Iraq's Odious Debts

Iraq debt delief backing rises, hard work remains

Brian Love
Reuters
December 18, 2003

Paris: The Paris Club of creditor states can agree a debt relief deal for Iraq quickly but the agreement can be signed only when the country has an internationally recognized leadership, the Paris Club’s president said on Thursday.

Increasing hopes that a deal will be reached, Britain said during a European tour by U.S. special envoy James Baker that it backed the idea of a substantial reduction in debts estimated at $120 billion.

The British comment echoed similar political pledges made this week by France, Germany and Italy after talks with Baker, who was visiting Britain and Russia on Thursday.

“The United Kingdom agrees wholeheartedly with the need for a substantial reduction of Iraqi debt,” a spokesman for British Prime Minister Tony Blair said after talks between Blair and Baker before Baker’s departure for Russia, a major creditor.

Iraq’s total foreign debts are estimated at $120 billion by the International Monetary Fund, with about $40 billion of that due to the 19 countries of the Paris Club. The lion’s share of the rest is owed to Saudi Arabia, Kuwait and a string of eastern European countries like Romania, Bulgaria and Poland.

“The Paris Club will agree a deal with Iraq as soon as there are Iraqi authorities in place, when they are internationally recognized and when the International Monetary Fund has analyzed what scale of debt relief is necessary,” Paris Club President Jean-Pierre Jouyet told BFM radio.

“The sooner the authorities are in place, the sooner we can do this,” he said, adding that he hoped an accord could be wrapped up in 2004.

President Bush decided last month to change tack and call for a speedier transfer of power in U.S.-occupied Iraq to the Iraqi people, including elections for a transitional government as early as half way through next year.

Work already underway on debt

Sources close to the Paris Club said key preparatory work was already underway on Iraq’s debts and that IMF experts were also working on the matter. They said the experts were working from Jordan for now because of the security situation in Iraq.

The experts in Amman and staff at IMF headquarters in Washington have to establish how much debt they think Iraq could live with and get a grip on estimates for non-Paris Club debts.

“The IMF must tell us what it considers a sustainable level of debt in the long-term,” one source said. The next time the issue will be broached by the Paris Club as a group is when delegates hold a regular meeting in January, but that is too early for any serious negotiating, sources said.

Jouyet, who is head of the Treasury department of the French Finance Ministry, doubles up as chairman of negotiations between creditors and indebted countries in the Paris Club, a forum created in 1956 to handle an Argentine debt crisis.

Despite the political commitments, negotiations in the Paris Club could be arduous. The sources close to the Paris Club say Germany and Japan are not entirely happy with plans to use more flexible in-house rules when deciding the levels of debt relief.

While the Paris Club group accounts for just 36 percent of Iraq’s total debt, the belief is that other creditors will work on the basis of whatever debt relief terms it offers.

The so-called Evian guidelines, adopted by the G8 powers and taken on board by the Paris Club a few weeks ago, allow for tailor-made debt relief deals with medium-income countries.

The sources close to the Paris Club said it was too early to estimate what level of debt relief would be accorded and that precedents were not necessarily valid benchmarks.

Former Yugoslavia had two-thirds of a $9.0 billion debt written off in 2001 after Slobodan Milosevic was ousted and free elections were held, but it was regarded as poorer and less promising in the longer term than oil-rich Iraq.

Nigeria won a debt restructuring package which involved rescheduling of repayments but no outright debt write offs.

Additional reporting Katherine Baldwin and David Chance in London.

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