Iraq's Odious Debts

US in push for Iraqi debt relief

Alan Beattie
Financial Times
April 11, 2003

The US on Thursday indicated its determination to press on with making the reconstruction of Iraq a focus of this weekend’s international financial meetings in Washington.

But the drive met some reluctance, as the World Bank said it could not get involved in Iraq without a mandate from its governing board and possibly the United Nations.

John Snow, US Treasury secretary, told Fox News that he would bring up debt relief for Iraq at Friday’s meeting of finance ministers of the Group of Seven rich countries. “Certainly the people of Iraq shouldn’t be saddled with those debts incurred through the regime of the dictator who’s now gone,” he said. Paul Wolfowitz, US deputy defence secretary, called on Germany, France and Russia to write off their Iraqi debts. Russia will attend part of the G7/G8 meeting on Friday.

Clare Short, UK international development secretary, said in London that Iraq would need debt relief.

But the other elements of the US’s strategy appeared to be encountering more resistance. Mr Snow said he would ask the World Bank to start work on reconstruction. But James Wolfensohn, the bank’s president, said on Thursday that even offering technical assistance might be impossible without a UN Security Council resolution.

The bank’s view that it could not lend to Iraq without an internationally recognised government, sealed by a UN mandate, has been accepted by the US.

But it said that given the sanctions on Iraq under UN resolution 661, even sending a team to assess the needs on the ground could be problematic. “There are articles in [resolution] 661 which prevent any member countries from spending resources in Iraq,” said Jean-Louis Sarbib, the bank’s vice-president for the Middle East and North Africa, on Thursday. “Our legal department is continuing to look at what room we would have to go and make a technical assessment.”

Mr Snow said he was “baffled” by the bank’s reluctance, and said he hoped Mr Wolfensohn would reconsider. The bank’s management is also insisting on a mandate from the bank’s governing board before offering even technical help.

Some officials said privately that the bank management’s insistence on legal proprieties reflected mainly a desire to wait for political unity before acting. One official said the UK, French and German representatives on the bank’s board appeared to be working together to establish the need for consensus and consultation with the UN.

On Thursday morning, Mr Wolfensohn said he had received no formal request from the US to work in Iraq. The board discussed the issue on Tuesday and agreed with the bank management’s cautious approach.

Mr Snow also confirmed on Thursday that the US opposed the International Monetary Fund’s plan for a judicial mechanism for bankrupt governments.

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