UPDATE 2-Romania forgives 80 pct of Iraq debt
Thu Aug 18, 2005
By Khaled Yacoub Oweis
AMMAN, Aug 18 (Reuters) - Romania forgave $2 billion of the $2.5 billion debt owed it by Iraq on Thursday in the first such deal involving a country not a member of the Paris Club of rich creditor nations.
Finance ministry officials from Romania and Iraq signed the agreement at a ceremony in Amman.
"We are the first to do this. The precedent is important for the countries not in the Paris Club to follow suit and help bring sustainability to Iraq's long-term debt servicing," Deputy Romanian Finance Minister Dragos Neacsu told Reuters.
"It is also important for how the rating agencies perceive Iraq and for reconstruction. It makes what Iraq is doing on the short and medium-term more credible," Neacsu said.
Last year the 19-nation Paris Club reduced their $39 billion debt owed by Iraq by 80 percent, similar to the Romanian debt reduction.
The United States, which is seeing its rebuilding plans for Iraq undermined by the persistent violence there, has been lobbying internationally on behalf of Iraq for debt reduction deals.
Initially Romania, which supported the American invasion of Iraq, called on its ex-communist peers -- Bulgaria, the Czech Republic, Croatia, Poland and Slovakia -- to take a common East European stance against writing off Iraqi debt.
It also urged Iraq to award Romanian companies more reconstruction contracts.
Under the Iraq-Romania deal, debt forgiveness will take effect over three years in stages tied to an economic reform agreement between Iraq and the International Monetary Fund.
Around $760 million was cancelled immediately, a similar amount is due to be cancelled at the end of 2005 and another $510 million in 2008.
The remaining $500 million of the debt stock to Romania will be paid over 23 years with a six-year grace period on the principal amount.
Iraq ran up most of its debt to Romania in the 1970s and 80s when it was Bucharest's eighth-largest trading partner and the Balkan country invested heavily and built equipment in the oil and petrochemical sectors.
Iraq emerged from the 2003 U.S.-led invasion that removed Saddam Hussein and his Baath Party from power with a debt estimated at $120 billion, or six times the country's cross domestic product, mostly generated from oil exports.
Most of the debt was accumulated to finance an eight-year war with Iran in the 1980s in which an estimated one million people were killed.
Gulf States and private creditors accounted for two third of Iraq's total debt before the U.S.-led invasion.
Usama Bassim, a senior Iraqi Finance Ministry official, said Iraq was stepping up efforts to win debt reduction deals from Saudi Arabia and Kuwait.
"We must not forget that a lot of the money these countries gave us was actually grants," Bassim said. "Iraq was defending what was then called the eastern flank of the Arab world."
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