World spurns US appeal for $30bn to rebuild Iraq

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Kofi Annan, the UN secretary general, appealed yesterday at the donor conference for Iraq for nations to give generously to tackle the disease, homelessness and malnutrition afflicting the country.

At the start of the fund-raising conference in Madrid its Spanish hosts lowered expectations by setting a $6bn (£3.5bn) target for the gathering, which is being held against the backdrop of divisions over the US-led occupation. Pledges are certain to fall short of the $30bn sought by Washington, with Europe expected to stump up about €700m (£487m) from EU and national coffers for 2004.

Moufawak al-Rabii, a member of Iraq's US-appointed Governing Council, stepped up pressure for a big cash injection by describing the deprivation in Iraq to delegates from 77 nations. Mr Rabii said more than two-thirds of Iraqis depend on food rations, less than half have access to clean drinking water and one in five children under the age of five is malnourished. Health conditions are deteriorating with maternal mortality quadrupling and diseases such as malaria returning to Iraq.

"We are thinking now of the basic needs, such as providing food and health services and fighting unemployment, which creates the environment for terrorism and which feeds terrorism," he said.

Iraq's Minister of Immigration and Refugees, Mohammed Jassem Khudair, said he needed to accommodate an estimated 4 million Iraqis displaced or driven out of the country.

President George Bush plans to set aside $20bn for Iraqi reconstruction over 18 months, although the US Senate voted to convert $10bn of the package into loans to be repaid with Iraq's oil revenues. Yesterday Washington made it clear that its aid will be paid bilaterally and not through an international trust fund administered by the UN, the World Bank and a committee of Iraqis.

With agreement having been reached on a new UN resolution, the climate of the conference is better than many expected. Japan has pledged $1.5bn for 2004, South Korea has agreed to pay $200m, and Canada has offered $150m. The World Bank has said it will lend Iraq $3bn to $5bn over the next five years. Spain has pledged a total of €300m from 2003-07, although that sum includes loans, and Britain has promised £260m in 2005-05.

Nevertheless several countries have noted a World Bank and UN estimate that Iraq could absorb no more than $5.2bn dollars in aid in 2004. And, despite agreement on the new UN resolution, countries such as France, Germany and Russia, which opposed the war, have already said they will not provide any more money. Worries about security in Iraq and the capacity of the economy to absorb large-scale aid have prompted some potential donors to delay commitments.

Diplomats hope the conference will send a signal of commitment to reconstruction, and that Arab nations will play a significant role. Mr Annan argued that the needs of the Iraqis should transcend political arguments about the country's political future. "We all look forward to the earliest possible establishment of a sovereign Iraqi government but the start of the reconstruction cannot be delayed until that day," he said.