David Chance
Reuters
October 23, 2003

While seeking to rake in pledges of up to $36 billion for Iraq, officials here had tried to put aside the debt issue until next year or the year after, arguing that it was important to start rebuilding before reconciling the thorny issue.

“You cannot have these discussions without discussing the debt,” said a senior finance official from a European state that was against the war. Without rescheduling debts, estimated at $108-$123 billion, but rising to as much as $166 billion if compensation claims for Saddam Hussein’s invasion of Kuwait are included, there will be no investment in Iraq, which will then become just another aid-dependent state, officials and analysts said.

“Say in 2006, the European countries were committed to provide commercial loans to Iraqi companies, you simply could not do this without dealing with the debt,” the official said.

Iraq debt is complicated by the fact that much of it is held by countries which are not part of the usual framework of resolving the issue, a process coordinated by the Paris Club of creditor nations. Some $45-$55 billion of debts is owed to Gulf Arab countries, and analysts estimate that countries like China, Turkey and former Yugoslavia could hold as much as another $15 billion.

“In the case most of most the countries you can just go to the Paris Club and reschedule the debt, but this is not a normal situation,” the European finance official said.

U.S. officials say they are holding talks, but admit that any resolution is some way off. “We are talking with a broad range of countries on debt relief and it would be premature to say where that is going,” said one top U.S. official.

They estimate Iraq’s debt is nine times as large as its economy, a figure which makes it the world’s most indebted country per capita. Financial analysts expect an eventual debt reduction of 75 percent, rather than the 90 percent, or even complete write-off as some campaigners are demanding.

Assuming a 20-year repayment programme, a 75 percent write-off would result in debts being reduced to $66.2 billion, according to research from UBS analyst Alex Garrard. That would commit Iraq to a debt to exports ratio of 210-227 percent, based on current oil prices, and a debt service ratio of 13.6-16 percent of exports over the next five years, which compares favourably with Serbia, Poland and Egypt, all of which have won substantial debt relief in recent years.

That would not be enough for some campaigners, among them the Jubilee group which put the issue of debt relief for poor nations on the world political agenda in the 1990s. “The best way for donors to help the Iraqi people rebuild their country, the purpose for which the October 23 and 24 meeting in Madrid has been arranged, is to investigate those debts and write them off if they were used for weapons, instruments of repression, or for corrupt purposes,” debt relief campaigners from Jubilee Germany and Canadian group Probe International said in a statement released here.

Investigating those debts would entail countries like France being held accountable for selling warplanes and missiles and Russia for selling tanks, aircraft and helicopters. It would also entail the Gulf Arab states like Kuwait and Saudi Arabia admitting they loaned money to Iraq when it invaded Iran, and such debts would be declared “odious,” a legal term used to describe borrowing money by dictators against the interest of their own people.

“Probe International of Canada and the German Jubilee campaign say that donors should abide by the doctrine of odious debts and accept that their loans to the regime of Saddam Hussein are likely not valid and that they cannot expect repayment from the Iraqi people,” the campaigners said.