Iraq's Odious Debts

Iraqi debt write-off ‘likely,’ says EIU

April 28, 2003

London – The Economist Intelligence Unit (EIU) suggested Monday that the most likely result of negotiations on Iraq’s massive foreign debts will be a substantial write-off. “Despite the protests of major country creditors, a large write- off of Iraq’s external debt, together with s substantive renegotiation of outstanding loan liabilities and compensation claims, appears the most probable outcome,” it said.

Commenting on the state of Iraq’s external indebtedness in its latest Country Risk Alert, the London-based EIU believed that the resumption of debt service, which was disrupted since the 1990 invasion of Kuwait, was “unlikely in the next 12 months.”

Preliminary discussions by the Paris Club on Iraq’s debt burden were reported to have started last Friday following meeting between the Group of Seven leading industrial nations and the International Monetary Fund.

The EIU said that restructuring was inevitable but could prove contentious with bickering already breaking out among major creditor countries over the terms.

The US administration, due to rule Iraq until at least an interim government has been appointed, has indicated it would be supportive of debt forgiveness for a portion, but Washington’s posture has been criticised by developed countries with the greatest claims, it said.

Iraq’s debt is estimated to widely range from between Dlrs 60 billion to Dlrs 300 bn.

Of the largest share, owed to members of the Paris Club, Russia, France, Germany and Japan have the biggest claims with each owed around Dlrs 8 bn or more. But in contrast, claims from other industrialised countries, such as the US and UK, are thought to be much lower at Dlrs 1 bn or even less, the EIU said.

Ironically, it suggested that the considerable uncertainty over the size of Iraq’s total debt stock was largely due to the “secret international support for the 1980-88 war with Iran.”

Outside the Paris Club, unofficial loans claimed by Arab states in the Persian Gulf were estimated by the EIU to be worth around Dlrs 72 bn, but it said it was difficult to assess their potential as Iraq has declared some of the funds were grants rather than loans. It believed that with all foreign currency earnings likely to be managed by the UN’s escrow account in the coming months, Iraq’s debt stock will continue to mount unless the oil-for-food programme was altered to allow debt servicing rather only meeting compensation claims.

The EIU made no mention of Iraq’s war reparations owed to Iran but said that around Dlrs 16 bn had been paid out of Dlrs 43.9 bn approved for compensation due to its later invasion of Kuwait.

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