Iraq's Odious Debts

Analysis: Forgiving Iraq’s debts – II

Sam Vaknin
The Washington Times
April 18, 2003

SKOPJE, Macedonia, April 17 (UPI) — Trading Iraqi debt — sovereign notes, letters of credit and papers issued by the central bank and two other banks, Rafidain Bank and Rashid Bank — is onerous. The Economist describes it thus: “Trading, or even holding, Iraqi paper is loaded with traps. Its validity can expire every few years, according to the statute of limitations in various jurisdictions. Renewing it requires some acknowledgment from the borrower, and that was difficult even before the war. Assigning the debt from buyer to seller requires the borrower’s assent, and the Iraqi banks have been uncooperative since 1988.”

No one has a clear idea of how much Iraq owes and to whom.

According to Exotix, a sovereign debt brokerage, Iraq owes commercial creditors $4.8 billion and other Gulf states $55 billion –regarded by Iraq as grants to cover the costs of its war with Iran in the 1980s. It owes Paris Club members $9.5 billion, the countries of Central Europe — mainly Germany — $4 billion and others about $26 billion, including $5 billion to the U.S. government and American businesses.

The foreign debt alone amounts to $5,000 per every denizen of the desert country. With reparations and commercial obligations, the country’s destitute denizens are saddled with more than $16,000 in debt per capita. Iraqi debt equals 15-20 times the country’s gross national product. Iraq hasn’t serviced its loans for well over a decade now.

According to Barton-Crocker,Iraq owes $199 billion in compensation claims to more than a dozen nations, another $127 billion in foreign debts and $57 billion in pending foreign contracts — public and private. Iraq owes Russia $12 billion, Kuwait $17 billion, the Gulf States $30 billion and less than $2 billion each to Turkey, Jordan, Morocco, Hungary, India, Bulgaria, Poland, and Egypt.

Most of the pending contracts are with Russian firms ($52 billion) but the French, Chinese, Dutch, United Arab Emirates and Egyptian have also inked agreements with Hussein’s regime. The U.S. and American firms are owed little if anything, concludes al-Jazeera. Debt forgiveness would allow a more sizable portion of Iraq’s oil revenues to be ploughed into the American-led reconstruction effort.

Russia and France are not alone in their reluctance to ban Iraqi credits. Austrian Minister of Finance, Karl-Heinz Grasser, was unambiguous on Tuesday: “We see no reason why we should waive 300 million Euros of Iraqi debts”. He noted that Iraq — with the second largest oil reserves in the world — is a rich country.

In the build-up to the coalition, the United States promised to buy the debt Iraqis owe to countries like Bulgaria ($1.7 billion) and Romania. Dimitar Culev of the pro-government daily “Utrinski Vesnik” in Macedonia openly confirms that Macedonia’s participation in the coalition of the willing had to do, among other long-term considerations, with its hopes to recover Iraqi debts and to participate in the postwar bonanza.

Polish Deputy Labor and Economy Minister Jacek Piechota on Tuesday confirmed that Poland intends to recover the $560 million owed it by Iraq by taking over Iraqi assets in a forthcoming “privatization.” Another option, he suggested, was payment in oil.

Nor are such designs unique to sovereign polities. According to Dow Jones, Hyundai hopes to recover $1.1 billion through a combination of crude oil and reconstruction projects. During the Clinton administration, American creditors almost helped themselves to between $1.3 and $1.7 billion frozen Iraqi funds with the assistance of the U.S. Foreign Claims Settlement Commission. Luckily for the looming new Iraqi government, the legislation languished in acrimony.

The debt question is not academic. As the London Times observes: “As things stand, no one can write a single check on Iraq’s behalf until the question of its towering debts is sorted out. Not a single barrel of oil can be sold until it is clear who has first claim to the money; no reputable oil company would touch it without clear title.”

According to Pravda, to add mayhem to upheaval, the Iraqi opposition indignantly denied that it had broached the subject with the U.S. Iraq, they thundered, will honor its obligations and negotiate with each creditor separately. But, they added ominously, members of the “friends of Saddam” fan club — alluding to Russia, Ukraine and Belarus among others — are unlikely to get paid.

The Iraqi opposition is as fractured as the Western alliance. Some exiles — like Salah al-Shaikhly from the London-based Iraqi National Accord — promote the idea of a big write-off cum grace period akin to the 66 percent reduction in the stock of Yugoslav obligations. Debt for equity swaps are also touted.

The trio of creditors — especially France and Russia — might have considered debt reduction against a participation in the lucrative reconstruction effort. But a fortnight ago the U.S. House of Representatives approved a non-binding amendment to the supplementary budget law calling upon the administration to exclude French, Russian, German and Syrian companies from reconstruction contracts and to bar their access to information about projects in postbellum Iraq.

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