Khaled Yacoub Oweis
Forbes.com
Baghdad: Iraq’s U.S.-installed government is making international efforts to reduce more than $200 billion of obligations threatening to undermine the country’s chances of economic recovery.

A senior Iraqi delegation will meet with World Bank and International Monetary Fund officials in Jordan next week to discuss a mechanism for reducing an estimated $100-120 billion of debt, excluding around $100 billion in war reparations.

The obligations are huge. Iraq’s 2003 gross domestic product is projected at $12 billion to $16 billion, according to the World Bank. Revenue from oil is forecast at $2 billion.

“The payments have been like tearing off our skin. We cannot afford more,” a senior Iraqi official told Reuters. “We have paid $1.4 billion in bank commissions alone to run the oil for food programme.”

The official was referring to a 1996-2003 arrangement with the United Nations that allowed Iraq to sell oil while deducting around 30 percent of the revenue for reparations arising from its invasion of Kuwait and the 1991 Gulf War.

Fayez Abd al-Rasoul, a senior official at the planning ministry, said Iraq had already paid around $19 billion in war reparations and creditors were making regular claims on the country.

“The only way to recover while meeting these obligations is to have massive foreign investment,” he said.

World Bank President James Wolfensohn said at least two-thirds of Iraq’s estimated $120 billion foreign debt will need to be written off to rebuild the country properly. The United States has also called for reduction of the debt.

The Group of Seven wealthy nations said it wanted to reach a deal by the end of 2004.

“The debt is hanging around our necks,” a senior Iraqi financial official said. “Iraq cannot do business and the banking sector cannot recover while Iraq faces claims left and right. The issue has to be settled.”

POLITICAL FACTOR

Iraq’s debt has become a politicised issue and a means for countries like Germany and France which opposed the war to try to influence the reconstruction and political future of Iraq.

A number of countries, including Germany, have expressed willingness to deal leniently with Iraqi debt, but fell short of granting a write-off.

Intifadh Qanbar, a spokesman for the Iraqi National Congress, a secular pro-U.S. group, said the postwar international environment favoured a financial rescue for Iraq.

“It is not going to be easy, but we have worldwide support and our financial situation is improving by the day,” he said.

Iraq accumulated most of the debt to finance its 1980-1988 war with Iran and the ensuing reconstruction. Companies from Jordan and Lebanon to Korea have claims on Iraq.

According to the World Bank, around $40 billion of the debt is owed to the Paris Club, a group of 19 government creditors from industrialised countries who negotiate debt restructuring, and at least $80 billion more due to other countries, including Gulf Arab and former Soviet states.

Demands by Kuwait’s rulers on Baghdad to settle its debt were a factor behind Iraq’s 1990 invasion of Kuwait and the Gulf War in 1991.

Iraqi officials privately say it is unthinkable for Gulf states to expect Iraq to pay debts accumulated to guard the eastern flank of the Arab world against the Islamic revolution in Iran – the same position as the former Baathist government.

The officials expect Gulf states to yield to U.S. pressure and cite a U.S. sponsored Security Council resolution in May that slashed Iraqi war reparation payments made mostly to Kuwait and Saudi Arabia.

Iraq is now paying only five percent of its oil revenue in reparations compared to 30 percent since 1996.

“This U.N. resolution improved our financial position significantly,” said central bank head Sinan al-Shabibi.

Reuters News Service