Correspondents in Madrid, Spain
The Australian
June 14, 2004

The International Monetary Fund will not make a recommendation on forgiving Iraq’s debt, IMF Managing Director Rodrigo Rato said today, calling it a decision for Iraq’s creditors.

“We are providing technical analysis. It’s up to the creditors to make any decisions on that respect, Rato told an IMF conference in Madrid.

Last month, the IMF presented the Paris Club of 19 government creditors an estimate of Iraq’s total debts and a range of scenarios for debt relief. The IMF is not making the findings public.

The Paris Club has set a goal of reaching a debt relief agreement for Iraq by the end of 2004. The group estimates that Iraq owes them about US$42 billion ($61bn), with the largest debts owed to Russia, Japan, France and Germany.

The latest estimates have put Iraq’s total debts at about US$120 billion ($175bn).

Rato also said there is room to strengthen the fund’s role in ensuring international financial stability.

“In the area of surveillance, success cannot rely on early warning alone – it must also prompt early action,” Rato said. “There is substantial room for improvement here. There is a need to sharpen the incentives for countries to take IMF surveillance seriously.”

Rato also said the IMF needs to get tougher with countries that don’t live up to their commitments.

“We also clearly need a fund that can say ‘no’ selectively, perhaps more assertively. The prospect of the fund declining to provide financial support would help strengthen the incentives to implement sound policies,” he said.

Rato also called on the US, the European Union and Japan to contribute more to balanced and sustained global growth.

“This means active efforts by the U.S. to reduce its deficit and by the European Union and Japan to promote sustained growth through structural reforms,” he said.

“With increasing financial integration, surveillance must focus not just on crisis-prone countries, but increasingly on the stability of the (world financial) system as a whole,” he said.