Paul Carrel
Reuters
September 27, 2004

Paris: Finance chiefs from leading industrialised countries must bridge a transatlantic rift over how much of Iraq’s foreign debt to write-off if they are to make progress towards a deal at a meeting this week.

Iraqi debt is a top issue on the agenda at Friday’s meeting in Washington of finance ministers and central bankers from the Group of Seven (G7) rich nations – the United States, Japan, Germany, Britain, France, Italy and Canada.

The finance chiefs have their work cut out.

“To say there is deadlock is to exaggerate a little,” said one European official, who spoke on condition of anonymity. “There are differences of opinion. But people are working with the intention of doing something before the end of the year.”

The International Monetary Fund puts Iraq’s total pre-war debt at $120 billion, some $40 billion of which is debt and arrears to the Paris Club of 19 industrialised nations, of which all the G7 countries are members.

The United States and Canada want industrialised countries to agree to a 90-95 percent write-off of Iraqi debts to them, a G7 source said. The United States is only the fifth-biggest creditor nation, surpassed by Japan, Russia, France and Germany.

France, which opposed the U.S.-led war in Iraq together with with Russia and Germany, is insisting that a 50 percent write- off is the most that should be offered in the first instance.

Paris argues that Iraq has the world’s second largest oil reserves and should not be treated better than improverished African nations with no such natural assets.

One German official said early this month that Berlin’s position of writing off no more than half of Iraq’s debt was under review. But other government sources said the position was still to waive about half of Iraq’s pre-war debt to Germany.

Seeking to forge a compromise, creditor nations have put forward a proposal for a 50 percent write-off initially, with the condition that the situation is reviewed later with the possibility of a further waiver.

“That’s on the table,” the European official said. “It’s a proposal that has been put forward. But I cannot say there is a consensus on that.”

A debt cancellation before the November U.S. presidential election would be good news for President George W. Bush as he campaigns for a second White House term, but there is little prospect of an agreement so soon, sources said.

“We’re working on a timetable of (reaching an agreement) before the year-end,” the European official said.

The G7 talks take place on the eve of next weekend’s annual meetings of the World Bank and the IMF, the Washington-based leading agency which has been charged with drawing up a post-conflict recovery programme for Iraq.

Agreement on economic planning between Iraq and the IMF is a precursor to formal debt relief deals with Paris Club creditors, deals which could in turn serve as a benchmark for relief agreements with other creditors such as Saudia Arabia, Kuwait and eastern European states.

The IMF said earlier this month Iraq could have an IMF-backed economic programme with financing in place by the end of 2004.