Iraq's Odious Debts

France resists U.S. push to slash Iraq debt

Paul Carrel
May 23, 2004

New York: The United States wants Iraq’s sovereign creditors to write off 80-90 percent of the oil-rich state’s debt but Paris wants to cancel just 50 percent, a French source said on the margins of a G7 meeting on Sunday.

“The French position is 50 percent, which is a handsome gesture,” the source said.

Iraq owes about $42 billion dollars to the Paris Club, a group of 19 creditor states including all of the world’s industrialised economies, according to Paris Club estimates.

French Finance Minister Nicolas Sarkozy, attending the Group of Seven (G7) meeting in New York, said he expected the International Monetary Fund (IMF) to produce its assessment of Iraq’s debt in about 10 days time and that this would pave the way to a deal.

He acknowledged the U.S. push for a big debt writeoff.

“We know (the United States’) conviction and the American position, which is to wipe out as much as is possible of Iraq’s debt,” Sarkozy told reporters atfer the meeting in New York.

“We agree completely with making an effort – a substantial effort. The percentage will be decided by the heads of state.”

France and Germany, which are increasingly trying to take joint stands on European and international issues, are among the bigger creditors in the club behind Japan and Russia, and are owed almost $6.0 billion and $5.0 billion respectively by Iraq.

France, Germany and Russia opposed the U.S.-led Iraq war.

Russia has spoken of a 65 percent write-off of debts owed to it, but officials have said this promise is far from definitive and linked to demands for confirmation of business contracts for Russian oil and gas exploration in Iraq.

The Paris Club takes into account a country’s economic potential, including natural resources like oil, when assessing its eligibility for debt writeoffs.

Sarkozy pointed to Iraq’s large oil reserves and said granting Baghdad greater debt relief than that given to less well-endowed nations would be difficult.

“If we departed from the rules of the Paris Club, what would we say to those countries that did not have the same conditions,” he said.

“Fifty percent is the Paris Club rule,” he added.

The G7 finance ministers did not get into the detail of how much Iraqi debt to write off as the leading economic powers wanted first to see the IMF report, Sarkozy said.

Heads of state and government from the G7 – the United States, Japan, Germany, Britain, France, Italy and Canada – and Russia would address the issue at a June 8-10 summit in Sea Island, Georgia, Sarkozy said.

Iraq is estimated to owe about $120 billion in all, of which much of the non-Paris Club debt is owed to Kuwait, Saudi Arabia as well as countries like China and Bulgaria.

The G7 has set its sights on a deal on Iraqi debt by end-2004. European Union Economic and Monetary Affairs Commissioner Joaquin Almunia urged the economic powers to reach an agreement.

“I think it is necessary to find a solution to address the debt problems . . . of Iraq,” Almunia told reporters on the sidelines of the G7 meeting.

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