Iraq's Odious Debts

Paris Club drops 80 pct of Iraq debt it owed

Paul Carrel and Glenn Somerville
Reuters
November 22, 2004

Paris/Berlin: The Paris Club of creditor nations have agreed to cancel 80 percent of the debt Iraq owes its members, ending a trans-Atlantic dispute and probably setting the framework for debt pardons from other creditors.

Paris Club President Jean-Pierre Jouyet told reporters in Paris that the agreement, which will slash Baghdad’s debt to Club creditors to $7.8 billion (4.2 billion pounds) from $38.9 billion, would be put into effect in three steps over the next four years.

The deal, which was closed shortly after Russia agreed to the terms at meeting of the Group of 20 developed and emerging market nations, ended a dispute between Washington and leading opponents of the U.S.-led Iraq war over how much debt to cancel.

“It’s a win-win agreement – for everybody,” said Jouyet.

“We (believed) . . . it was necessary to accelerate the reconstruction of the Iraqi economy and to have an agreement which allows the Iraqi authority to have no more financial obstacles to this reconstruction,” he added.

U.S. President George W. Bush hailed the agreement and called on other nations to join in as well.

“I encourage non-Paris Club creditor nations to agree to comparable debt reduction for Iraq,” Bush said in a written statement issued as he attended a summit of Pacific Rim leaders in Santiago.

He said the deal represents a major international contribution to Iraq’s political and economic reconstruction.

Iraqi Finance Minister Adel Abdul Mahdi said the agreement was “a very important step for Iraq – as important as the change of regime, as important as the transfer of sovereignty. This will open the way for the reconstruction of Iraq.”

“This is something historic for Iraq,” added Mahdi, who signed the accord to applause and a standing ovation from Paris Club negotiators.

The Paris Club’s 19 members include the Group of Seven industrialised countries – the United States, Japan, Canada, Germany, Britain, France and Italy – as well as other Western European states, Russia and Australia.

Other creditors who are not in the Paris Club but could follow its lead include Saudi Arabia, Kuwait and Eastern European states. Mahdi was upbeat about the agreement leading to cancellation deals with Iraq’s other creditors.

“What we have done today . . . will trigger bilateral negotiations with other countries,” he told reporters.

Iraq’s debts totalled $120 billion, Jouyet said.

Three-phase deal

Under the deal, the Paris Club nations will immediately cancel 30 percent of the debt owed to them by Iraq, Jouyet said.

An additional 30 percent waiver would follow in 2005 once an economic programme with the International Monetary Fund (IMF) is approved. A further 20 percent would be pardoned in 2008 after a review of the implementation of the IMF economic programme.

The final deal ended a dispute between the United States and France over how much of Iraq’s debts they should waive.

“This is a real milestone and shows that the trans-Atlantic alliance remains a strong force for good in the world. We look now to the non-Paris Club members to take similar action,” U.S. Treasury Secretary John Snow said at the G20 meeting in Berlin.

“It gives hope and promise to the Iraqi people that they can rebuild their economy,” he said.

The United States had been pushing for a 90 percent to 95 percent reduction, but France had argued that, with the world’s second-largest oil reserves, Iraq should not be treated like impoverished African nations that lack such natural resources.

Prior to the latest round of Paris Club talks, which began last week, France claimed the backing of Russia, Germany and Italy for its proposal that the Paris Club initially waive half of Iraq’s debts and review the situation after three years.

France, Germany and Russia all opposed the Iraq war.

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