Odious Debts

Shape of Iraq’s economic landscape watched closely

Simran Bose
September 19, 2003

DUBAI: The direction of Iraq’s economic future will be closely watched during the upcoming meetings of the World Bank and the International Monetary Fund (IMF), where discussions about the country’s development landscape are expected.

An official delegation from the country will be attending for the first time in years – there has been little contact between Iraq and the IMF since 1980 due to three major wars and international sanctions.

The Iraqi delegation will include Sinan Shibibi, the newly appointed governor of the Central Bank, and several cabinet ministers. There is likely also to be a representative of the Coalition Provisional Authority (CPA), as the ruling administration of Iraq is called.

At a briefing Friday, World Bank President James Wolfensohn said he expects to meet with the Iraqis to take “further inputs” on the country’s reconstruction needs.

“The inputs will be of a lot of help at the donors conference that takes place in Madrid in coming months,” he added, referring to a donors’ conference set for October.

“We and the entire international financial community are very keen on involving and listening to the Iraqis, Iraqi counterparts, and to the CPA which is in charge of Iraq,” said George Abed, director of the Middle Eastern department at the IMF.

But some say they are not sure that the discussions will really make a difference on the ground in Iraq, where basic services have been interrupted, power outages are common and where there is a lot of smuggling of oil, its main export.

“We don’t expect to gain much. I don’t think there will be any concrete developments,” a Dubai-based Iraqi businessman, who declined to give his name, said when asked about his expectations from this meeting.

Estimates Iraq’s reconstruction needs have been put at nearly 200 billion U.S. dollars over three years by Paul Bremer, the U.S. administrator of Iraq. Restoring water and electricity systems alone will cost some 30 billion dollars. “We don’t have a clear picture yet on the requirements for, financial or otherwise, for reconstruction in Iraq,” Abed said. “We don’t have a figure yet (for resources needed).”

The assessment of Iraq’s needs – the United Nations, World Bank and the Fund have done research – will be presented to the donors’ conference in October.

Local media reports quoted a spokesman for the World Bank as saying that Iraq will not be a part of the formal agenda of the annual meetings, but “there will be discussions alongside the meetings.”

In the months since the occupation of Iraq, there has been debate about which development path the country will take, how its key resources, including oil, will be managed, its foreign debt, and the role of the IMF and World Bank there.

Different proposals have been made on how to help Iraq back on its feet, ranging from having an interim currency to stabilising the currency, to issuing bonds against oil revenues as proposed by the U.S. Export-Import Bank.

Fund officials say the financial institution has given assistance in the introduction of a new currency, Central Bank legislation, commercial bank licensing, and payments systems and public expenditure.

But many issues remain pending. In a paper on the reconstruction process in Iraq, Georges Corm, an economist specialising in the Middle Eastern and Mediterranean region, warned in a recent paper that too much control is being given to the Coalition Provisional Authority.

This authority has been recognised through a U.N. Security Resolution as the occupying power in charge of Iraq.

But Corm questioned, for instance, the legal nature of the Development Fund for Iraq that a U.N. resolution seeks to establish, saying it “has dramatically altered the management of Iraqi public finances and state financial management to give full control of it to the occupying powers.” Also unresolved is the matter of the country’s foreign obligations, the figures for which “are subject to wide degrees of uncertainty,” Abed said.

The Paris Club group of creditor governments has estimated Iraq’s debt to it at 21 billion dollars in principal and up to 40 billion dollars, including interest and charges.

A recent report on the Iraqi foreign debts by a London-based firm, Exotix, which trades in emerging market debts, estimates Iraqi foreign debt as: 17 billion dollars to the Paris Club, with 2.6 billion dollars more owed to the commercial banks of industrialised countries and not covered by a guarantee from their own country.

It also said Iraq owes 8 billion dollars to Russia.

By Exotix’s figures, total Iraqi foreign debt is estimated at 116 billion dollars – including 26 billion dollars for unaccounted debts and including unpaid interest estimated by some sources at 47 billion dollars.

But Corm says that it is not just a question of figures, but the legitimacy of any action on Iraq’s debt under U.S. occupation, that is important for the country at this sensitive and difficult time.

“One main question here is whether the (Coalition Provisional) Authority could sign on behalf of Iraq a rescheduling agreement with the Paris Club or would such a deal have to be signed by an Iraqi government fully recognised by the United Nations and the international community,” he said.

But until political arguments about Iraq are resolved at the U.N. level, it seems unlikely there can be any immediate progress on the financial front.

Media reports say that IMF officials would like to see a government with a widely recognised authority, ideally backed by a U.N. resolution, so it can lend funds to Iraq. Abed described Iraq’s status thus: Because of the U.N. Security Council recognising the CPA as the occupying power there, “Iraq by definition therefore and by international consensus does not now have an internationally recognised legitimate government.”

Meantime, Ashraf Hamdi Fouad, a political commentator with Abu Dhabi Television, wrote in the English-language newspaper Gulf News that there has been poor Arab representation in Iraq’s reconstruction.

“But this time Arab states should blame themselves for the exclusion from the direct planning for the region’s future,” he said. The U.S. government had asked the Arab states for military assistance, but the Arab League turned this down, he added.

“An early engagement with the request would have forced Washington to listen carefully to Arab states, who could have influenced U.S. moves in Iraq,” Fouad said.

Categories: Odious Debts

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