LONDON, NOV. 8 -- Two days before President Saddam Hussein invaded Kuwait, telexes went out from the Central Bank of Iraq to correspondent banks in the Middle East and Europe requesting that they transfer funds from their Iraqi accounts to the Central Bank of Jordan, according to informed Arab banking sources.
No one knows for sure how much Iraq collected -- estimates range from less than $100 million to $400 million. But financial analysts say the telexes were part of a feverish scramble by Iraq to gather hard currency, gold and other liquid assets to keep its war machine and its civilian economy functioning in anticipation of international sanctions.
Those sanctions have turned out to be among the most air-tight and comprehensive in modern history, say experts, who add that the Iraqi economy is slowly grinding down. Yet Iraq continues to function: Western diplomats and journalists in Baghdad say that, as best they can determine by limited monitoring, the shelves of the city's markets remain stacked high with foodstuffs, factories still operate and, most important, the armed forces remain well equipped with weapons and spare parts.
Part of the reason is Saddam's war chest, which banking sources and analysts estimate at between $2 billion and $4 billion. That sum comes from Iraq's domestic reserves, from funds gathered before the clampdown and from the looting of Kuwaiti banks and businesses. Arab sources say Saddam has tried a number of other means: laundering funds through Jordan, Libya, Lebanon and sympathetic banks in the Persian Gulf, issuing government bonds and extorting funds from private citizens in Iraq and even pleading for financial help from Palestine Liberation Organization leader Yasser Arafat.
Most experts say these limited funds are not enough. "Basically it's a question of time," said a Palestinian banker with close ties to Iraq. "If we're talking about the next six months, the Iraqis can manage. But if we're talking about the next 18 months, they can't."
But the funds helping to prolong Iraq's survival contribute to growing U.S. impatience. If, as President Bush has indicated, the impact of sanctions on Iraq is a key factor in his decision on whether to go to war, then Saddam's war chest has become one element pushing the gulf crisis toward a military showdown.
Because Iraq is a secretive police state, where the death penalty can be applied for numerous crimes against the state, accurate financial information is virtually impossible to come by. The International Monetary Fund and the World Bank both say they stopped publishing statistics for Iraq a decade ago.
"This is a country where the number of loaves of bread produced by bakeries in Baghdad each day is considered a state secret," said a Kuwaiti financier. "People have been hung for giving normal commercial statistics to accredited embassies."
The Middle East rumor market contends Saddam has $4 billion in banknotes stashed in a basement vault below the presidential palace, and millions more in Swiss banks gathered from "commissions." Nonetheless, most analysts agree that before the invasion of Kuwait, Iraq was broke.
Before his invasion of Iran, Saddam could boast $30 billion in gold and currency reserves. By the end of that eight-year war, the reserves were all but gone and Iraq owed a reported $79 billion abroad.
"The Iraqis had gone through all the stages -- playing off one creditor country against another, rescheduling loans and then rescheduling the rescheduling," said Stephen Timewell, editor of Arab Banker magazine here. "They tried every possible scam and dodge, and they hit rock bottom at the end of last year. There was no rush of people lining up to give them money."
Until the invasion, the key to Iraq's economic survival was oil -- exports amounted to between $12 billion and $15 billion per year. But the country was running an annual deficit of $4 billion to $7 billion, the net cost of imported food, arms, industrial equipment and other goods and services after oil earnings were subtracted. At most, economists say, Iraq had $6.5 billion in gold and currency reserves, $4 billion of which was estimated to be in foreign accounts.
This shortage of hard cash was part of what drove Saddam to invade Kuwait, whose oil fields and vast foreign holdings looked like a tempting and vulnerable cash cow, according to analysts.
"Iraq had been pushed off the lending ledgers of most major banks a long time ago," said the Kuwaiti financier. "Saddam was feeling up against the wall, and like a drug addict who needs $50 for a fix, he didn't care where he got it. He was willing to kill for it."
Yet the invasion may have worsened Saddam's cash-flow problem. While estimates of the liquid assets that the Iraqis seized vary, most agree that the total take -- gold from Kuwait's central bank and the private market and foreign currency -- probably did not exceed $1.2 billion.
Iraq's trade minister, Mohammed Mehdi Saleh, conceded as much in a recent interview in a state-owned newspaper when he complained that Kuwaiti officials had served Western capitalist interests by keeping most of their assets abroad.
The invasion triggered sanctions that effectively froze most of Iraq's $4 billion in foreign holdings and cut off oil exports. The State Department estimates that Iraq has lost 97 percent of its oil export revenues, $1.5 billion per month at pre-invasion prices.
All of this has left the Iraqis presumably desperate for cash. Arab banking sources say they got some early help from Jordan, which modified letters of credit and provided cash to help Baghdad purchase "dual-use" goods such as pipes for gun barrels and missile casings, ball bearings and spare parts. But after suffering devastating economic isolation, Jordan is believed to have cut off virtually all financial ties to Iraq. Jordanian officials publicly deny they ever broke sanctions.
The Arab sources say Baghdad also attempted to launder funds through cooperative Arab states and the PLO, as well as through a handful of friendly banks. But others say the amounts involved were minimal.
They contend Libya was long on promises but short on delivery. The PLO, itself cut off from its traditional backers in the gulf and running a $340 million deficit, was in no position to accede to Saddam's plea for help. And so-called friendly Arab banks did not wish to risk criminal sanctions in the West and their reputations by doing business with a discredited regime.
"Everything I've seen suggests that what the Iraqis got their hands on was small in absolute magnitude and certainly insignificant relative to their needs over the course of a year," said Sharif Ghalib, director of the African and Middle East department at the Institute for International Finance in Washington.
Internally, the government has sought to tap into the hidden supply of dinars held by Iraqi citizens, who do not trust state-run banks and have little in the way of consumer goods on which to spend. There are plans for a huge government bond issue like the ones that raised funds during the war with Iran.
But Iraqi dinars cannot pay for smuggling and sanctions-busting operations. That takes gold or hard currency, at prices double the normal market rate, experts say. Even so, with shipping lanes sealed off and most air flights canceled, Iraq is forced to fall back on trucks grinding through the desert over the porous borders of neighboring countries. The amount of goods involved is relatively small, according to the experts, and the costs high.