Iraq's Odious Debts

Iraqi commercial debt settlement terms announced

July 27, 2005

Iraq has announced its settlement terms for Saddam-era commercial debt prior to August 1990. It is estimated that the total debt in this category may be $20 billion, of which about 85% will be eligible for settlement, reports Kurdish Media. A press release issued by Iraq’s Ministry of Finance announced the Republic of Iraq’s intention to offer to settle outstanding Saddam-era commercial claims against Iraq and Iraqi public sector obligors through a cash buyback (for claimants holding a relatively small aggregate amount of registered claims) and a debt-for-debt exchange (for claimants with a larger aggregate amount of registered claims). The total amount of Saddam-era claims against Iraq held by both commercial and bilateral creditors has been estimated at more than $125 billion. Of this amount, commercial creditors are believed to hold claims totaling approximately $20 billion, although firm figures will not be known until the reconciliation process is complete.

The claims eligible to be tendered in connection with Iraq’s offer must meet the criteria of “Specified Debt”, as described in the Request For Information posted last December on a website by Iraq’s debt reconciliation agent, Ernst & Young, at Such claims will have been reconciled pursuant to the procedures described in an explanatory memorandum also posted on that website. In November 2004, Iraq reached an agreement in principle with its governmental creditors comprising the Paris Club, which together hold a plurality of the total outstanding claims against Iraq. Both the purchase price for the cash-eligible claims and the financial terms of the instruments to be offered in the debt-for-debt exchange in this offer have been set at a level that is comparable, in net present value terms, to the settlement reached with the Paris Club – the most generous ever offered by the “club” of public creditors. That settlement called for a cancellation of 80% of the total claims held by Paris Club creditors in three installments, with the residual 20% to be repaid over a 23-year period with six years of principal grace. The Iraqi authorities point out that this recent invitation to submit claims does not “constitute an offer by the Republic of Iraq or by any other party to settle or exchange any outstanding claims, nor do they constitute an admission or acknowledgement of any such claim, or an acknowledgement that any such claim exists or has been revived or reinstated, or an express or implied promise to pay any such claim or any part thereof. This release and the documents referred to herein are expressly published without prejudice. All defenses available to the Republic of Iraq and any other party based upon any applicable statute of limitations or otherwise are expressly preserved. Neither this release nor the documents referred to herein may be relied upon as evidence of the existence of any claim or the willingness or ability of the Republic of Iraq or any party to pay any such claim.”

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