December 23, 2005

Today the IMF announced that, a week after the elections, the Interim Iraq Government has signed a Standby Agreement. This makes Iraq eligible for further IMF loans and commits it to following a list of IMF economic policies and meeting certain targets. It was a requirement of the Nov 2004 Paris Club debt agreement.

Jubilee Iraq has been consistently arguing for the last few years that:

(1) Significant longterm agreements such as this should be negotiated by a permanant elected Iraqi government.
(2) Many of the specific policy recomendations of the IMF could be disruptive, increasing poverty and unrest in Iraq.
(3) Cancelation of Saddam's odious debt should not be linked to economic conditions which infringe on Iraq's soverignity.

We discussed our concerns with the IMF Managing Director Rodrigo de Rato at the Autumn Meetings in Washington this October, and with other officials at the 2004 Autumn Meetings. We have also lobbied significant creditor and IMF shareholder countries on these issues.

We have not yet seen the full details of the Standby Agreement to properly comment on it. However the timing of the deal was very worrying, coming in the period after elections and before the formation of the interim government. If it had come a few weeks earlier then it may well have become an election issue and resulted in the Iraqi people expressing their views via the ballot box. If it had been delayed for a few months then the permanent elected government would have been able to negotiate it from a position of greater strength.

Even before the signing of the Standby Agreement one of the key policies it undoubtably requires was implemented. Fuel prices were dramatically increased, sparking riots in many parts of Iraq.

December 21, 2005

The FT reports that restructuring of Iraq's outstanding debt is entering a pivotal stage this week. However, not everybody is pleased with a process that has been moving ahead at a rapid speed.

But some of the large commercial creditors say they are being treated unfairly and are getting a worse deal than government lenders.

Iraq launched the offer to the larger private creditors last month, giving them a choice of exchanging the debt owed to them for either bonds or loans. The offer, orchestrated by US banks JP Morgan and Citigroup, follows the completion of cash buyback deals with smaller commercial private creditors. Ali A. Allawi, minister of finance, said Iraq was "demonstrating its commitment to treating all creditors in a fair, transparent and even-handed way".

Save for one meeting in Dubai in May, there have been no two-way negotiations, claim some creditors. One person close to the so-called London Club, says Iraq has pursued a take-it-or-leave-it approach that is "unilateral" and "coercive". Another individual who is working with Hyundai said: "Iraq has not followed any principled process."

Among the most contentious issues for private creditors is the treatment of past due interest. The interest is being calculated according to a Libor-based uniform accrual rate, not on the basis of the original contractual provisions of the claims. As a result, "The debt write-off for the private sector is well in excess of what was announced jointly by Iraq and the Paris Club," said Richard Segal, chief strategist at Argo Capital, the hedge fund, "When it's all over, the private sector will receive half the 20 per cent net present value proclaimed by the Paris Club." Some private creditors argue that the assumptions that went into the Paris Club deal were flawed. They were based on IMF debt sustainability calculations that assumed a price of $26 for a barrel of oil. Oil prices are hovering just below $60.

Peter Bartlett, managing director of Exotix said: "The speed of the process may risk excluding some significant Iraqi debt holders from the restructuring process because they simply have not received or seen the exchange offer and so have not reviewed their options." He added: "There are a lot of people who want to see a more open and consensual settlement, but due to the tight timetable and pressures for a quick and clean exchange deal that has not been part of the equation this time around."

Lee Buchheit, partner at Cleary Gottlieb, the law firm advising the Iraqi government, said: "It is simply not possible to negotiate separate deals with each creditor or even each creditor group. Every creditor has an argument for why it, above all others, should receive a better deal. "But it is lethal to start down the road of giving preferential treatment to individual creditors or groups of creditors."

Disgruntled creditors might still accept Iraq's offer by today for lack of other options. Sources close to Iraq's advisers say they expect a significant participation rate.