February 29, 2004

The United States has not asked Bulgaria to pardon the $1.7bn Iraqi debt to the country, Bulgarian Foreign Minister Solomon Passy said on February 29 upon return from a three-day official visit in the United States (Bulgarian Press Digest).

Iraqi Agriculture Minister Abdul Ameer Raheem al-Abood said that Iraq has invested in two farms in Vietnam to help settle Iraqi debts to the Vietnamese, the Al Sharq Al Awsat newspaper reported today.

AFP reports ("China to forgive most Iraq debt if given greater role in rebuilding") that China claims an estimated $5.8 billion . This is much higher than previous estimates of around $2bn.

Shen Gofang, China's deputy foreign minister said on the sidelines of the Abu Dhabi donors meeting "We are considering reducing and forgiving these debts owed by Iraq to China by a large margin. The task is easier with government debt, but for the corporate debt we need to have the agreement of those companies concerned. If they can take a greater part in this [reconstruction] process they are more than ready to forgive part or all of their debts owed by Iraq. Many Chinese companies have advantages in oil field exploration, hydropower stations and telecommunications."

February 28, 2004

At the donor meeting in Abu Dhabi yestarday Iraqi Planning Minister Mehdi Al Hafedh said that reporters had misunderstood his remarks earlier in the day that "In principle, we have a 60 per cent reduction in our debts." In a statement issued for him by the US State Department he clarifed: "My remarks have been misunderstood. I did not mean to imply there is a specific percentage of debt reduction at this time. Many of our largest creditors have already expressed support for substantial debt reduction, and some key countries have publicly stated their willingness to forgive the vast majority of the Iraqi debt. The specific percentage of such a reduction will of course have to be agreed upon by negotiations among the parties." (Reuters, "Iraq minister retreats from 60pc debt cut comment").

Reuter's earlier report mentioned that one (unnamed) Western official close to the Iraq debt talks said Hafedh's assessment may have been "too rosy." (Reuters, "Iraq says wins 60% debt reduction in principle").

February 25, 2004

MPs from all three parties spoke in support of cancellation of illegitimate Iraqi debt in a debate today with Economic Secretary to the Treasury John Healey MP.

Jubilee Iraq is preparing for a demonstration on 10th March to draw attention to the forgotten issue of reparations. Since the fall of Saddam Iraq has paid $1.45bn in reparations (almost three times the non-US aid pledged to Iraq for this year), and $28bn of awards plus almost $100bn of claims remain. Saudi newspaper Al Watan has reported on our upcoming demonstation. Full details here - please come along and call for an end to the reparations!

German Chancellor Gerhard Schroeder said in an interview with NDR radio today before departing to meet President Bush in the US that: "Germany is ready to cooperate, but our readiness to cooperate naturally has limits. We've got nothing to give away. But we're ready to consider substantial debt relief." ("Schroeder, Bush to focus on Iraq's future at White House meeting", AP). German government sources say that including interest, the total debt has risen to some $5bn, and have indicated that the government may waive about half of that. German government officials said there were good prospects that a debt deal could be finalised before a new Iraqi government was in place. ("Schroeder to meet Bush with Iraq debt relief offer", Reuters)

Iraq's $120bn external debt is "clearly unsustainable" and creditors will need to grant reductions of almost 90 per cent, says James McCormack of Fitch Ratings in "A Primer on Iraq's Finances" a report to be published tomorrow. Fitch said if the debt were being serviced, interest payments alone would be equivalent to about 37% of Iraq's GDP. James McCormack, senior director of sovereigns at Fitch, said: "Iraq's debt stock would need to fall by about 90 per cent to $14bn for its interest service burden to compare with the median for sovereigns rated B+ or lower by Fitch." ("Iraq debt levels 'cannot be sustained", Alex Skorecki, Financial Times)

JI says: This report by Fitch is incredibly important. It confirms what we have been saying for a long time that Iraq must have very significant debt cancellation, far greater than the 65% likely to be available in the Paris Club.

February 15, 2004

The WPS Russian Media Monitoring Agency yestarday echoed our analysis of the debt figure Kudrin quoted at Boca Raton. "Russia decided to play bull as proposed by the US. Until recently, the Iraqi debt was calculated according to the formula of $3.45+4.5 billion... But now the situation has changed. In Florida, Kudrin announced that $8 billion was a sum of principal debt without interest. Officials of the Finance Ministry explained that this sum already included obligations under contracts." WPS also mentions: "The office of the budget estimates of the US Congress, which recently prepared a report about Iraqi debts, says that the Kremlin made a political decision on readiness to write off the debt only after Iraqi officials sent a signal that contracts signed by Russian companies would be fulfilled."

February 11, 2004

The Washington Times interviewed James Baker yesterday. He said Iraq's future government will finalize agreements with the creditors, "but we must begin [negotiations] now to have any chance to complete the project in 2004." He said his objective was to secure the creditors' pledge that "any reduction must be substantial, or a vast majority of the total debt. They all agreed to those principles, except the Chinese. Their agreement was a little bit less definitive than that." It is unclear how this taries with reports from China last week that apparently committed to a complete write off (more than the US has offered).

"Getting some of the Middle Eastern countries committed to those principles wasn't easy, because they don't want to give their debt reduction to us. They'd rather give it to the new government to create political favor with it, but we got them to do it. Now we have to go back at some point and get the exact percentage reductions."

He said that he and his team "still have ... to deal with" some former communist nations in Eastern Europe that are owed "a surprising amount of debt. Serbia has around $2.5 billion. Romania and Bulgaria have over a billion. It's all arms [sales] during the Cold War, probably. That debt represents such a significant part of their asset possession ... it's hard for them [to reduce it]. But they will have to help us, too."

February 10, 2004

Al-Rafideen, Iraq's largest bank, which accounts for about 75% of Iraq's deposit base (1.2 trillion dinar + $700m foreign currency) is saddled with about $20bn debt. The bank plans to lay off a third of its 7300 staff and prepare for privatisation, possibly next year, the bank's chairman Daya al-Khayoun told Reuters yestarday.

The bank was founded in 1942 by the Chalabi family and nationalised in the 1960s. The former Iraqi government opened letters of credit that were never settled, bankers say. Over $20 billion of Iraq's debt was accumulated through Al-Rafideen and is technically classified as the bank's liability. "These were owed by the Iraqi state. It should not be regarded as debts of Al-Rafideen," said Khayoun. Jubilee Iraq would add that it should neither be regarded as the debt of the Iraqi people.

February 08, 2004

Speaking at the G7 Finance Ministers meeting in Boca Raton, Florida, yesterday, Russian Finance Minister Alexei Kudrin said: "The Paris Club conditions will be applied in Iraq but in the Iraqi case it is 65 percent (write off), not 80 percent." Earlier he told reporters Russia would write down 80 percent of the $10.5 billion Afghanistan owes it, cutting it to some $2 billion.

The figure Kudrin gave for Iraqi debt to Russia was $8bn, excluding interest. However Russia filed a claim of only $3.45bn (ex. interest) with the Paris Club last July. A 65% reduction on $8bn brings it down to $2.8bn - only slightly lower than Russia's original July claim. This is a step backwards from earlier hopes of a reduction of significantly more than 65% from the July figures. This is more evidence that the Paris Club is the wrong forum for eliminating Saddam's debt.

The G7 statment said: "We call on others to join us in reducing the debt burdens of Iraq and Afghanistan. We welcome the plans of the IMF and the World Bank to provide financial and technical assistance to Iraq and Afghanistan."

February 06, 2004

Central bank governor, Sinan al-Shibibi, told Reuters at the sidelines of Boca Raton that "Any negotiation with the Paris Club will require some kind of an agreement... with the IMF. We are hoping... a substantive percentage of the debt is going to be relieved."

In the G7 meeting he said "The regime's reckless military activities depleted the nation's assets and plunged the country into a hopeless debt burden."

Representatives Carolyn Maloney (Dem) and James Leach (Rep) proposed the very strategic Iraqi Freedom from Debt Act (HR 2482) in June 2003 which ephasises the odious nature of much of the Iraqi debt. The Act rapidly gained support from 28 representatives from both parties including some senior members of Congress. Unfortunately the Act was cleverly sidelined by the Administration such that it did not get a public hearing, in spite of the large number of co-sponsors. Now the sponsors are trying to push it forward.

American citizens please lobby your local Representatives asking them to cosponsor the Act. Call 202-224-3121 to be connected to your Representative and ask them to contact Donald Auerbach in Representative Maloney?s office on 202-225-7944 to cosponsor the Act. For more information see Jubilee USA and their FAQ or contact Marie Clarke at 202-783-0215.

Lex Rieffel from the Brookings Institution writes that applying the new Paris Club process to Iraq would involve five steps.

(1) Transferring power from the Coalition Provisional Authority to a ''legitimate'' Iraqi government. The Bush administration wants the authority transfer to happen no later than June 30.

(2) Agreement by the provisional Iraqi government on financial support from the IMF, linked to a credible economic recovery program. The IMF appears to be working toward having such an agreement in place by the end of September.

(3) An interim rescheduling agreement with the Paris Club. Immediately after formalizing a plan with the IMF, the bulk of Iraqs debt would be rescheduled to the last day of its recovery program, notionally at the end of 2005 or 2006.

(4) A debt-reduction agreement with the Paris Club in December 2005 or 2006. Based on the experience of Nigeria in 2000, this critical step would depend on successful implementation by Iraq of its IMF-supported program. If Iraq's performance is poor, the debt-reduction step would be postponed.

(5) Phased implementation of debt reduction. The agreed reduction would be stretched out over three years with each years reduction linked to meeting performance targets under a new IMF program.

February 05, 2004

Rompres reports on Romanian Foreign Minister Mircea Geoana's meeting with Colin Powell in Washington on Tuesday under the heading Romania, still preoccupied with Iraq debts. Mircea Geoana told the Antena 1 television station that "Although we are perfectly aware that Iraq's foreign debt to various creditors cannot be honoured immediately, it is absolutely important to have a serious discussion with the creditors, with the Paris Club, in order to find restructuring schemes and, anyway, to use such debt for a most significant Romanian economic presence in Iraq." Geoana is speaking openly something most of the creditors are carefully keeping secret - that debt is being used as a bargaining chip to grab as much of the Iraqi cake as possible. Geoana pointed out that Romania will hold the presidency of the UN Security Council in July - the month soverignty is scheduled to transfer to Iraqis - and so may have more influence than usual.

The Yonhap News Agency reports today that three South Korean companies, LG International, Samsung and Hyundai, will receive $27.79m from the UNCC in partial payment of outstanding receivables from Iraq, which they were unable to collect upon after the Gulf War in 1991. The South Korean government on behalf of five local companies had applied to the UNCC for compensation for $235.3m worth of debts.

LG International said it had asked for $28.35m and was granted $24.2m in compensation. A decision on the payment of interest will be made a after further review. The UNCC will make the payments quarterly starting April. LG International will receive an initial payment of $600,000.

Chinese leaders have decided to write off Iraq 's debts as a humanitarian gesture, Foreign Ministry spokeswoman Zhang Qiyue told reporters.

"The specific numbers and size is under review and consideration. China is also a developing country and the reason why China is considering to write-off Iraq 's debt is that we are sympathetic to the humanitarian situation in Iraq and we do hope that Iraqi people will embark on the road towards peace, stability and development." She also pointed out that China had provided $25 million to Iraq at the Madrid donor conference in 2003. Zhang said an "embassy reactivation group" headed by Chinese interim Charge d'Affairs to Iraq, Sun Bigan, will leave for Baghdad soon. The team is composed of officials from the Ministry of Foreign Affairs and the Ministry of Commerce.

The Xinhua news agency reports adds that Chinese Premier Wen Jiabao said China made the decision to write off the debt out of humanitarian concern during his meeting with James Baker, special envoy to U.S. President George Bush last December.

It is unclear whether this will be a complete unconditional write-off of claims or merely an agreement to participate in a partial reduction and resceduling of debt on Paris Club terms, which would be considerably less exciting. If it is a complete write-off then China will have made a bold example which other creditors should follow, starting with Britain and America.

Although Iraqi finance minister Kamel al-Gilani and central bank governor Sinan al-Shibibi are attending a session at the G7 Finance Ministers' meeting in Florida on Saturday, Reuters reports that US officials say Iraqi debt will not be on the agenda and James Baker will not be present.

The problem of Iraq's debt "should be decided with the Iraqi authorities, with the lawful government of that country", Russian Deputy Foreign Minister Yuri Fedotov told Russian news agency TASS yestarday.

"The matter was clarified during the meeting between the chairman of Iraq's interim administration and Russian President Vladimir Putin in Moscow. Russia confirmed the readiness to decide the matter of Iraq's debt in accordance with the rules of the Paris Club... [which] presupposes considerable facilitation of the indebtedness provided the Iraqi side acknowledges its debt obligations. The rules of the Paris Club envisage the deferment and restructuring of debts, but this is a matter to be decided with Iraq's lawful government."

February 02, 2004

The Congressional Budget Office's sober report Paying for Iraq's Reconstruction quantifies the immediate danger possed by debt. It predicts that the Iraqi government's operating expenses over the 2004-2007 period will total $51.3bn, of which only $3.0bn will come from non-oil revenue. It's various senarios (including a worst case of $33bn of debt interest payments over this period) show that the likely oil revenues will barely meet operating expenses, and any significant amounts of debt payment will deprive Iraq of any internal revenue to spend on reconstruction. In the words of the report "To show how sensitive Iraqi reconstruction funding is to the debt issue, CBO constructed six scenarios of the country's future international obligations... The worst-case scenarios - total obligations of more than $40 billion at 9 percent interest - leave no funds in the Iraqi budget for capital investment and produce substantial shortfalls in the government's ability to meet its day-to-day operating expenses." It adds "If Iraq continues to be required to set aside 5 percent of its oil revenue to cover [reparations], the amount of sovereign debt and the interest rate that it must pay will have to be very low--for example, debt of only $10 billion at 2 percent interest - to match the payment assumptions in Iraq's budget plans."

February 01, 2004

Syrian President Bashar Al-Assad told IGC member Mowaffaq Al-Roubaie that he is ready to return to Iraqi authorities money stashed in Syria by Saddam Hussein, but he does not want to give it to the Americans. He said he would ask the Governing Council to send the appropriate ministers to Damascus to take charge of the money. Ten days ago Assad said the money would not be returned until Iraqi debts were paid, but he appears to have softened his line.

"Saddam's Odious Debt" is a new article by Jubilee Iraq in the online journal Swans special issue "Resistance: In the Eye of the American Hegemon".