Forex News
June 11, 2004

Sea Island, Georgia: World leaders broke up a three-day summit Thursday without bridging a deep rift over US President George W. Bush’s proposal to forgive the vast majority of Iraq’s 120 bln usd debt.

A summary of the Group of Eight discussions made no mention of the Iraqi debt, after Bush’s campaign to forgive 80-90 pct of the liabilities encountered staunch resistance from some countries, especially France.

“Debt reduction is critical if the Iraqi people are to have the opportunity to build a free and prosperous Iraq,” said a G8 statement the day before, glossing over the row over how much debt should be cut.

A Russian official said the United States had been pressing its G8 partners – Britain, Canada, France, Germany, Italy, Japan and Russia – to cancel “a maximum of the debt by the end of 2004” but not all countries here agreed.

French President Jacques Chirac said he was prepared to let Iraq off the hook on half the debt, but was scathing about the US request to go further.

“Iraq is a rich country,” Chirac told a final news conference Thursday after the meeting on Sea Island, off the coast of Georgia.

“How would you explain to heavily indebted poor countries or other heavily indebted countries like Nigeria that in three months we are going to (do) more for Iraq than we have done in 10 years for 37 heavily indebted poor countries? It makes no sense. It is not decent,” he said.

“That is why France, and we were not alone, has taken a clear position: A cancellation? Yes. Substantial? Yes. What does substantial mean? For us, it means about 50 pct, I do not want, we do not want to go further.” Russia and Canada also have shown themselves unwilling to go so far as the Americans in releasing Iraq from its obligations.

Moscow, which is owed 8.5 bln usd, prefers “a more open formula” for dealing with the 120 bln usd in debt, said a Russian official, who spoke Wednesday on condition of anonymity.

He said the Russians backed language to forgive the debt “as quickly as possible, and perhaps before the end of the year.” Russian President Vladimir Putin is ready to cancel 65 pct of the Iraqi debt and is also linking the move to the ability of his country’s businesses to operate in Iraq, the official said.

He quoted Putin as telling Bush that “our flexibility will depend on yours and the capacity of our businesses to work in Iraq.” German Chancellor Gerhard Schroeder has also suggested that in return for forgetting about billions of dollars in debt, German businesses should be able to pick up contracts for rebuilding Iraq.

Bush has so far sought to keep out companies from countries that opposed the invasion of Iraq last year to oust Saddam Hussein.

The Americans say their position is supported by a report prepared by the International Monetary Fund for creditors which, according to a senior US official, urges canceling a vast majority of the debt.

The 19 permanent members of the Paris Club – which groups the public creditors – are currently reviewing the IMF report.

Estimates vary but a large part of the Iraqi debt is owed to Gulf countries and another portion represents reparations for Saddam’s invasion of Kuwait in 1990. About one third is held by Paris Club members.