August 31, 2004

Moscow newspaper Izvestiya reported (in Russian) that Putin has lifted the 14yr old arms embargo on Iraq. In the article it notes that Iraq was considered the major buyer of Russian armaments and showed an exemplary payment record, paying with hard currency or oil. Between 1958-1990 Russia made $30.5bn of contracts with Iraq, of which $22.4bn was paid before the invasion of Kuwait and "an additional $950m has been paid for training of specialists, repairs of special equipment, and other assistance, and another $900m for construction of military facilities and enterprises." The newspaper puts the outstanding debt today at $7.8bn (less than the figure quoted a few days ago from the Russian Finance Ministry).

August 30, 2004

The Wall Street Journal reports today that US Ambassador to Iraq John Negroponte apparently sent a cable to the US State Department last week proposing some new policies including reallocating more than $3bn of the US aid from reconstruction to security. He is also "proposing that the US forgive $360m in outstanding Iraqi debt in hopes other countries will follow suit at talks next month of the Paris Club."

It is unclear what this $360m represents, however back in June the State Department estimated “budget cost” of forgiving all the $4bn debt at between $360-640m. If Negroponte is indeed talking about complete unconditoinal unilateral debt cancellation then Jubilee Iraq welcomes this and urges the US to finally do what it should have done 18months ago.

Speaking as the Republican Convention opened, Senator John Edwards said, as part of his Iraq policy, that a Kerry-Edwards administration would bring other nations into the postwar effort by asking them to forgive Iraq's debt and help rebuild the war-ravaged economy. As always the devil is in the detail, and it is unclear whether Kerry-Edwards are supporting 100% unconditional cancellion of the odious debts.

August 26, 2004

Kofi Annan has backed proposals for a permanant international compensation commission to enable victims of illegal conflict to claim reparations. The article interestingly notes that the US has paid roughly $2.5m in reparations during it's 18 months occupation of Iraq, while Iraq has so far paid around $20bn in reparations for Saddam's 7 months occupation of Kuwait.

Prime-Tass economic news agency quoted documents from the Russian Finance Ministry stating that Iraq is it's second largest creditor (after Cuba), allegedly owing $8.899bn, with Iraqi companies and organizations owing an additional $1.209bn. The Paris Club figure given for Russian claims in July 2003 was $3.4bn ex-interest.

August 25, 2004

Writing in the Wall Street Journal today, Interim Prime Minister Iyad Allawi says: "Thanks to the horrendous war machine built up by the ousted regime, Iraq's current level of national debt is the highest in the world as a percentage of GDP or exports, and is simply unsustainable. The burden of debt is colossal and simply unfair for ordinary Iraqis to be expected to bear. The vast majority of this debt burden must be forgiven so that future generations of Iraqis are not made to suffer for the wrongs of the Saddam regime."

Unfortunately, although Prime Minister Allawi emphasises that the debt financed Saddam's "horrendous war machine", he uses the creditors' language of "sustainability" and "forgiveness" which places Iraq in a weak position trusting in the dubious genorosity of these creditors who bankrolled "the wrongs of the Saddam regime." Most Iraqis take the much stronger stance that the debt is odious and illegitimate and should be eliminated almost entirely on legal and moral grounds, irrespective of how much Saddam's creditors think is "sustainable".

August 18, 2004

Chancellor Schroeder said today that the German government is ready to "substantially" reduce Iraq's debts to Germany to ensure more funds were put to the post-war reconstruction of the country. Given that no figures were mentioned, Jubilee Iraq is unclear whether this represents an improvement from the pervious German position that a 50% reduction would be sufficient. Iraqi Interim President Ghazi al-Yawar and Prime Minister Iyad Allawi will visit Berlin from 9-12 September.

August 17, 2004

Accountancy magazine writes about the role of the big accountancy firms in Iraq.

It interviews Peter Daniel, a forensic accountant with BDO Stoy Hayward which has formed a committee to represent trade creditors, which it believes are owed up to £13bn. BDO has been the lead advisers to the UNCC. Daniel stressed: "Before we can get to a stage where the debt is rescheduled and renegotiated and some sort of agreement on what the Iraqi people are willing to pay, we need to get a reliable figure for what is owed and that is our first objective. This involves sitting down with the relevant authorities to decide what should definitely be paid and what is conspicuous. The main problem is that the records in Iraq are patchy - in some areas they are good and in other areas they are non-existent. So it is the luck of the draw for individual creditors as to whether the information is still there in Iraq. The Iraqi government doesn't want its citizens to be saddled with this huge debt. It wants the economy to be built up and therefore a reasonable amount of oil reserves to be available for paying for improving schools, hospitals and building up the economy."

Ernst & Young, which was appointed by the CPA to reconcile the debt, said that because of the current security situation it could not discuss any further details. It has, however, decided to reopen its Baghdad office and appointed Dr Sami Al-Amri as managing partner.

August 16, 2004

Prime Minister Iyad Allawi was interviewed by the German newsmagazine Der Spiegel today:

[Der Spiegel] What do you expect from those countries, such as Germany or France, that firmly opposed the war in Iraq?

[Allawi] I expect them to cancel Iraq's debts and to commit themselves to the reconstruction and stabilization of the country. I have received an official invitation by Federal Chancellor Schroeder to visit Berlin, which I will gladly accept.

The trip to Berlin will probably be on the 9th September.

August 05, 2004

Spanish newpaper El Pais reports today that Iraq is the third largest debtor as regards export credit to the government's trade insurer CESCE (after Cuba and Angola). The claims against Iraq are currently $109.4m, 9.3% of Spain's total export credit claims of $1.178bn. The figure quoted to the Paris Club in July 2003 for Spanish claims was $321m (ex-interest) and it is unclear where the remaining $500m or so is held.

August 02, 2004

An article in Investment Dealers Digest reports on the involvement of Wall Street Firms in Iraq. Robert Hormats, vice chairman at Goldman Sachs, says "[The Street can] also give them advice on debt rescheduling, pro bono, because they cannot pay for it. This is likely to be the biggest rescheduling ever, due to the size of the debt and reparation claims against Iraq and will probably also be the most complicated ever due to the difficulty of sorting out the claims and Iraq-related policy differences among creditors."

Anthony Crescenzi, chief bond market strategist at Miller Tabak, commented on the recent bond issue: "It seems clear that the Iraq bond market is likely to remain in its infant stage for quite some time. The lack of security and information with respect to government cash flows will keep liquidity low for a while." He points out that the interest rate level that Iraq is paying on its debt, with a yield of less than 8%, would be low for even a more developed emerging market, especially given the level of uncertainty. "This no doubt reflects the fact that Iraq has the strong backing of the US" said Crescenzi.

August 01, 2004

In order to support Iraq in the next critical period, Jubilee Iraq will be appointing an Iraq coordinator. UK Coordinator Justin Alexander will be in Baghdad 2-11th August interviewing candidates. If you are interested yourself or could recommend a suitable person (committed to serving Iraq, independent, credible on economic issues, strong communication skills in Arabic and reasonable English) then please call Justin in Iraq on +964 7901 783025 or email justin@jubileeiraq.org.

In a recent paper "Reconstruction of Iraq: Debt, Construction Boom and Economic Diversification", Iraqi economist Ali Merza argues that at least a 77% reduction in debt is needed from consideration of Iraq's balance of payments gap (export minus imports).

He argues that "The widely used measures of sustainability, i.e. (outstanding debt / GDP) and (debt service / exports) do not relate well to the sustainability of economic growth." Instead the key measure is "the adequacy of the retained export proceeds to finance needed imports... for reconstruction and consumption necessary to support the targeted path of economic growth."

His conservative calculations of export earnings and needed import expenditures lead to the conclusion that even with 100% debt cancellation Iraq will still have a balance of payments gap of $36.8bn for the period 2004-9, which is larger than the $33bn in aid pledged at the Madrid donors conference (of which very little has been forthcoming). Without complete debt cancellation the gap will be considerably larger and require new borrowing to finance.

Merza's figure of 77% debt reduction is the point, based on his projections, at which the balance of payments of payments gap for the whole decade 2004-2014 becomes equal to $33bn.

In reality the situation is likely to be even worse as continued instability will mean that export earnings are unlikely to be as high as Merza predicts, while debt interest payments will almost certainly be considerably higher than the 3% figure he uses.

In conclusion Jubilee Iraq urges the Paris Club and other creditors to bear in mind Ali Merza's careful analysis. Not only are there are clear moral reasons for the cancellation of almost all of Saddam's debt, there are also very strong economic arguments for this.