May 30, 2004

The Australian Sunday Telegraph reported today that the Australian government will forgive AU$600m of debt claims against Iraq. The paper said taxpayers would contribute about AU$500m, and wheat farmers would be asked to write off AU$100m in debts out of a total of AU$700m claimed from wheat shipments made before 1990. It said the government would try to recoup the other AU$100m over the next 15 years. The Sunday Telegraph said the move was part of a plan by countries in the "coalition of the willing" to get Iraq back on its feet by writing off loans.

Trade Minister Mark Vaile told the paper it was in the interests of farmers and taxpayers for most of the debt to be forgiven. The government saw no option but to cancel the debt, The Sunday Telegraph said.

A reduction of AU$600m out of AU$700m claims would be a haircut of 85%. The early figure quoted for total Australian claims though was AU$635m, but this may have changed due to exchange rate fluctuations.

If this move is one of unconditional debt cancellation, it is a welcome reversal of Australia's negative position in December and probably due in part to the lobbying by our sister organisation Jubilee Australia. Jubilee Iraq welcomes it wholeheartedly, and urges other creditors to do likewise.

May 27, 2004

Thomas Dawson, the IMF's Director of External Affairs, told journalists that the IMF has just presented the Paris Club with an estimate of Iraq's total debts and a range of scenarios for debt relief. He said the IMF wouldn't be releasing the report, because it was based on confidential information governments had shared with the IMF. "We have submitted a debt sustainability analysis... [with] a variety of different scenarios; It was not a recommendation per se." (Reuters)

Dawson also said that the first IMF loans are likely to be make after the 30 June transition.

Jay Garner, who briefly ran Iraq before Paul Bremer, hassaid that the US needs to take charge in reducing Iraq's debt.

He also recommend implementing a robust economic stimulus plan, for example paying the families of the unemployed youths $1,000 each, and a twining system between US and Iraqi cities and universities.

May 24, 2004

A number of provisions of the draft resolution put to the UN Security Council today are relevant to Jubilee Iraq.

Paragraph 17
"Further decides that the provision of paragraph 22 of resolution 1483 (2003) shall continue to apply, except that the privileges and immunities provided in that paragraph shall not apply with respect to any claim arising out of an obligation entered into by Iraq after 30 June 2004;"

1483 protected Iraqi oil from legal proceedings until December 2007. The revision in 1483 may mean that following a Paris Club restructuring of Saddam's debt after 30th June, the creditors may be able to sieze Iraqi oil to meet their debt payment claims. This is very dangerous.

Paragraph 18
"Welcomes the commitment of creditors, including those of the Paris Club, to identify ways to reduce substantially Iraq's sovereign debt, urges the international financial institutions and bilateral donors to take immediate steps to provide their full range of loans and other financial assistance to Iraq, recognizes that the Interim Government of Iraq has the authority to conclude and implement such agreements as may be necessary in this regard, and requests creditors, institutions and donors to work as a priority on these matters with the Interim Government of Iraq; "

This is the point Jubilee Iraq has been warning about for over six months - the unelected transitional government will sign binding agreements with the Paris Club and other creditors forcing the future elected government to repay a large part of Saddam's odious debt and submit to economic conditions from the IMF in return for recieving partial debt "forgiveness".

Paragraph 20.
"Calls upon all Member States to take appropriate steps within their respective legal systems to stay for a period of 12 months from 30 June 2004 all legal and other similar proceedings before their courts or other tribunals involving claims by or against the State of Iraq, its Government, or any of its agencies or instrumentalities, including its State-owned enterprises or similar bodies;"

It is unclear where the UNCC reparations claims would be covered by this. If they are then this is the one positive paragraph in the resolution as regards debt & reparations.

Gerhard Schröder, the German chancellor, told journalists in Berlin today: "We have said that there should be a substantial debt reduction for Iraq in the Paris Club but you can only negotiate this with a government that is legitimate."

The FT writes: "Germany has little say in shaping the United Nations resolution about the transfer of sovereignty in Iraq, now under discussion in New York. But by linking debt forgiveness to the transfer of sovereignty, Mr Schröder appeared to be seeking some leverage in the debate. It is the first time the chancellor has drawn such a connection, and comes as Germany is stepping up its campaign for a permanent seat on the Security Council."

Schroder's definition of a soverign Iraqi government includes: "For instance, access to the country's natural resources. Without this there would be no transfer of sovereignty. It also means being able to decide on security matters. Again, without this, there can be no transfer of sovereignty."

The BBC reports that a "senior British offical" says the new UN resolution, which the security council is discussing today, will "enable the interim government to discuss Iraq's debt with international financial institutions."

This appears to be the situation Jubilee Iraq has been warning about for over six-months - the unelected transitional government will sign an agreement under pressure from the creditors to assume much of Saddam's odious debt and submit to harsh IMF economic conditions in return for the Paris Club reducing the debt by a certain amount. The Iraqi people DO NOT OWE ANY OF SADDAM'S ODIOUS DEBT and the creditors must drop their claims unconditionally or submit them to a fair and transparent arbitration tribunal.

Reuters writes: The United States wants Iraq's sovereign creditors to write off 80-90% but Paris wants to cancel just 50 percent, a French source said on the margins of the G7 finance ministers meeting in New York yestarday. "The French position is 50%, which is a handsome gesture," the source said.

French Finance Minister Nicolas Sarkozy said: "We know the American position, which is to wipe out as much as is possible of Iraq's debt, we agree completely with making an effort -- a substantial effort. The percentage will be decided by the heads of state." Sarkozy pointed to Iraq's large oil reserves and said granting Baghdad greater debt relief than that given to less well-endowed nations would be difficult. "If we departed from the rules of the Paris Club, what would we say to those countries that did not have the same conditions. 50% is the Paris Club rule." He said the G7 finance ministers did not get into the detail of how much Iraqi debt to write off as the leading economic powers wanted first to see the IMF report which is due in 10 days, and will address the issue at the June 8-10 summit in Sea Island, Georgia.

The G7 has set its sights on a deal on Iraqi debt by end-2004. European Union Economic and Monetary Affairs Commissioner Joaquin Almunia urged the economic powers to reach an agreement. "I think it is necessary to find a solution to address the debt problems...of Iraq."

James Sterngold gives an excellent overview of the debt in the San Francisco Chronicle, extracts below:

The enormous load, 900% the size of the national economy, dwarfs the approximately $33 billion the international community has so far committed to Iraq's reconstruction.

"Frankly, it's hard to see how the new Iraq can be solvent without [a major debt write off]," said Allen Keiswetter, a scholar at the Middle East Institute in Washington and a senior State Department official under Clinton.

Fredrick Barton, co-director of the Post-Conflict Reconstruction Project at the Center for Security and International Studies said Iraq's creditors cannot just delay repayment or stretch it out over many years, the traditional approach, but instead must forgive an unprecedented portion of the debt. He said the largest previous debt forgiveness program involved the former Yugoslavia after its division, when creditors agreed to slash 66 percent of what was owed. Iraq needs an even larger reduction if it is ever to prosper.

"The Arab countries were a little vague," said one State Department official knowledgeable about the talks. "We can say the responses were generally positive, headed in the direction of substantial debt reduction... We don't have a number yet."

"This is something we will discuss with the legitimate Iraqi government," said Nail Al-Jubeir, the spokesman for the Saudi Embassy in Washington. "We refuse to get into a debate until there is a legitimate Iraqi government." But he said any discussion of reducing the official loans is separate from war reparation claims, which the Saudi government will not seek to reduce.

Another critical step in the debt-reduction process is the completion of a major study of Iraq's economy and financial situation being prepared by the IMF. It is expected in a few weeks, but there is no deadline, officials said. Clearly, though, the signs are grim. Despite its oil resources and great potential, Iraq's per-capita gross domestic product, a basic measure of wealth, has plummeted from about $3,600 in the early 1980s to $566 this year, according to the IMF. The economy shrank 22 percent in 2003 and 21 percent in 2002. The Iraqi government, under the American occupation, is expected to run an $8.5 billion deficit this year, or more than 50 percent the size of the national economy, the IMF says.

May 21, 2004

Slovakia should cancel Saddam's debt, Finance Minister Ivan Mikloš told the Slovak Parliament. The TASR newwire writes that the government has yet not decided to do so, and there are no figures available for the amount the debt represents.

Jubilee Iraq has never seen any figures for Slovak claims, but the Czech Republic has about $157m of mainly military claims. The loans would have been made in the 1980s when Czechoslovakia was still united, and presumably the debt claims have been split between the two countries.

John Taylor, US Treasury Under Secretary for International Affairs, testified yestarday before the House Appropriations Subcommittee on Foreign Operations, Export Financing, and Related Programs.

He said: "Iraq is among the most highly indebted countries in the world with a debt to GDP ratio currently estimated at 484% (higher if war reparations are also included). Last September, the G7 Finance Ministers committed to resolving this issue by the end of 2004. We have made significant progress toward this goal. Given the importance of addressing Iraq's debt overhang, the President asked the former Secretary of the Treasury and Secretary of State, James Baker, to serve as Special Presidential Envoy to work with the world's governments at the highest levels in seeking to reduce Iraq's debt burden. Since late last year, Secretary Baker has successfully secured commitments from leaders throughout Western Europe, Asia, and the Gulf States to provide at least substantial debt reduction for Iraq in 2004. Final agreement on the amount and terms of this reduction will be negotiated between Iraq and its creditors. The Administration looks forward to working constructively with Congress to support this initiative."

Adnan Pachachi, told the FT yesterday that a rescheduling of debt through the Paris Club should not wait for an elected government. "If the economic situation improves, then [creditors] will be inclined to ask more of us, so the next government will try its luck at the debt issue." He added that Iraq wanted the forthcoming UN resolution to give Iraq a moratorium until 2007.

The FT continues: "Officials close to the IMF say it is unclear whether the caretaker government taking over on June 30 will be able to commit Iraq to a debt rescheduling deal and an IMF agreement that would have to be reached before a Paris Club deal. Although Iraq could receive as much as 80% debt forgiveness, the remaining $24bn it would have to service could be a burden on the economy and a politically sensitive issue for an unelected government. The caretaker administration is not expected to bind Iraq to any long-term commitments and will focus on preparing the country for January elections. However, Mr Pachachi insisted that the next government would have full sovereignty and therefore the ability to negotiate the debt. He is a leading member of a group working on a document that will define the functions of the new government."

Jubilee Iraq doubts that a Paris Club rescheduling would be in the interest of Iraq, as it ignores the key point that the debt is illegitimate and would bind Iraq to harsh IMF economic conditions, limiting soverignty and potentially causing social damage.

The "80%" figure mentioned in the FT article is highly unlikely from the Paris Club, and far from questioning whether the transitional government could sign an agreement, all our sources indicate that the IMF and Paris Club and very keen to get such an agreement signed before a popularly elected government can prevent it.

May 19, 2004

An Iraqi delegation is visiting the UN today to demand full control of oil revenues and a cut in war reparations.

Deputy Foreign Minister Hamid Bayati told Reuters "Iraq must have a say in the next U.N. resolution. We will negotiate on the basis that Iraq must be fully in charge of its resource wealth and the 5% of oil revenues we pay must be reduced . Iraq seeks to cancel debt and reparations incurred by Saddam. The next sovereign government will be under domestic pressure to do the same." He told the AP "The (former) regime, and not the Iraqi people, is responsible for war reparations."

Planning minister Mehdi al-Hafedh, a candidate for the prime minister's post in an interim government, said the government would review the debt and reparations. Iraq had no say in calculating them and Iraqi officials had not seen documents proving the claims, he said. "Legitimate demands have to be respected, but it is unjust for Iraq to pay for the crimes of Saddam with its future, Iraq has a serious challenge ahead as far as unemployment and the economy are concerned. The international community must be mindful of the immense problems were are facing."

The sentiment is echoed across the ethnic and political divides that mark postwar Iraq.

Governing Council member Ahmad Chalabi says a council which includes former opposition figures should be formed by July to decide policy on reparations and debt. Chalabi and other officials say the reparations, estimated to be largely owed to Kuwait and Saudi Arabia, are unfair. They say these countries benefited by producing more oil when Iraq was prohibited from exporting any from 1990 to 1996 under an economic embargo.

Jubilee Iraq is pleased to see these Iraqi leaders speaking strongly on this issue. Almost everyone we consulted with in Iraq agreed that the odious debt and reparations are the responsibility of the former regime and not the new Iraq.

May 13, 2004

Al-Mutamar, the newspaper of the INC, reports that IGC member Adnan Pachachi has said the transitional governments authority should be restricted to making administrative and technical decisions. "It has no right to sign international long-term agreements." (translation by IWPR)

Jubilee Iraq welcomes this as it would preclude the transitional government signing a debt "restructuring" agreement with the Paris Club and the conditional IMF structural adjustment program of privatisation, austerity and liberalisation. The Iraqi people do not owe Saddam's odious debts, and the unelected transitional government should not be able to legitimise these debts or hand over control of key economic decision to the IMF.

May 11, 2004

AccountancyAge.com highlights the clash of two big accountancy firms on the issue of Saddam's debt. Ernst & Young has been employed by the CPA to reconcile debt claims, while BDO has launched an initiative to support private creditors.

"In essence what this means is that E&Y will be trying to reduce the amount owed to creditors and BDO will be looking to maximise debt repayments to creditors."

Peter Daniel, partner in forensic accounting at BDO, said the total long-term debts owed to trade creditors were in the region of between £8bn and £13bn. He said they will aim for an early realisations of debts, 'am early route out'. Daniel added that some of the debts date as far back as the 1980s so documentary evidence would be limited.

From CNN's Wolf Blitzer interview of Ahmed Chalabi (broadcast noon EST on May 9th):

BLITZER: What role do you expect to play? Do you want to play, starting on July 1st?

CHALABI: I am not a candidate for any government position. I think it would be ill -- it is going to be a very hard task. We wish anybody who's going to take responsibility well, and we will support them, but the task of dealing with foreign troops on Iraqi soil without a status of forces agreement and a certain lack of clarity about who controls Iraq's finances, and certain lack of clarity about the future of Iraqi debt, all these issues are going to beset future government in Iraq, and I am certainly not a candidate for it.

In an article entitled "Iraqi Central Bank Confirms Commitment To Former Regime's Financial Obligations", Saudi newspaper Dar al-Hayat reports that Faleh Dawood Suleiman, the deputy governor of the Iraqi Central Bank "has assured that the Central Bank will not back off from its financial commitments inherited from the previous regime and will give everyone his rights. He said that a strategic committee has been established and will soon solve the matter while serious studies are on the way to resolve the issue."

May 10, 2004

A London-based accountants BDO Stoy Hayward (lead advisor to the UNCC) is forming a creditors committee to help companies extract billions of dollars in debt from Iraq. It has sent letters to hundreds of businesses owed money by Saddam's former regime. It estimates the total debt claims at $127bn (£75.5bn) including up to £13bn in trade creditor claims. Turan Corporation, a Boston-based investment bank will assist BDO in designing reconciliation procedures.

Peter Daniel, a partner at BDO, said: "Some form of rescheduling is highly likely. Trade creditors who do not join a committee for strength in numbers are very likely to find themselves at the back of the queue."

This scheme is in competition to the Iraq Creditors Club established by Exotix and GML International.

May 07, 2004

Debt brokerage Exotix and investment bank GML International have formed the Iraq Creditors Club to reconcile, manage and reschedule around $7-8bn of commercial claims from creditors outside the London Club.

The club partners seek to standardise the documentation of the claims - held by creditors in some 40 countries - in order to facilitate the development of a secondary market in the debt. Stefan Pinter, director at GML, said: "We are motivated by our successes as a representative of holders of the Soviet Union's foreign trade organisation debt. We reconciled the debts of more than 1,000 FTO creditors, representing more than $750m in debt."

The ICC offers to represent creditors in return for a fee based on eventual recovery rates but restructuring agreements on the trade debt must be preceded by a deal on sovereign debt, which in turn requires an economic programme sponsored by the International Monetary Fund.