Iraq's Odious Debts

The US cancels Iraqi debts

December 18, 2004

The USA has cancelled all Iraqi debts owed to it estimated at $4.1 billion and called on other countries to take similar steps.

The agreement on abrogating the debts was signed in Washington on Friday by the US secretary of state Colin Powell, the treasure secretary John Snow, and the Iraqi minister of finance Adil Abd al-Mahdi.

Powell expressed his conviction that abrogating the Iraqi debts is one of the most important contributions for the US toward a new start for Iraq.

Countries members in the Paris Club chopped some 80% of its due debts from the former regime of Saddam Hussein, while the US approved a reduction of 100% of its due debts.

Both Powell and Snow urged the club’s non-member states to abrogate Iraq’s debts estimated at $127 billion, according to Mr al-Mahdi.

“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 at the signing ceremony.

Minister al-Mahdi noted that Iraq was a donor nation in the early 1970s, but he said, “Over two decades, all the fortunes and wealth of Iraq were destroyed. Instead of having billions of reserves, Iraq was left with billions in debts.”

The minister blamed the former regime of Saddam Hussein for wasting Iraq’s wealth in wars with its neighbors.

Secretary Snow said, “The situation that Iraq faces is unprecedented, and the response of the world community needed to be unprecedented as well.” He said dramatic debt relief is necessary if Iraq is to be able to reintegrate into the world community.

The agreement to write off Iraq’s debt to the United States follows a decision by the Paris Club of creditor nations to write off 80 percent of Iraq’s debt to its members in a three-phase process over the next four years. The November agreement of the Paris Club reduced Iraq’s debt to the member nations from $38.9 billion to $7.8 billion.

Al-Mahdi characterized the Paris Club agreement as “a second liberation of Iraq after the fall of Saddam Hussein.” He said that liberating the economy is an important part of liberating Iraq.

Powell hailed the debt relief that Iraq has received saying, “Rather than financing the vices of the old tyrant, Iraq’s treasures and resources are being used to bolster security and build infrastructure, to care for the nation’s elderly and educate its young people.”

Prior to receiving debt relief from the Paris Club and the United States, Iraq’s total external obligations stood at $127 billion. As part of the Paris Club arrangement, Iraq is required to seek comparable reductions from other lenders. U.S. officials explain that the Paris Club has a pattern of setting the parameters for debt relief. When the Paris Club agrees on a reduction, other creditors are expected to follow suit. The officials are confident that Iraq will receive at least a comparable 80 percent write off from its remaining lenders.

Al-Mahdi said that the agreements with the Paris Club and the United States provide momentum as Iraq moves forward in discussions with other lenders.

Snow added that the United States is prepared to help Iraq negotiate debt relief with other countries. Powell said that he hopes other lenders will go beyond the expected 80 percent reduction and forgive all of Iraq’s debt, as the United States has done.

Al-Mahdi said, “We need each cent, each dollar for the development process.” Powell added, “The international community must ensure that the path to progress is as clear as possible.”

Powell called the signing of the debt relief agreement a beginning rather than an end, saying, “In the coming months and years, the United States will continue to stand by the people of Iraq and the elected government that will soon speak on their behalf after the elections next month.”

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