September 30, 2004

At a dialogue with civil society at the IMF/WB Autumn Meetings, Jubilee Iraq asked British Chancellor Gordon Brown whether he accepted Interim Prime Minister Iyad Allawi's assertion that the vast majority of Saddam's debt is odious. Brown refused to answer, but did say "We support, and I hope that there will be soon a consensus ... that a vast majority of the debt of Iraq is wiped out, at least 80%." (webcast of meeting, Jubilee Iraq question at 38th minute followed by responses, transcript below).

South African Finance Minister Trevor Manuel engaged with the issue of odiousness: "It's a very tough call. Who will be the determiner of whether debt is relieved? Who would be the arbiter? If that should happen in Iraq why should it not happen in the Democratic Republic of Congo?" Jubilee Iraq agrees and supports a fair arbitration process for all countries which may have some odious debt. The "determiner" should be a panel of arbitrers from the debtor and creditors along with mutual agreed neutrals. There is considerably case law on arbitration such as the US-Iran Claims Tribunal, and indeed the Taft Arbitration on British loans to former Costa Rican Dictator Tinicoco.

James Wolfenson (World Bank) and Rodrigo de Rato (IMF) did not comment on Iraq.

Full transcript:
"This is tying in with corruption. I'm Justin Alexander from Jubilee Iraq, which is a coalition of Iraq economists and Western NGOs. I think all four of our speakers have spoken in the recent past about the need for debt cancellation for Iraq. However, the basis has always been that of debt sustainability, whereas Iraqis unanimously argue that--and I quote Ayad Allawi, the current interim prime minister, in The Independent a few weeks ago--the vast majority of this debt is odious. This funded Saddam's suppression and his corruption. And we have talked personally with over 30 Iraqi political parties who agree with this. And now can I ask this, particularly of Mr. Brown and Mr. de Rato, but others can answer. Do you think it is important that the origins of these loans are taken into account, because if they are not, there is moral hazard for lenders in the future to regimes similar to Saddam's."

Trevor Manuel: "On the--let me deal with the issue of debt cancellation and odious debt. It's a very tough call. Who will be the determiner of when a debt is odious? Why should particular countries in instances be treated in a particular way? If that should happen in Iraq, why should it not happen in the Democratic Republic of the Congo under Mobutu Sese Seko? And if that be the case, how do you begin to draw the line? Who would be the arbiter? Would it be one country--the largest shareholder in the World Bank and IMF who would be the arbiter of these kinds of things? I think that we must have rules that are equally applied in all aspects of the work of the Bank and Fund and only in that way would we be able to deal with issues that support development, that don't in fact, as you correctly point out, create moral hazard."

Gordon Brown: "On Iraq, can I say that we support--and I hope there could be sooner consensus on what was being asked for--that the vast majority of the debt of Iraq is wiped up. The IMF analysis suggests that 80 percent at least wiped out is essential, but of course the issue in Iraq is bilateral debt, and only if I'm right, half a billion of $124 billion of debt is multilateral debt."

September 29, 2004

Late this evening US Congress approved the Foreign Operations Spending Bill, which included a diversion of $360m, from the $18bn appropriated last year for Iraqi reconstruction, to pay for Iraqi debts to the US (or finance debt relief, which ever way you choose to look at it).

The IMF shareholders met today and approved an $436.7m loan for Iraq under its ''emergency post-conflict assistance'' program, which represents 25% of Iraq's IMF Quota of SDR 1.19bn (about $1.75bn). IMF Deputy Managing Director Takatoshi Kato called the initial IMF assistance ''a crucial step toward putting Iraq back on the path to economic stability and strong, sustainable growth.'' He said it was hoped the money would serve as a catalyst to support from other countries and help Iraq obtain debt relief. At an international donor's conference last October, IMF officials indicated Iraq could receive between $2.5-4.25bn in loans from the IMF over the next three years. At the same conference, the World Bank indicated it was prepared to lend $3-5bn over the next five years. Treasury Secretary John Snow said "This action is an essential step on the way to resolve the Iraqi debt by the end of 2004."

While Iraq certainly needs resources to finance reconstruction, the devil is in the details and Jubilee Iraq is very concerned about the "conditionalities" which will come with this loan which could have a negative social impact and reduce Iraqi sovereignty. The IMF's press release explains that Iraq must have "a prudent fiscal policy that aims to limit spending to provid[e] the minimum adequate level of social support." It insists on: "The implementation of key structural reforms to transform Iraq into a market economy.. in which progress must be made in 2005... including tax reform, financial sector reform, restructuring of state-owned enterprises."

A press briefing meeting in Canada prior to the G7 finance meeting stated that "The amount owed to Canada is approximately Can$750m (US$600m). These are Wheat Board credits." The finance deparment offical said "The [Canadian] Prime Minister has committed that we are in favour of forgiving the vast majority of Iraq's debt and doing it fairly quickly but, of course, one of the things that we have to do is try to find a way to do this that respects the Paris Club process."

A senior Candian finance official told Reuters that his saw broad support among the G7 for action on the debt, through divisions remain.He said Canada agreed with the United States that the vast majority of Iraqi debt should be forgiven, through the Paris Club, sometime this year.

Mustafa Jalal echos Jubilee Iraq's concerns, writing that "Iraq's already huge debts and its plans to take out more loans for reconstruction are likely to subjugate the country to further stringent terms and conditions by the International Monetary Fund (IMF) and the World Bank, which are notorious for taking control of economies of borrowing nations."

Things are really hotting up, and the next few days and weeks are among the most important since April 2003 for the future of Saddam's debt. There are G7, World Bank & IMF, Paris Club, Arab and Donor Conference meetings coming up (see calendar below), all happening under the shadow of forthcoming US elections and the G8’s stated deadline of a Paris Club deal on debt by the end of 2004 (n.b. before Iraqi elections in January 2005). Jubilee Iraq representatives are flying to Washington today to lobby as the G7 and IMF meet (contact us out there on 00447813137171).

While the US government and the Interim Iraqi government have spoken strongly for near-total debt cancellation, we are afraid that a compromise will be reached with creditors at only about 70% reduction, potentially leaving $40bn or more debt and requiring at least $2bn debt service next year. In fact it may be even worse than that with on 50% reduction. Furthermore this reduction will be processed through the Paris Club over a long period, with a requirement that Iraq obeys the dictates of the IMF for many years to received promised partical debt reduction - among other things this will seriously erode Iraq’s sovereignty. Instead, we continue to call for immediate and unconditional cancellation of all the odious debt, with a fair process of arbitration to settle any disputes with creditors who insist that their loans actually benefited Iraqis. We also call for an end to the war reparations, which cost more than Iraq's health and education budgets.

September 28, 2004

A new study by influencial conservative think tank the Cato Institute argues precisely the case which Jubilee Iraq has been making for 18 months. The paper Iraq's Odious Debts argues that a transparent arbitration should be used to handle Saddam's odious debts and Iraqis should beware of "closed-door, Paris Club solutions" to debt reduction.

"The Iraqi people are entitled to be informed about the claims against them, in detail, not just in aggregate; they are entitled to a fair hearing in which they can make legal representations; and they are entitled to an unbiased adjudication of claims in which no adjudicator has an interest – pecuniary or proprietary – in the outcome," writes the author, Patricia Adams. Iraqis should be wary of creditors enticing them to the Paris Club, as the organization would treat the debts of Saddam's regime as the legitimate debts of the Iraqi people and would seek to avoid accountability for its members' lending. Adams calls the Paris Club "the world's premier bailout agency, using western taxpayer dollars to rescue misplaced loans by public lenders." Whereas, "deciding the disposition of Iraq's debts by the rule of law, through a public judicial process that allows Iraqis, the domestic and international press, and anyone else to understand who lent how much to whom and for what purpose, would give Iraqis confidence that government can work in their interest."

"Consultations are underway to convene a conference in Cairo ... to focus on Iraq's debt and reconstruction, and another in Amman of Iraq's neighbours," Jordanian government spokeswoman Asma Khodr told AFP. She said the Cairo conference could take place at the end of October, and include Iraq's neighbours as well as industrial countries, and the Amman forum would follow in November or December.

Reuters reports that as a compromise between differing creditor positions, a proposal has been put forward for a 50% write-off initially, with the condition that the situation is reviewed later with the possibility of a further waiver. "That's on the table," the unnamed European official said. "It's a proposal that has been put forward. But I cannot say there is a consensus on that."

Jubilee Iraq rejects this completely. We argue that a 95% debt reduction would be a compromise - between creditor positions that the debt is legitimate and at least some should be repaid and the Iraqi position that practically all of the debt is odious and in fact the creditors are probably liable to pay compensation to Iraq for the damage they financed.

Late last week Iraq paid off $81m in debt to the IMF. The IMF board of shareholder governments will be meeting tomorrow to discuss new lending to Iraq, expected to be around $800 million. Reuters writes that this money will be provided "under a program for countries beset by conflict. The assistance typically comes with less stringent economic policy conditions than regular IMF programs." The conditions are not yet clear, however Jubilee Iraq sources in the Iraqi government have expressed concern about certain auterity policies related to fuel prices, pensions and public sector salaries which the IMF proposed earlier in the year.

The Reuters report states that the US and Canada are calling for 90% reduction. This is less for the US (95% has been mentioned before) but the first time a figure has been attatched to the Canadian position.

September 25, 2004

In respose to Dep Sec. State Richard Armitage's comment that the Saudi Arabia claims are grants, Saudi Arabia insisted today that the money was a loan and while it was ready to discuss a major reduction of the $30 billion it says it is owed it will not accept a complete write off. This item was a lead article in al-Watan newspaper on sunday.

Deputy Secretary of State Richard Armitage has said that the $45bn of Gulf funds to Iraq were grants not loans, as Jubilee Iraq as long argued. Speaking to the House Appropriations Subcommittee on Foreign Operations he said "There's no paper on it because it was given when Iraq was fighting Iran. It was provided as a grant because of the war at the time."

Armitage was testifying on President Bush's request to shift $3.46bn in US aid from Iraqi reconstruction projects to security and to cover the US debt claims. He also said "Increasing [Iraq's] revenue, however, will be a drop in the bucket without debt relief... This debt burden drains critical resources that a democratic Iraq needs now to rebuild its infrastructure, schools, and hospitals, and cripples the country's ability to integrate into the international economy and attract international investors. We propose shifting $360 million of Iraq Relief and Reconstruction Fund funds to debt relief. This would be the budgetary cost of forgiving the approximately $4 billion that Iraq owes the United States. Our debt forgiveness would provide relief to Iraq and would leverage similar steps by Iraq's other creditors - Paris Club members and non-Paris Club creditors alike. The Administration can only take this step, however, with specific Congressional authorization. And while President Bush and other G- 8 leaders during the Sea Island Summit held in Georgia reiterated the G-8 commitment to providing debt relief for Iraq by the end of 2004, it will take a Paris Club Agreement on reducing Iraqi debt to ensure that we fulfill that commitment. Congress would need to provide the authorization for debt forgiveness now in order for the United States to sign a Paris Club agreement, which could come as soon as October."

Armitage admitted that most other creditors would not be prepared to write-off as much as 95%, but he was optimistic that Japan would be generous. "I have very good faith that the Japanese will step up ... less faith that the others will be as generous." Armitage will be attending the Iraq donor conference in Tokyo on 14-15th October.

The Senate and House have both approved versions of the foreign operations spending bill for the year from October 1, they must now negotiate a final version and send it to President Bush for signature or veto.

September 24, 2004

Speaking to the UN General Assembly today, Interim PM Allawi said "the problem of foreign debt emerges as the most serious obstacle [to reconstruction]. We are indebted in billions of dollars. And these are beyond our capabilities, and these debts are a burden on the Iraqi people. And they are unjust burdens because they arose from the prohibitive course incurred unjustly by the former regime and its unjustified wars and its support for international terrorism and weapons of mass destruction and looting our national resources. With good intentions and rational management, Iraq hopes that we reach an agreement with the Paris Club at the end of this year in order to achieve liberal reductions in our debts. Here I would like to express our gratitude to those countries that decided to write off their debts on Iraq and appeal to debtor nations to show the same generosity."

He is too diplomatic to point out the logical conclusion that if the debt is an "unjust burden" as he says (and we agree), writing it off would not be an act of "generosity" but simply an acceptance that the loans were indeed unjust.

September 23, 2004

Once again, completely ignored by the world's political leaders and almost unreported in the international media, the UNCC has awarded a further $377m of reparations against Iraq. The 53rd session of the UNCC brought the total of reparations awarded to date to $48.9bn, of which $30.3bn remains unpaid and will be a huge burden for the shattered Iraqi economy. Most of the reparations awarded today have gone to Kuwait, with about 10% going to Jordan, Palastine and other countries (see decisions for more detail). The next UNCC meeting will be on 7-9th December, and the next payout from the reparations fund is scheduled on the 21st October.

Jubilee Iraq continues to argue that, while some of the reparations do represent genuine damages, these were committed by Saddam's regime and are only a tiny fraction of the damages suffered by Iraq under Saddam and through the three Gulf wars. The Iraqi people should not have to pay reparations for Saddam's crimes, and requiring them to do so is reducing the chances of Iraq becoming a stable and properous state. By continuing the oppression of Iraq the reparations, like the odious debt, threaten not just the Iraqi people but the whole region.

President Bush made some fairly neutral comments about debt at his press conference with Prime Minister Allawi: "Part of making sure that the Iraq balance sheet is in good shape is to continue to work on debt reductions. I named former Secretary Jim Baker to go around to the creditor nations; he received some commitments. And I believe that the world will make its decision later on this year as to how much debt reduction there will be in Iraq."

September 22, 2004

Iraq's delegation to the UNCC called for the rejection of at least $49bn of the $82bn in alleged environmental claims sought by Kuwait, Saudi Arabia, Iran, Jordan and Syria for pollution of coastlines, fisheries and desert areas caused by Iraqi troops who set oil well fires and sabotaged other facilities. The bulk of these environmental claims are to be ruled on in December and next year. But Iraq said Kuwait and other governments had inflated losses at private hearings last week.

"The Republic of Iraq expresses its deep concern with certain recent developments in the UNCC process," Mukdad Hadi Salman, Iraqi charge d'affaires in Geneva, told the closed-door body in a speech. "These developments relate to the astronomical claims brought by the State of Kuwait and other governments before the panel for environmental and public health damages..." He said some $29bn was being claimed for so-called "interim" environmental damage at a time when clean-up programmes were underway, which he called "exorbitant". Another $20bn was being claimed by Kuwait and others for lost productivity due to damage to workers' health, he said, noting that there was no precedent under international law for recognising either of the two claims which total $49 billion.

Khaled Ahmad Al Mudaf, chairman of Kuwait's Gulf War claims programme, confirmed that it had revised its environmental claim after carrying out monitoring and assessment studies, but gave no new figure.

September 21, 2004

The Nikkei Business Daily reports today that four Japanese trade and industry organizations will ask the Trade, Finance and Foreign Affairs ministries for their cooperation in collecting their debt claims from Iraq. The organizations are the Japan Foreign Trade Council Inc., the Japan Machinery Center for Trade and Investment, the Japan Consulting Institute, and the Overseas Construction Association of Japan. The four organizations will call for prudent negotiations with the Iraqi government because a reduction of Iraq's public-sector debts will have a great impact on the collection of private-sector loans. Also, the organizations will ask the ministries to ensure that the terms of a bilateral debt agreement signed between Iraq and Japan in 1990 be honored. The member companies of the organisations hold principal of loans without trade insurance of about 240 billion yen ($2.2bn), and loans that had trade insurance but were not covered of about 110 billion yen ($1bn).

The New York Times reports that President Bush and Prime Minister Allawi will discuss "plans for defeating the insurgency and easing Iraq's debt" today in New York.

September 20, 2004

The Wall Street Journal writes today that the US position to write of at least 90% of the debt emerged after "an intra-administration dispute among the Treasury Department and White House security and budget advisers. Some administration officials worry that writing off too much poor-nation debt will reduce fiscal discipline in borrower nations. But the Treasury, which is in charge of getting Iraq's debt in order, prevailed, according to individuals with knowledge of the debate." The Journal adds "The Bush administration would like to announce a Paris Club resolution before the Nov. 2 election, but odds of that are slim."

Iraqi Finance Minister Adil Abdul Mahdi said in an interview with Euromoney magazine that debt reconciliation talks with non-Paris club creditors will begin soon aimed at concluding agreements in early 2005.

"We have focused our immediate debt reconciliation efforts on the Paris Club creditors in the expectation that we can meet with the Paris Club later this year. Reconciliation of non-Paris club bilateral claims and commercial claims will take somewhat longer. That process will soon be under way and we hope to be able to conclude agreements with those creditors early in 2005." He added: "We know that fresh investment from private sector sources cannot be expected while a massive and visibly unsustainable debt burden hangs over the country. That debt burden must therefore be convincingly reduced - not merely stretched out - if the private sector is to play the role in Iraq's recovery that we hope it will. The status quo is obviously unsatisfactory both for Iraq and its creditors."He didn't comment on his expectations for any debt haircut but said "any significant diversion of resources to service Saddam-era debts, if it prevents or delays the reconstruction effort and perpetuates an environment of social and political instability, would be counterproductive."

Iraqi President Shaykh Ghazi al-Yawar was interviewed by Al-Sharqiyah Iraqi TV upon his return to Baghdad today after his European tour. In response to the question "Is it true that Germany backed down on its position to cancel Iraq's debts?", Al-Yawar replied: "No, Germany did not back down on its position. Germany promised a substantial reduction in debts. We can say that this reduction will range between 70-80% of the debts." This is the first suggestion that Germany is prepared to reduce more than 50%, however Jubilee Iraq argues that 80%, and certainly 70%, is still far too little to prevent debt service payments damaging any hope of Iraqi recovery.

September 19, 2004

President Bush is due to address the UN on Tuesday 21st September seeking the international community's help in Iraq. Victor Bulmer-Thomas, director of Chatham House, said that Bush's UN agenda — seeking a multinational protection force for U.N. officials in Baghdad, speeding the training of Iraqi troops and forgiving Iraqi debt — is stalled, "Nobody's going to say 'We refuse to participate,' But everyone is playing for time, some of them because they hope President Bush will lose [the election]."

Alan P. Larson, US undersecretary of state for economic affairs, has been in Baghdad for two days for intensive talks on debt with an Iraqi team led by Finance Minister Adel Abdul-Mahdi.

Abdul-Mahdi told a news conference:"We spent a lot of time discussing Iraq's debt and as you know Iraq is asking that it be forgiven from most of it. We also want this matter solved by the end of the year."

Larson said: "What we have secured at this point is the agreement of many of Iraq's major creditors in particular those of the G-8 countries that we will provide debt reduction this year in 2004 and that it will be sufficient to ensure sustainability as Iraq advances into the future. In our view the amount of debt reduction will have to include the vast majority of the debt that Iraq owes to its external creditors." He added that America's Export Import Bank will extend up to $500m worth of grace export credits to Iraq.

Writing in the Independent today, during his trip to Britain, Prime Minister Allawi has strong words on debt which Jubilee Iraq welcomes: "Iraq's inherited national debt level is the highest in the world as a percentage of GDP and of exports, and to service it would be unsustainable for its fragile, fledgling market economy. The vast majority is "odious" debt, used to build up the war machine of the ousted regime, largely through arms purchases supported by the lending countries. The innocent people of Iraq cannot be expected to bear this crushing burden; the vast majority of the debt must be forgiven if Iraq is to have a chance. Despite vague statements of good intentions, however, concrete pledges of debt forgiveness have not yet been forthcoming." He also mentions that only 5% of the $31bn aid pledged last year by the US and other countries has actually been recieved and disbursed.

September 17, 2004

Reuters quotes German officials: "They (the United States) want to pull this through this year and are putting on pressure.", "It's in complete deadlock," a different official said. A third official said the German position of writing off no more than half of Iraq's debt was under review: "We will probably have to move towards two-thirds." But other government sources said the position was still to waive about half the debt claimed by Germany (quoted as $2.4bn principle, and $5.3bn including interest).

Major Japanese trading houses on Thursday urged the government to limit the scale of debt cancellation to Iraq. Mikio Sasaki, chairman of Mitsubishi and chairman of Japan Foreign Trade Council, told a news conference: "There is no reason why we will have to apply the same [debt] treatment as the government's... We want to collect as much as possible." He added the Foreign Trade Council will soon submit a dossier of its requests related to Saddam's debt. "I want the government to throw its weight behind the private sector's framework scheme." (Kyodo news agency)

French Finance Minister Nicolas Sarkozy is in Moscow today to meet with his Russian counterpart Alexey Kudrin to discuss the issue of Saddam's debts. (RBS news)

September 15, 2004

US Senate Committee On Foreign Relations: Hearing On Accelerating US Assistance To Iraq. Present: Sen Joseph R. Biden Jr. (D-De), Sen Bill Nelson (D-Fl), Ronald Schlicher, Deputy Assistant Secretary For Iraq, Department Of State, Joseph W. Bowab, Deputy Assistant Secretary, Foreign Assistance Programs And Budget Bureau Of Resource Management, Department Of State. [Extracts of the meeting relevant to debt below]

SCHLICHER: We also intend to set aside the funds necessary to enable the U.S. to participate in early and deep debt relief for Iraq, which is important for several reasons. It will make possible the international borrowing a new Iraq needs to continue the efforts already begun by donors to rebuild its infrastructure, its schools, its hospitals and its economy. It will remove a gigantic debt overhang that would otherwise hinder investor interests in Iraq and the country's integration into the global economy. A relatively small budgetary outlay will leverage much larger levels of debt relief from Iraq's other creditors.

BOWAB: At Sea Island, the president and the G-8 leaders committed to providing debt relief for Iraq. In order to build a consensus among creditors for a significant reduction of Iraqi debt, we believe that we need to move quickly to forgive the approximate $4 billion in bilateral debt that Iraq owes the United States. The cost associated with eliminating this debt is $360 million. We need the support of Congress in order to shift these resources due to the sector limitations that are currently in the IRRF statute. We will also need affirmative authority for debt relief that currently is not available for Iraq in existing law.

BIDEN: You put your finger on it. You're the first guys who've been straight up about it. In order for this government to survive, they've got to be able to borrow. Unless they can deal with the debt overhang and the IMF says you need to forgive 95 percent of the debt in order for the World Bank to come in and say, "OK, now we'll get in the deal so we'll lend money to, what we all know is ultimately the solution, and that is private entrepreneurs, private businesses, private enterprise, a private economy" -- you know, not the government economy; that's a choice of terms to get -- the World Bank in... What are others doing? And if they do nothing is our debt forgiveness of an additional $4 billion roughly, is that enough to get the World Bank and the IMF to step up to the ball and open up the lending spigot here? And does that have any impact on confidence of investors to come in to open up anything from the dress shop to the porcelain factory?... Let me cut right to it: Has a single nation in the G8... formally said or requested of their parliaments to forgive Iraqi debt?

SCHLICHER: Not yet. No, sir. We have some understandings with some governments that that's exactly what they intend to do.

BIDEN: When? Do you know? I mean, what time frame were you anticipating?

SCHLICHER: I think we are aiming to have an agreement on Iraqi debt by the end of the year, so it's going to be a very active three months on the debt relief front... And preparations leading up to [the Tokyo donor] conference [on 13-14 October] are ongoing right now, different consultations. The British were here yesterday, for example, to consult about the strategy in that Secretary Baker's efforts did, in fact, create an environment that is going to be very conducive to that deep debt relief. We fully expect that the conference and the Paris Club meetings and what we want to do on debt relief in terms of the IRRF review are going to, in fact, result in deep debt relief by the end of the year.... But all of these milestones, these meetings, are going to have to take place before we get final results... I think that by the end of the year, we will succeed in getting the international community to give Iraq deep debt relief.

NELSON: OK. Now, you said, on the debt relief that we will do better. That's what your words were there. How are you going to do better?

SCHLICHER: We are going to do better through making our own commitment, I hope, with your approval, on our part of the debt relief, and leveraging what we have done on debt with the other creditor nations. We're going to do better by making sure that the upcoming World Bank/IMF meetings focus intensely on this issue and come up with the right result. We're going to do better by making sure that the Tokyo Donors' Conference is a success. And those things are going to culminate in deep debt relief for Iraq by the end of the year.

John Taylor, US Treasury Under Secretary, told a press conference in Paris today: "Restoring the Iraqi economy to a sound footing "will require an enormous amount of debt reduction... We are very much hoping that the program of the IMF can be finished before the end of September." The Paris Club requires countries recieving debt reduction to follow IMF economic programs which are often extremely destructive, as in Argentina. Taylor refused to be drawn on the level of debt reduction Washington is pressing for. "I don't want to talk about numbers."

Herve Ladsous, spokesman for the French Foreign Ministry said there was still no sign of an agreement on how much of Saddam's debt could be written off. "A consensus has not emerged on the exact quantity of debt cancelation that could be granted to Iraq. There is, however, a consensus on some points and above all on the fact that Iraq's debt is unsustainable."

September 13, 2004

The IMF's HIPC progress report, being discussed today by G7 finance ministers, shows that the debt relief initiative is falling short and this way the creditors have handled it does not bode well for Iraq.

The Highly Indebted Poor Countries Initiative (HIPC) was set up eight years ago with the aim of eliminating $100bn of the debt of 42 of the poorest countries. So far only about a third has been cancelled and some estimates suggest HIPC countries still have about $90bn in debt stock. The latest update provides additional evidence that even those countries that have received HIPC relief have unsustainable debt levels - defined by the initiative as more than 150% of annual exports. Last year's report estimated that countries entering the process would spend $2.4bn servicing their debts last year. In fact they spent $2.8bn - an average of 15.2% of government revenues. The report also produced new forecasts, suggesting that those countries qualifying for relief because of their high debt-to-export ratios would see these ratios fall by less than expected. Instead of emerging from the process with debt-to-export ratios averaging 140%, they were now likely to end up with ratios of 171%. (Financial Times)

"Jordan has submitted a project to creditor nations proposing a reduction in Iraqi debt in exchange for [Jordanian companies] taking part in the reconstruction of Iraq," government spokeswoman Asma Khodr told a press conference in the capital. Jordan's proposals include establishing a free-trade zone between the two countries as well as creating "other projects likely to contribute to the reconstruction of Iraq". Jordan's King Abdullah II promised to help Iraq reduce its debt during a meeting with Iraqi Planning Minister Mahdi al-Hafez in Amman on September 6. The details of the proposals are not yet clear.

AFP reports that The Paris Club reaffirmed their committment to a deal by the end of the year but "club members were still debating whether to cut Iraq's debt immediately by 95 percent, a proposal supported by the US and Britain, or by 50 percent as a first step, as called for by France, Germany and Russia." (N.B. Previous unverified sources had suggested Britain favours only 80% cancellation, and Russia was prepared to cancel 65%). The members were also told at their meeting last week that Baghdad may reach a post-conflict agreement with the IMF in the coming weeks, which could be finalised with the IMF board by the end of October.

September 11, 2004

Tariq al-Sha'b, the Iraqi Communist Party's newspaper, today published "The ministerial statement of the Interim Iraqi government." The document covered a wide range of subjects from security to environmental protection. Here are the relevant extracts, the section on debt is weak though the section on reparations is stronger:

"Regarding Iraq's foreign debt, the government will pay this problem main attention in the forthcoming efforts to cut foreign debt and seek to write off some of the debts in the anticipated negotiations within the framework of the Paris Club, and in light of Security Council Resolution 1483. In this respect, the government will continue cooperation and coordination with fraternal and friendly countries and international financial establishments, such as the IMF and the World Bank. It will prepare for negotiations and form a high-level professional technical team to ensure positive results in favour of Iraq."

"The government will pay special attention to addressing the problem of war reparations decided by the Security Council, and will seek to address this problem and alleviate Iraq's financial burdens. In addressing this problem, the government will proceed from the premise that the Iraqi people must not bear responsibility and the consequences of the former regime's wars and aggressive policies." (Translation by BBC monitoring)

September 10, 2004

The IMF had a press briefing today, at which some questions were directed to Iraq. External Relations Director Tom Dawson mentioned discussions on new IMF loans, and said that they would not be dependent on a formal Paris Club deal being agreed:

"An [IMF] mission visited Paris September 4th and 5th and met with senior Iraqi facilities. The mission made good progress in its discussions of policies that could form the basis of an economic program that could be supported under the Emergency Post-Conflict Assistance Facility sometime in the last quarter of 2004. And staff will have further discussions with the authorities at the time of the Annual Meetings in a couple of weeks. [the new loan would require payment of] the arrears to the Fund, certainly. And... there is an iteration between Paris Club and the Fund, but there is no requirement for a debt deal."

September 09, 2004

Iraq Construction Minister Al-Faruk Al-Damaluji encouraged Romanian companies to invest in Iraq during a visit to Bucharest. However Romania's ambassador in Iraq Mihai Stuparu said there is not a single Romanian company present there. "In the short term Romanian companies will probably not invest in Iraq." However he added that the Romanian authorities were pressing ahead to try to recoup debts of around $2.5bn. (AFP) This figure is almost a 50% increase from the $1.7bn Romanian claim which was quoted by Bucharest Business Week on 21st April 2003.

Iraqi President Ghazi Al-Yawar began a European tour Wednesday in Germany appealing for debt relief: "I am grateful to the president for his openness and positive response particularly on the important topic of debt relief and the cancellation of debt." Yawar told reporters after talks with President Horst Koehler.

The Paris Club is meeting today, however officials told Reuters "today's basically a review of the situation so we don't expect anything to change and the Iraqis are not there." Another official is quoted as saying "It's total stalemate" with disagreement amongst the creditors over how much of the odious debt to try and squeeze out of Iraq. The next Paris Club meeting, in October, is when a consensus on Iraq may be reached.

After meeting with Iraqi President al-Yawar, Schroeder said: "Germany is prepared to make its contribution in the Paris Club to a substantial debt cancellation," but he declined to give any specific figures. He did say that it made sense for Iraq to use its oil revenues on reconstruction, instead of paying debts. The Xinhua News Agency quotes the German claim as $5.3bn.

Reuters adds that Gernot Erler, deputy head of the Social Democrat group in parliament and one of the party's leading foreign policy specialists, told Bavarian radio: "You can forget about credit guarantees in a country which is still so unstable." Erler indicated he expected little immediate progress in attempts to obtain up to 95% debt cancelation. "As far as I know the Iraqi government is very satisfied with this offer [of 50% reduction] from the federal government." Reuters adds that sources close to the Paris Club have said that little progress is expected in talks today.

September 07, 2004

The third international conference on Iraq's reconstruction, following on from the Madrid and Abu Dhabi meetings, will be held in Tokyo on Oct. 13-14. Given that reports suggest debt will be discussed at this meeting, it is unclear how this will bear on the Paris Club meeting on Iraq which is expected to happen in October as well.

"The Kingdom will continue its contacts with the international community to rally support for the reconstruction of Iraq and easing its debt," King Abdullah was quoted by the Jordan News Agency, Petra, as telling Iraqi Minister of Planning and Development Cooperation Mahdi Hafez at a meeting. There will be a meeting of the Jordanian-Iraqi Higher Committee in Amman in October which will discuss numerous bilateral issues, including border security between the two neighbours, the debt and a free trade agreement.

September 06, 2004

Xinhua news agency reports that the economic committee headed by Iraqi Prime Minister Ayad Allawi held an expanded meeting today to discuss strategy to reduce the debts and cancel the reparations.

September 02, 2004

In a review of countries in protracted arrears to the IMF, the Fund said it had started talks with the new Iraqi interim government of Prime Minister Iyad Allawi on emergency post-conflict funding for the country, which would be approved once it has paid off an $80m debt to the IMF. This overdue debt has not been discussed formally by the IMF's board, because "not enough information has been available to fully assess the issue".

An International Crisis Group report out today recommends that the Paris Club ensure that "any conditions regarding economic reforms [attatched to a debt reduction package] are adapted to Iraq's fragile post-conflict conditions." This is warning against exessive neo-liberal and austerity policies that the IMF often imposes on indebted countries, such as rapid privatisation.

The highly respected conflict resolution organisation also recommends that reperation claimants: "Forego most claims for war damages filed by corporations and governments." Leaving only the small about of remaining personal damage claims.

September 01, 2004

British International Development Secretary Hilary Benn announced a £50m aid package in Baghdad today. £3m will go on supporting central government efforts on economic reform particularly with respect to debt relief, Benn said, dodging a direct question on whether London would forgive any or all its Iraq debt. There is a worrying conflict of interest here, with a major creditor (Britain has over £1bn of debt claims) funding policy work on debt relief.