Friday, July 11, 2003
Paris Club says Iraq owes $21 bn to member states
Reuters London, July 11
The Paris Club of sovereign creditors said on Friday debts owed by Iraq to its member states amounted to $21.018 billion up until the 1990 invasion of Kuwait and up to the same amount in interest arrears.
"According to their preliminary estimates, the total public debt of Iraq vis-a-vis Paris Club creditors (including Brazil and Korea) amounts to $21,018 million, almost exclusively in arrears," the Paris Club said in a statement.
Iraq invaded Kuwait on August 2, 1990, drawing immediate sanctions from the UN Security Council that barred all trade and financial dealings except for humanitarian purposes.
The Paris Club said that it, along with others such as the United States, did not expect Iraq to be in a position to start repaying debts until the end of 2004.
The figures refer to the principal alone and not to interest arrears, which the Paris Club said could be an amount equal to the principal.
They represent a crucial first step in either reducing or rescheduling Iraq's huge debts, which could be as much as $120 billion.
"All this debt results from credits contracted before August 2, 1990. This total amount takes into account for Russian claims the adjustment on Soviet era claims consistent with Paris Club methodology," the creditor body said.
The biggest creditor of Iraq among Paris Club countries is Japan, which is owed $4.108 billion in principal, followed by Russia, which is owed $3.450 billion, France with $2.993 billion, Germany with $2.403 billion and the United States with $2.192 billion.
Britain, which was the main US partner in the war to oust Saddam Hussein, is owed $930.8 million.
POSITIVE FIRST STEP, REDUCING RUSSIA'S CLAIM
"This was the necessary first step, the figures are very precise, this first stage of the reconciliation of the debts has happened," said Richard Segal of emerging market debt specialist Exotix.
He said it was positive that the Paris Club had reached an agreement on Russia's portion of the debt.
"They came to agreement on Russia's portion and appear to have negotiated down Russian claims slightly more than we had expected," Segal said. The Paris Club numbers do not take account of several key classes of debt, mostly to Gulf States, which amount to some $35 billion, depending on whether they are treated as loans or aid.
They also exclude commercial debt, which is traded in an illiquid market, currently at around 25-30 per cent of face value, based on a broad average of different debt classes.
What the Paris Club move does however is start a process whereby international bodies like the International Monetary Fund can get involved and finance can be mobilised for Iraq.
STATUS OF IRAQ KEY TO DEBT TALKS
But the status of Iraq is likely to be the key issue. This turns on whether the occupying US administration is replaced by an civilian administration which is recognised by the United Nations and will then have the authority to renegotiate debts.
"I think that by the end of year they (Iraq) should be able to go to the Paris Club, it all depends on legality of interim government," said an official at an international financial body who is advising one of the key Iraqi political groups on debt.
The advisor, who spoke to Reuters on condition of anonymity, said that Iraq would need debt stock reduction from the Paris Club along the lines of the 66 per cent granted to former Yugoslavia, or the big write-offs won by Poland or Egypt, which the advisor said were largely determined by politics. The United States appears to have moved from a position of debt write-offs to so-called flow rescheduling, which would see the total level of debt maintained, but set a long repayment period.
They were joined in this approach by Poland, which estimates Iraq owes it about $700 million in pre-1991 debt, and said on Friday it was against debt reduction but was ready to restructure it on favourable terms.
"We are not going to forgive this debt. We are rather in favour of debt restructuring," said foreign ministry spokesman Boguslaw Majewski. "As an oil-rich country, Iraq will be able to meet its liablities at some point in the future," he added.
The advisor to the Iraqi political grouping said Iraq would be best advised to first of all seek a cancellation of the $35 billion owed to Gulf States and Egypt, which the Saddam administration said was given as grants to help fight Iran during the 1980s.
"Kuwaiti, Saudi and Egyptian debt should be kept out of the Paris Club, because most of this debt was inspired by the US for political reasons to contain Iran and it should be negotiated bilaterally," said the advisor.
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