Iraq's Odious Debts

France, U.S. entrenched in Iraq debt dispute

Paul Carrel
Reuters
October 2, 2004

Washington: France and the United States dug into polarized positions on how much of Iraq’s debt to cancel at a meeting on Saturday aimed at promoting international harmony.

A day after U.S. President George W. Bush took a jab at Paris over its opposition to the Iraq war, France said it had amassed support among top industrialized countries for its proposal that creditors initially forgive just half of Iraq’s $120 billion debt load, revisiting this after three years.

This may leave the United States, which wants a 90-95 percent write-off for the country, isolated.

“It’s up to (the United States) not to block a possible deal,” one French official said ahead of Saturday’s annual autumn meeting of the International Monetary Fund here.

Russia, Germany and Italy all supported France’s proposal, French Finance Minister Nicolas Sarkozy told reporters.

The United States says Iraq needs much more substantial relief to get back on its feet and become economically viable. U.S. Treasury Secretary John Snow said on Saturday creditor countries were moving towards an agreement.

“We’re making progress,” Snow said as he sat down to meet German Finance Minister Hans Eichel. Asked whether a deal on Iraqi debt could be reached by year end, Eichel said: “It’s quite clear we’ll have a solution.”

But U.S. officials showed little sign of compromising.

“There is no negotiation, so when you mention proposals that are out there for 50 percent or something like that, there is no negotiation,” a senior U.S. Treasury official said.

“Anything like 50 percent is completely unworkable and financially irresponsible because even the most elementary analysis of Iraq’s debt shows that it has to be reduced by much more than that if Iraq’s going to be put in a sustainable position,” the official added.

The debt dispute revived lingering tensions between Washington and Paris over the U.S.-led Iraq war, which France opposed along with Russia and Germany.

Bush took a stab at French opposition to the war on Friday, telling a campaign rally: “The use of troops to defend America must never be subject to a veto by countries like France.”

Politics

Washington has been pushing for a rapid debt deal, and an accord among top industrialized nations before the November U.S. presidential election would be good news for Bush as he campaigns for a second White House term.

The chances of sealing a deal by then looked slim at best. Finance chiefs from the Group of Seven rich nations – the United States, Japan, Germany, Britain, France, Italy and Canada – committed on Friday to reach a deal by year’s end.

“We all want a deal by the end of the year,” Sarkozy said.

G7 officials will hold further Iraq debt talks at meetings planned for mid-October and late-November at the Paris Club of creditor nations, an informal body that seeks sustainable solutions to the payment difficulties of debtor countries.

An accord on Iraq debt forgiveness at the 19-member Paris Club, to which all the G7 states belong, could serve as a benchmark for relief deals with other creditors such as Saudi Arabia, Kuwait and eastern European states.

The IMF pegs Iraq’s total pre-war debt at $120 billion, some $40 billion of which is debt and arrears to Paris Club member nations.

“Things are progressing,” said one official involved in the debt talks, before adding: “There is a lot of work to do.”

(Additional reporting by Glenn Somerville and Tim Ahmann)

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