Iraq's Odious Debts

Iraqi debt to Paris Club nations set at $21bn – plus interest

Päivi Munter
Financial Times
July 11, 2003

The Paris Club, an informal group of creditor countries, has for the first time officially quantified Iraq’s debts, an initial step toward eventual debt restructuring talks.

Iraq owes its members $21bn (£12.5bn, €18.5bn) and a similar amount in interest accrued because it has not serviced its debt since 1990. This is roughly in line with previous market estimates.

Iraq’s biggest creditor nation was Japan, which was due $4.1bn in principal, the club said. Russia was owed $3.5bn, France $3bn and Germany $2.4bn. The US, some of whose officials have called for a complete write-off of Iraqi debt, was owed $2.2bn.

The Paris Club statement said the group did not expect Iraq to resume its debt payments until 2005.

During Saddam Hussein’s last decade in power Iraq became a pariah in the global capital markets. Although, the country has huge oil wealth, a postwar administration is expected to be granted significant debt relief following the regime change.

Iraqi debt has been rallying on the hopes that a restructuring settlement will return the country’s long-suffering creditors some of their money. Iraq’s syndicated loans, although illiquid, are currently being traded at 25-32 cents on the dollar, up from about 20 cents around the time of the war.

According to Richard Segal, director of research at emerging market brokerage Exotix, Iraq is likely to be forgiven two-thirds of its Paris Club debts. But for talks to start, Iraq, which is currently governed by a US-led interim administration, will have to acknowledge the numbers.

A settlement will also require a credible economic programme.

“They probably need an IMF agreement before the Paris Club can formally agree, and that could happen in the next two to three months,” said Mr. Segal.

Iraq’s other creditors would be likely to use a Paris Club settlement as a model in their debt negotiations.

The country’s foreign obligations totalled more than $100bn, Exotix said. In addition to the Paris Club debt, Iraq owes some $1.7bn-$1.9bn to the London Club of commercial creditors and $200m to multilateral lenders, such as the International Monetary Fund.

Baghdad has also received about $55bn from other Gulf states, which they consider loans. Iraq still faces reparation claims from the first Gulf war, mostly from Kuwait, running into tens of billions of dollars.

  •  Paul Bremer, the US administrator in Iraq, has scheduled a news conference for this weekend where he is expected to announce the make-up of a new governing council of 25-30 prominent Iraqis, AP reports.

The council would be the first national Iraqi political body since the fall of Mr. Hussein, and it is hoped that it will lead to the selection of a constitutional congress and later elections.

A senior western diplomat said the council would have a Shia Muslim majority, to reflect the demographics of the country, and would also favour internal Iraqi politicians over those who returned to Iraq from exile. Women are also expected to get a prominent role.

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