Iraq's Odious Debts

US signs agreement to cancel Iraq’s $4 billion debt

Paul Basken
Bloomberg.net
December 17, 2004

The U.S. formally forgave Iraq’s $4 billion debt and called on other nations to do likewise to aid the nation’s postwar reconstruction.

“The international community must ensure that the path to progress is as clear as possible,” Secretary of State Colin Powell said as he, Treasury Secretary John Snow and Iraqi Finance Minister Adel Abdullah Mahdi Al-Tikriti signed the agreement. “Lifting the crushing burden of the old regime’s debt is one of the most important contributions we can make to Iraq’s new beginning,” Powell said. The Paris Club group of 19 creditor governments agreed last month to forgive about 80 percent of the $120 billion Iraq owed to its members, paving the way for the war-torn nation to receive aid from the International Monetary Fund.

The debt agreement reached last month marked a compromise between the U.S., which lobbied other nations to cancel 90 percent of what they’re owed, and Germany, France and Russia, which offered to cancel only half of the debt, citing Iraq’s income from oil.

“It will keep on the momentum in this process,” Mahdi said of the U.S. debt forgiveness. “I am sure that other countries will join. I am sure that with the help of our friends, the Iraqis can reconstruct their country.”

Most of Iraq’s debt to the U.S. consisted of agricultural loans that the Reagan administration provided to Saddam Hussein’s regime in the 1980s, said John Pike, a military analyst with Globalsecurity.org based in Alexandria, Virginia.

Rebuilding

International forgiveness of Iraq’s debts is critical to rebuilding the country through further loans from the IMF, said Desmond Lachman, a former IMF official who now serves as a researcher at the American Enterprise Institute, a Washington-based policy study group.

“The IMF would not want to be lending into a situation where the IMF doesn’t stand a chance of getting repaid,” Lachman said.

The IMF on Sept. 29 approved a $436 million emergency loan for Iraq to help rebuild the nation. The IMF sought assurances from Iraq’s creditors that they would move forward on debt relief before the assistance was provided, IMF spokesman David Hawley said.

Iraq needs “pretty darn near full” debt forgiveness to recover, said Frederick Barton, a researcher at the Center for Strategic and International Studies, a Washington policy study group.

With reporting by Julie Ziegler in Washington. Editor: Schmick, O’Connell. 

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