Reuters
CNN Money
June 10, 2004

Sea Island, Georgia: The Group of Eight leading industrialized nations on Wednesday said they agreed that Iraq’s debt should be reduced, but there was no conclusion on the amount.

The G8, in a communique on an initiative for reform in the broader Middle East, said the debt should be reduced in conjunction with a program by the International Monetary Fund to ensure Iraq’s economic stability.

The United States, which has been calling for a reduction of most of Iraq’s estimated $120 billion in foreign debt, indicated that the G8 leaders, meeting in Sea Island, Georgia, remain split on the level of debt forgiveness needed.

“The United States and Great Britain and Canada and Japan and Italy believe that number is going to need to be very, very high,” a senior U.S. official said.

France and Russia, Iraq’s biggest creditors, favor a smaller reduction in Iraq’s obligations since they want to be repaid and because Iraq’s oil resources are seen by some as substantial enough to warrant it paying a larger portion.

“The others have said that they understand that there needs to be reductions but this is work that probably leads to the Paris Club so I don’t think anyone was really anticipating much more movement here,” the U.S. official said.

“Debt reduction is critical if the Iraqi people are to have the opportunity to build a free and prosperous nation,” the G8 statement on the Middle East plan said.

“The reduction should be provided in connection with an IMF program, and sufficient to ensure sustainability taking into account the recent IMF analysis,” it said.

“We will work with each other, within the Paris Club, and with non-Paris Club creditors, to achieve that objective in 2004.”

The International Monetary Fund has given members of the Paris Club – a group of sovereign creditors that meets in Paris to consider requests by debtors to postpone debt repayments or reduce service obligations – a detailed study of Iraq’s financial condition.

Alfred Tacke, a top official accompanying German Chancellor Gerhard Schroeder at the summit, told reporters, “The G7 reached an agreement, which means the Iraq debt should be reduced on the basis of the Paris club (of creditors) to secure positive development for the country. But they did not agree on any concrete figures.”

A Canadian official called the move to place the decision on the level of forgiveness to the Paris Club “a compromise.” “The question is whether it’s going to be 67 percent or 95 percent,” the official told Reuters.

The U.S. official, in response to a question, said it was likely that more than 50 percent of Iraq’s debt should be forgiven. But, he added, “We have not put percentages on this because we are going to look at the debt sustainability analysis that’s done by the IMF. We’re going to work with the Iraqis because they are working toward an IMF plan to develop a macroeconomic stabilization plan and we’ll see what comes of it.

“Our view is that Iraq is going to need substantial, really the vast majority of its debt relieved because this is a country that has been through one of the worst regimes in a very, very long time, that suffered under sanctions for 12 years, and that a high level of debt is just not sustainable,” the U.S. official said.