Ed Crooks
Financial Times, UK
May 18, 2003

Iraq should not have to service its debts until the end of next year at the earliest, finance ministers of the leading developed economies agreed at their meeting in Deauville, France, at the weekend.

The ministers also called on the Paris Club of leading industrial creditor countries to “improve its methods” for dealing with heavily indebted countries, in ways that are likely to benefit Iraq. But there is still no timetable for a donor conference to discuss the reconstruction of the country.

The treatment of Iraq’s debts is a difficult issue for the Group of Eight: the US would like to see the most favourable terms possible but France, Germany and Russia are significant creditors. Estimates of the debt vary widely – $100bn (€86bn, ?62bn) is one often-quoted figure.

Iraq is not servicing its debts now and has not been for many years. But as oil revenues begin to flow, the question of how much Iraq can reasonably be expected to pay will become more pressing.

The official communiqu? did not refer to Iraq’s debts but John Snow, the US Treasury secretary, denied that there had been any disagreement. “I think it was broadly accepted that Iraq is not now in a position to begin making repayments on their debt structure,” he said.

The communiqu? did call for a new approach in the Paris Club that would “tailor its response to the specific financial situation of each country rather than defining standard terms”. The implication is that a country like Iraq, not covered by existing procedures for heavily indebted poor countries, could benefit from restructuring including debt reduction “in exceptional circumstances when its need is clearly demonstrated”.

However, officials at the Deauville meeting said a Paris Club deal for Iraq was not imminent.

The first problem with its debts is determining how much it owes. The International Monetary Fund, which is working on assessing Iraq’s debts to Paris Club countries, agreed at the weekend to assess debts to countries outside the Paris Club, including others in the Middle East.

Mr Snow said he expected there to be a donors’ conference on rebuilding Iraq “later this year”, once the assessments of its economy by the IMF and the World Bank are completed.