Iraq Debt Cut

Yesterday the Paris Club of 19 nations agreed to write-off 80 percent of the $38.9 Iraq owes its members. The New York Times reports that Iraq's debt will be forgiven in phases:

Under the plan announced Sunday, Paris Club members would immediately forgive 30 percent of their Iraqi debt and write off an additional 30 percent in 2005 once the International Monetary Fund has approved an economic reform program for Iraq. A final 20 percent would be canceled in 2008 provided Iraq has carried out the I.M.F. program. The remaining debt owed to Paris Club members is to be repaid over a 23-year period, with no principal or interest due for the next three years.

Reuters reports that the deal with the Paris Club nations was the easy part of Iraq's drive to resolve its massive debt problems:

Baghdad now faces the difficult task of resolving its differences with other creditors, such as Gulf States and private creditors, who account for about two-thirds of Iraq's $120 billion debt pile.

In addition to it"s $120 billion debt, Iraq is also saddled with reparation claims as well. After Iraq's 1990 invasion of Kuwait, Iraq was asked to pay claims to corporations and individuals. Since 1991, the United Nations Compensation Commission has received some 2.6 million claims seeking total compensation of nearly $350 billion.

Iraq's exports are expected to be about $20 billion this year. That would make Iraq's debt about six times its exports. Countries are considered to be in trouble when their external debt level exceeds one-and-a-half times their annual exports. Iraq's debt is a very real and severe problem. Any reduction in what Iraq owes will enable Iraq to better encourage the investment necessary for its development.

At PoliBlog, Steven Taylor posts that even though the debt reduction announced yesterday is less than what was sought it is a major diplomatic success of the Bush administration. I couldn't agree more.

Comments

[-keith in mtn. view]

I wonder how many club-members, administrators, and staff were/are involved in Saddam's Oil-For-Palaces-and-Guns scandal?