME Almanac 1993.iso/time/111990/1119202.000

Text File | 1992-08-28 | 5.9 KB | 130 lines

                                                                                BUSINESS, Page 82

Frozen in Midstream


Iraq may be suffering from the gulf crisis, but so are its
former trading partners in Europe, Asia and the U.S.


    At NEI Parsons, a subsidiary of Northern Engineering
Industries in Newcastle-upon-Tyne, England, employees have
abandoned work on what should have been one of their most
lucrative projects in recent years, a $150 million contract to
build four turbine generators for a power station at Al Shemal,
240 miles north of Baghdad. Playing its small part in the
worldwide sanctions against Iraq, the firm has announced layoffs
of 650 workers. Near Beasley, Texas, Jack Wendt, who farms 1,500
acres of rice and grain, calculates that he will earn $72,000
less than in 1989 because of the sudden disappearance of the
U.S. rice industry's best customer, Iraq. In Paris, Airbus
Industrie has put on hold a deal to sell five A310 wide-body
jets to Iraqi Airways at about $70 million a plane.

    The freeze on trade with Iraq and Kuwait is buffeting a lot
of people, from U.S. manufacturers of oil-field equipment to
Irish meat producers to Italian shipbuilders. If U.N. sanctions
produced a cutoff in trade with Iraq, they also led Iraq to
suspend payment on outstanding debts. The result is dislocation
and even hardship among Iraq's erstwhile commercial partners.


    Among the hardest hit are American rice growers. Iraq
bought about $143 million worth of the staple from the U.S. in
fiscal 1989 -- or 25% of the U.S. export total. The embargo came
as painful news for producers, since world prices for rice had
fallen 28% during the previous year. Nor are rice growers the
only farmers feeling the pinch. Before the invasion, Baghdad was
buying $350 million worth of other U.S. grains annually,
including wheat, corn, barley and soybeans.

    Moscow faces losses as well. Professor Alexander Arbatov of
the U.S.S.R. Academy of Sciences estimates that the Soviet Union
might be forfeiting a potential gain of as much as $1 billion
by cutting off sales of arms and agricultural products to Iraq.
Several East European countries with crumbling economies will
be burdened by the chunks of uncollectible Iraqi debt they hold.
Worst off are Bulgaria, which carries $1.2 billion, and Romania,
which is owed $1.7 billion.

    Japanese and German banks and trading firms are saddled
with more than their share of Iraqi debt. Japanese trading
companies hold about $5 billion in unpaid Iraqi bills, German
banks about $2 billion.  The embargo also leaves 40 German
companies stuck with $2 billion in debt on business deals that
have been partly completed but not paid for. Some of those
losses will be covered by Hermes Kreditversicherung AG, the
German state export-insurance program, but as much as $1.2
billion in trade with Iraq and Kuwait is not insured. Large
diversified conglomerates like Daimler-Benz, Mannesmann and
Ferrostaal can absorb such shortfalls, but smaller firms with
proportionately larger exposure are talking about hardship and
calling for a government bailout.

    For Britain, exports to Baghdad might have matched last
year's $732 million, which were supported by a $628 million
government-guaranteed line of credit announced by the Department
of Trade and Industry in November 1988. At the time, DTI
Minister Tony Newton said the government was nearly doubling the
export credit line because of the ministry's confidence in the
"long-term strength of the Iraqi economy."

    Turkey finds itself in a particularly painful bind.
Exporters had expected to sell Baghdad $600 million worth of
goods, mainly iron, steel and food products. Since the U.S. and
most European countries impose strict quotas on some of these
imports and the markets for others are saturated, Ankara
estimates that 75% of the products destined for Iraq will
effectively be rendered worthless: no other foreign importer
will be able to buy them.

    Commercial connections with Iraq have been a source of
embarrassment to some companies in Italy and the U.S., among
others. Baghdad owes Italian banks about $2.2 billion, mostly
because of unauthorized loans made by the Banca Nazionale del
Lavoro branch in Atlanta. That scandal, which is still under
investigation in the U.S., led to the resignation of B.N.L.
directors and the dismissal of nearly everyone connected with
the Atlanta branch. In addition, Iraq owes Italy more than $1
billion for warships that were built but never delivered. In a
footnote to the gulf crisis, about 90 Iraqi sailors are living
on board two of the corvettes at the naval port of La Spezia.
Every day they raise the Iraqi flag, rev up the engines and
swivel their gun turrets.

    Lost trade with Kuwait affects mostly oil-related firms. Of
the $975 million in goods and services that Kuwait imported from
the U.S. last year, $933 million covered sales of
petroleum-testing equipment.

    The fall of Kuwait has had a direct effect on French
perfume manufacturers, who last year exported more than $20
million of their luxury staples to the emirate. Some couture
designers, including Nina Ricci, have also lost business, since
some of their best customers were Kuwaitis.

    Beyond causing direct losses in trade and commerce, the
gulf crisis has sparked a general reluctance to invest in a
region that has been an important trading partner for
industrialized economies, contributing $3.3 billion to Germany's
$81 billion trade surplus for 1989. For the moment, most capital
projects have been delayed. Saudi Arabia, for instance, planned
to construct 400 new industrial plants at a total cost of $40
billion in the next five years. Until the crisis is resolved, it
is safe to assume that those projects will remain where they are
today: in limbo.


By Barbara Rudolph. Reported by Anne Constable/London and
William McWhirter/Chicago, with other bureaus.