Claims tribunal best way to face up to Iraqi debt
Financial Times (requires subscription) 29/5/3

Sir, I am surprised that Lex Rieffel (Letters, May 26) was so disparaging of proposals for assessing odious debts by Michael Kremer and Seema Jayachandran ("Make sovereign debt too risky to issue", May 9), given that their work is published by his own Brookings Institution.

He says their proposals are unnecessary because the Paris Club already determines illegitimate debt. However, the Paris Club's rules and principles contain no mandate for judging debt legitimacy but only for restructuring debt at risk of default. Moreover, the Club represents the interests of the creditors and when the issue is legitimacy a more neutral body is clearly needed.

Lawyers from Iraq and some creditor countries are developing an arbitration tribunal to assess which of the financial claims on Saddam Hussein's regime should legally and justly pass on to the Iraqi people. The US-Iran claims tribunal provides a useful model for this and the doctrine of odious debts provides important precedents in international law.

Such a tribunal would be economically and politically preferable both to debt restructuring by the Paris Club and to debt repudiation by Iraq.

It would allow the new Iraq to demonstrate respect for international law and, as the first application of odious debts this century, would, in the words of the financier George Soros, "send a signal to the financial markets that it's dangerous to deal with oppressive regimes".

This would restrict the financing of oppressive regimes, leading to greater stability and democratisation in the future, to the benefit of the global economy and markets.

Justin Alexander, UK Co-ordinator of JubileeIraq.org, London SE1 0HX, UK

Allow Iraqis to negotiate debt-restructuring deals instead of imposing outside solutions
Financial Times (requires subscription) 7/5/3

From Mr Mark Medish.

Sir, Edwin Truman ("The right way to ease Iraq's debt burden", April 28) was correct in saying that early US calls for an immediate write-off of Iraq's sovereign debt should continue to be resisted. The Bush administration would do well to agree with other Group of Seven members in adopting what may be called an orthodox approach to debt restructuring based on careful analysis of Iraq's balance sheet and capacity to pay. Consideration of debt relief should be integrated with the overall process of the country's macroeconomic stabilisation and normalisation of external financial relations. Due attention should be paid to the desirability of multilateral burden-sharing among public and private creditors, the relevance of debt relief precedents and unique aspects of the Iraqi case.

Under this orthodox approach, three things bear particular focus for the future. First, the coalition of willing creditors should make distinctions among types of sovereign obligations. For example, debt specifically related to military and security acquisitions may merit less favourable recognition, and thus a deeper haircut, than other kinds of debt. In addition, reparations claims should be distinguished from standard forms of Paris Club and London Club debt.

Second, Mr Truman argues against politically determined debt relief, giving several compelling reasons for avoiding application to Iraq of the doctrine of "odious debt", namely lifting the debt burden imposed by a dictatorial regime upon its legitimate successors. But there are two important counterpoints. It is not necessarily a bad idea to punish creditors of a dictatorship via a discount on outstanding principal. Also, it may be deemed unfair to burden the successor regime with the accumulation of late interest and other penalties due to a decade of non-payment by the previous regime. These are both questions of getting the economic incentives right. The landmark Paris Club rescheduling for Yugoslavia in 2001 could serve as a model.

Last, the role of the new Iraqi authorities, including the finance ministry and central bank, will be critical. The Iraqis themselves should be allowed and encouraged to negotiate their debt restructuring deals, instead of waiting for the imposition of solutions from outside. This is one way to instil a sense of national ownership and responsibility as well as to speed institution-building in the new Iraq.

Mark Medish, Partner, Akin Gump Strauss Hauer & Feld, Washington, DC 20036, US