Tiscali Europe
November 21, 2004

The representatives of the member countries of the Paris Club met from Nov. 17 to Nov. 21 and agreed with the representatives of the Republic of Iraq on a comprehensive debt treatment of the public external debt owed to them providing a total amount of debt reduction of 80 % in three phases.

Iraq’s foreign debt totals $120.2 billion. Nearly $39 billion of that debt – $42 billion including penalties and late interest – is owed to members of the Paris Club, a group formed in 1956 to help ease the financial obligations of heavily indebted countries.

Russia, is owed about $8 billion, France $3 billion and Germany $2.5 billion, nearly half of this is interest and penalties which in the cold light of day these countries knew they would never see again anyway. Given the restrictions of the Stability and Growth pact it was virtually impossible for France and Germany to come up with a cash payment to assist the war effort, so eliminating debts and satisfying themselves with the capital outlay was probably a good bet.

The Paris Club

The first meeting of the Paris Club with a debtor country was in 1956 when Argentina agreed to meet its public creditors in Paris. Since then, the Paris Club, or ad hoc groups of Paris Club creditors, have reached 384 agreements concerning 79 debtor countries. Since 1983, the total amount of debt covered in these agreements has been $427 billion.

The Paris Club has remained strictly informal. It is the voluntary gathering of creditor countries willing to treat in a co-ordinated way the debt due to them by the developing countries. It can be described as a “non institution”.

And Africa?

Many are irked by the wonderful work that has been done to favour the Iraqis who have phenomenal oil reserves whereas hardly anything has been done for many African countries who have genuinely odious debt. The helping hand is really to the United States and not to Iraq at all, which led Jacques Chirac to ask: “Comment expliquerez-vous aux pays pauvres très endettés que l’on va faire en trois mois pour l’Irak plus que l’on a fait en dix ans pour eux?”

Accountability

The issue of accountability has been glossed over and those who made loans to Saddam Hussein knowing where the money was likely to end up have been given the glow of respectability by being lumped together with other “normal” debt.

A considerable amount of what has been wiped off corresponds to interest payments and penalties, as Saddam Hussein stopped paying his debt after his invasion of Kuwait.

In Berlin over the weekend, Treasury Secretary John Snow and Germany’s Finance Minister, Hans Eichel, agreed to eliminate 80 % of Iraq’s debt to Germany. France then fell into line despite serious reservations. Russia, which is owed about $8 billion and which is a new Paris Club member, took its time but eventually agreed to the package.

The debt owed to Paris Club creditors as of Dec. 31, 2004 was estimated to be US$38.9 billion. Iraq’s foreign debt totals $120.2 billion.

Participants

The members of the Paris Club which participated in the reorganization of Iraq’s debt were representatives of the governments of Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Italy, Japan, the Netherlands, the Republic of Korea, the Russian Federation, Spain, Sweden, Switzerland, the United Kingdom and the United States of America. Observers at the meeting were representatives of the government of Norway as well as the International Monetary Fund (IMF), the International Bank for Reconstruction and Development (IBRD), the Secretariat of UNCTAD, the European Commission and the Organization for Economic Cooperation and Development (OECD).

The Plan

Under the Paris Club plan they would immediately forgive 30% of their Iraqi debt and write off an additional 30% in 2005 once the International Monetary Fund has approved an economic reform program for Iraq. A final 20 percent will be written off in 2008 provided Iraq has fulfilled its part of the IMF program. The balance of the debt owed to Paris Club members is to be paid off over 23 years with no payment of any kind due for three years.

There is now pressure on Australia, Kuwait, the UAE and Saudi Arabia to cancel some or all of their debts. The $US1 billion Iraq owes Australia is made up of $US500 million in unpaid wheat sales, plus interest and overdue penalties. Iraq still owes Kuwait $30 billion in war reparations stemming from the invasion of Kuwait by Saddam Hussein in 1991. Middle eastern countries are Iraq’s biggest creditors and it will now be up to the Saudis and Kuwaitis, in particular, to show willing[ness to reduce Iraq’s debt].

Treasury Secretary John Snow is leading the charge, taking over it seems from James Baker who was perhaps overwhelmed by the conflict of interest in his double role as Carlyle Group representative and Bush administration representative.