Nathaniel Harrison/Agence France Presse (AFP)
The Daily Star (Lebanon)
October 4, 2004

Washington, DC: The world’s seven leading industrialized countries have vowed to reduce Iraq’s $120 billion debt by the end of the year but remained divided Saturday on the scope of the cut.

“We made progress on the Iraqi debt,” French Finance Minister Nicolas Sarkozy said a day after the G-7 – Britain, Canada, France, Germany, Italy, Japan and the U.S. – made clear its commitment following a meeting here to easing Iraq’s debt burden by January.

“We agree on a reduction and everyone agrees on reaching an agreement before the end of the year,” Sarkozy said.

He said France had suggested an immediate reduction of 50 percent. Over the next three years, as Baghdad implemented measures proposed by the International Monetary Fund (IMF), creditors would consider future debt-related moves.

“The Russians, the Germans and the Italians said they agreed with us,” Sarkozy said, adding that Britain would go along with the French proposal if the initial cancellation were 80 percent.

“The Americans didn’t say anything,” Sarkozy said.

The U.S. and Britain have been arguing for the forgiveness of 95 percent of Iraq’s debts.

Following a meeting Saturday with German Finance Minister Hans Eichel, U.S. Treasury Secretary John Snow insisted that headway was being made on Iraqi debt. “We’re going to have an opportunity to address this later. We’re making progress.”

Sarkozy said he had put forward his suggestion because it was similar to an approach adopted by the United States to ease the debt owed it by Egypt and Poland in the 1990’s.

A French source who asked not to be identified said Paris “hoped the Americans and the British might want to arrive at a debt agreement quickly to present a brighter picture of Iraq’s future in light of elections there.” Iraq is scheduled to hold elections in January but the likelihood that the poll will take place has become increasingly uncertain due to spreading insurgency and resistance to the presence of foreign forces in Iraq.

Iraq earlier this week nonetheless took a major step toward debt rescheduling when the IMF approved a $436 million emergency loan and said it would work with the interim Iraq government on a possible longer-term credit arrangement.

“We will be working with the Iraqi government,” IMF Managing Director Rodrigo Rato said at a press briefing here.

“And we will start looking at the possibility of a standby program,” he said, referring to an IMF arrangement under which funds are made available to governments that commit themselves to economic reform projects and targets. The assistance approved this week became available after Iraq on Sept. 22 paid off its overdue financial obligations to the fund, which totaled $81 million.

The IMF executive board said emergency aid was “a sign of support for Iraq’s economic reconstruction efforts through 2005” and was also aimed at helping “catalyze additional international support, including debt relief.”

IMF experts have estimated that Iraq could eventually be eligible for around $850 million in emergency reconstruction assistance from the fund.

Negotiations to secure the loan approved Wednesday took place outside Iraq because of the breakdown in security there and IMF officials say there are no current plans to send fund staff to Baghdad.

i. o. u. iraqi debt in detail

Iraq is saddled with a foreign debt estimated at $120 billion, excluding reparations it owes Kuwait for the 1991 Gulf War, says the International Monetary Fund.

About a third of the money is owed to members of the Paris Club of national creditors.

Of that $40 billion, only $21 billion is traditional debt. The rest is interest for late payments that has accrued since 1990, when Baghdad was pushed into diplomatic isolation after its invasion of Kuwait in August of that year.

According to the Paris Club, Iraq’s main debts to its members, excluding late interest payments, are as follows:

$4.109 billion to Japan

$3.450 billion to Russia

$2.994 billion to France

$2.404 billion to Germany

$2.192 billion to the U.S.

$1.726 billion to Italy

Iraq has also built up debts of around $60 billion to other countries, in particular its neighbors in the Gulf, which are probably owed two-thirds of the total, and former Soviet bloc countries such as Bulgaria and Romania, a source close to the issue told AFP.

The remaining $20 billion to $30 billion is owed to private creditors like banks and infrastructure providers. The precise amount of debt could be more.