Coll 17/10(1) 'Internal: political situation; relations with HMG' [‎199r] (402/982)

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EASTERN (Iraq).
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6801
September 9, 1935.
CONFIDENTIAL.
, I935 J
Section 1.
[E 5422/432/93]
Mr. Bateman to Sir Samuel 11 oare.—{Received September 9.)
(No. 453 E.)
Sir,
THERE
. Bagdad, August 2*2, 1 §§q.
are several indications that the economic policy of the Iraqi
Government has become more clearly defined during the summer months
2. In my telegram No^ 2 03 of_the 12th August, I had the honour to inform
you that the Government were seriously considering the floating of a loan of
£1,500,000 in the United Kingdom, for the purpose of purchasing and extending
the existing railway system. This, in itself, is most significant in that it shows
that the progressive members of the Cabinet have succeeded in persuading their
more conservative colleagues to abandon the parish pump and to look beyond the
walls of Bagdad.
3. For the past three years at least opinion has been divided as to the
means of financing the capital works and development schemes of which the
country stands so much in need if it is to be rescued from the poverty that
threatened to overwhelm it before oil came to its rescue. On the one hand, there
were those who held that it was essential to their newly-won independence to wipe
out all foreign indebtedness so far as possible, and to start and continue the new
life of freedom with a clean slate. Their view was not so much that loan oft loses
both itself and friend—a reflection which would probably have left them quite
cold—but rather that it placed the debtor under an undue and intolerable obliga
tion to the lender, who was apt to exploit his advantage. These were the people
who may be held responsible for paying off the residue of the Ottoman Debt and
for pursuing the conservative financial policy inculcated by the British advisers.
To them belongs some of the kudos for balanced budgets, the accumulated surplus
from the oil royalties and dead rent, and the fact that Iraq emerged scatheless
from the financial blizzard of 1930-33.
4. It is, of course, possible and even probable that their heads were turned
by the sudden accretion of wealth which the Iraq Petroleum Company—and to
a minor and more doubtful extent the British Oil Development Company -
brought them. They felt secure in advocating that development schemes could
well be made to wait until there were funds, either actually in the bank or in
sight, sufficient to enable their execution to be carried out in slow time. They
were all for financing the capital works programme out of revenue, forgetful of
the fact that economic conditions, like peace in the modern world, are not static
but dynamic. So far they had won the day, with the result that the only major
scheme of any importance yet attempted has been the Kut barrage.
5. On the other hand, there was always a minority who were anxious to
speed up the tempo, to raise the standard of living and to increase the pro oc I've
capacity of the country. These people sometimes had the temerity o sugges ia
the oil royalties could most advantageously be used as security or a eve 0 P m ®
loan contracted abroad. But until recently they remained no mg more a ■-
minority whose voice was seldom heard.
6. It was, therefore, with no little surprise that I learned from the Prime
Minister last week that he had come round to their view. i e
counted amongst those who mistrusted the would-be foreign > ■ .
still somewhat at a loss to account for his sudden conversion. Several considera
tions may hTve contributed to it, but in all probability he fy 8 . ^ fleas'ng
large part of the current revenue must be disorders of last spring
the strength of the army and air force. The Eup , , • f Ttalv has
came as I bad shock to him, and the present bellicose behaviour of Italy
impressed him deeply. fnrnis h him with sufficient
7. Whatever the truth may be, the oil royahies turnrsn mm .
security for a loan of far greater dimensions than he at present contemplates.
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