AFP, Business Report

July 9, 2004

Baghdad: The Iraqi government expressed confidence on Wednesday that global lenders would write off its huge $120-billion foreign debt, helping to rebuild Iraq’s war-ravaged economy and revive the vital oil sector.

Interim Finance Minister Adel Abdel Mahdi said apart from the United States, other countries had also showed an inclination to forgive the debt completely.

“It is not just the United States which has agreed to write off our external debt, but many others have told us that they are ready to completely forgive the loan,” said Mahdi.

But he declined to name the countries which had made such an offer, simply saying, “We are talking to them and they have told us that they are ready to do it.”

Mahdi noted that a meeting of lenders has been organised for late October in Tokyo where further progress on the issue would be possible.

A debt write-off would also help the world economy as Iraq would be in a stronger position to exploit its vast oil reserves and thus ease pressure on world crude prices, the minister said.

“Our debt write-off would help in moderating the crude oil prices in the long term as we would be able to exploit our oil resources efficiently,” Mahdi told a news conference.

The minister said the government had appointed global professional service firm Ernst and Young as legal advisors in negotiating the debt issue with lenders.

“Forgiving our debt is critical to the economy which has been affected by external and internal wars for many years. We are sure the world would understand this,” he said.

Last month world leaders broke up a three-day summit without bridging a rift over US President George W. Bush’s proposal to forgive Iraq’s debt.

The proposal faced staunch resistance from many countries, especially France, at the Group of Eight (G8) summit in the southern American state of Georgia.

While the United States, which has allocated an $18.4-billion aid package to Iraq, was lobbying for a 100 percent write-off, France expressed willingness to cut up to 50 percent of Iraq’s debt.

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 said at Georgia.

“How would you explain to heavily-indebted poor countries like Nigeria that in three months we are going to offer more for Iraq than we have done in 10 years for 37 heavily-indebted poor countries? It makes no sense. It is not decent.”

Russia and Canada have also resisted the American move to release Iraq from its obligations.

An optimistic Mahdi, however, said Iraq was ready to offer lucrative rebuilding contracts to companies of donor countries, a demand made by Germany at the G8 summit.

“We are having many proposals from companies operating in these countries and their contracts are being looked into. Some of them have agreed to convert their loans into projects,” Mahdi told AFP.

Trying to paint a rosy economic picture, the minister said Iraq’s inflation was controlled despite salaries shooting up more than ten-fold in the past few months.

“This indicates a healthy situation. Inflation is lower than what it was a year ago. Statistics on this front are being prepared as we have just started work.”

Mahdi said his government was willing to open the economy to foreign investors, especially in key sectors such as banking.

“Many banks have shown interest in opening branches in Iraq and we are looking into their proposals,” he said.