Iraq's Odious Debts

U. S. says Iraq may need Serbia-style debt writeoff

David Chance
Reuters
May 4, 2003

TASHKENT, May 4 – Iraq cannot be expected to start repaying its massive debts this year or next, and may need to be treated like other post-conflict countries which have received major debt write-offs, a senior U.S. official said on Sunday.

John Taylor, Treasury Undersecretary for International Affairs, told Reuters in an interview the oppressive nature of Saddam Hussein’s former government in Iraq needed to be taken into account in assessing the level of relief needed.

There are no official figures, but analysts estimate that debt principal and interest owed by Iraq amounts to some $120-$130 billion.

Speaking at the annual meeting of the European Bank for Reconstruction and Development in the Uzbek capital Tashkent, Taylor cited the example of the former Yugoslavia, which won a 66 percent debt write-off after a NATO-led war led to the removal of Slobodan Milosevic.

“Looking at historical comparisons is a reasonable way to proceed, whether Serbia or other post-conflict countries,” he said.

The Paris Club of sovereign country creditors has just started the process of gathering data on Iraqi debt, which has not been serviced since the 1980s.

The U.S.-led coalition which ousted Saddam and his government now faces trying to help rebuild the country which has been under U.N. sanctions for more than a decade, and where infrastructure has been destroyed by bombing and economic mismanagement.

“The fact that it was a terribly oppressive regime is a factor that has to weigh in the calculations,” Taylor said.

BILLIONS OWED TO CREDITORS

Taylor said it was important for debts owed by Iraq to non-Paris Club countries to be included in the total.

Major creditors include Russia and France who are owed around $8 billion apiece, but there are also $35 billion in disputed loans to Iraq from Gulf Arab states.

Russian Deputy Finance Minister Sergei Kolotukhin told Reuters in Tashkent on Saturday any talk of reducing Iraq’s debt was premature until a careful study was made of what it owes.

Taylor said Iraq cannot be expected to start repaying the debts any time soon as that would burden its economy.

“Debt service payments are so large you cannot expect the interim authority to make payments this year and next year,” Taylor said.

Given the complexity of reconciling Iraq’s debts, it would be unrealistic to expect a rapid deal to reduce or reschedule the debt. “(It will be) Well into next year, perhaps even later, he said.

Taylor was optimistic the economy could be revived by investment from the private sector.

“If now Iraq puts together good rule of law and property rights…there are so many opportunities for private investment,” Taylor said.

He reiterated the U.S. view that sanctions against Iraq should be lifted, a move blocked by some United Nations members.

Iraq’s once relatively prosperous developing economy, where the average per capita income was $4,000 in 1980, has now sunk to the level of the poorest nations on earth at $150 a year.

Reviving Iraq’s oil industry, which boasts the second largest proven reserves after Saudi Arabia, is crucial to rebuilding the ravaged economy dependent on crude exports.

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