Iraq Debt Relief Puts Country In IMF Hands

by Emad Mekay

(IPS) WASHINGTON -- Rich nations' decision to accept a U.S. request and forgive part of Iraq's debt will help the occupied country but also saddle it with a burdensome economic program that threatens to take decision-making power from Baghdad and put it in the hands of the International Monetary Fund (IMF), say critics.

The Paris Club of bilateral government creditors said Monday it had reached a deal with the U.S.-appointed interim government of Iraqi Prime Minister Ayad Allawi to cancel 80 percent of some $38.9 billion Baghdad owes its members.

Those debts represent nearly one-third of Iraq's estimated debt of $121 billion. The 80-percent deal comes after months of wrangling between the United States, the occupying force in Iraq, and some of the main creditors in the Paris Club: Russia, Germany and France.

Other countries in the club include Austria, Australia, Belgium, Britain, Canada, Denmark, Finland, Ireland, Italy, Japan, the Netherlands, Norway, Spain, Sweden, Switzerland and the United States.

According to the IMF, Iraq's major Paris Club creditors include Japan ($4.1 billion), France ($2.9 billion), Germany ($2.4 billion), the United States ($2.2 billion) and the United Kingdom ($900 million). Iraq also owes Russia an estimated nine billion dollars.

The Washington-based agency's estimate of $121 billion in Iraqi debts does not include about $30 billion in unpaid Gulf War reparations and $84 billion in unresolved claims from more than a dozen nations, which Iraq may ultimately be forced to pay.

The United States had wanted 95 percent of Iraq's debt cancelled but the Paris Club's Europeans nations rejected the idea and later said they would forgive only 50 percent of the debt. The 80 percent deal appears to be to a middle ground between those amounts.

According to the deal, 30 percent of Iraq's debt to the club will be cancelled immediately while forgiveness of another 30 percent in a second stage will be tied to an economic program of the IMF, an institution dominated by the world's most industrialized nations.

A final 20 percent will be granted after the IMF certifies the success of the program, a deal very much along the lines of similar pacts signed between poor nations, the IMF and its sister institution the World Bank. Those programs have long been roundly criticised for taking away control from local governments and restricting their spending on health, education and other social services.

"Paris Club members took note of the strong commitment of the Government of Iraq to implement the policies required under this program and reaffirmed their support," said a statement from the Paris Club on Monday.

On Monday, Allawi's office issued a statement calling the Paris Club deal insufficient. "The prime minister notes that Iraq's debt burden, while now very significantly reduced, remains significant" and "hopes that the Paris Club countries will consider reducing Iraq's debt further."

Allawi called on Arab nations to follow the Paris Club's example. "(He) looks forward to Iraq's Arab brothers forgiving their debts from Iraq in the very near future, to contribute both to Iraq's and their own security and development," added the statement.

Iraq's neighbors Saudi Arabia and Kuwait, which hold the bulk of that debt, have previously said they are willing to forgive some debt but did not specify how much.

Groups that campaign for reform of loans to poor nations, such as Jubilee Iraq, have been pushing for a complete cancellation of Iraq's "odious" debt because it was amassed by dictators without the consent of the people and the loans did not benefit the nation's citizens.

The critics, including the Washington-based 50 Years Is Enough Network, also point out that while debt cancellation is good news, it comes with strings attached: adherence to the IMF program.

50 Years campaigns against such programs in poor nations because they impose conditions on governments forcing economic changes that benefit local elites and multinational corporations but exclude the poor.

Jubilee Iraq said Iraq will still be bound by billions of dollars in debts aside from new loans being peddled by the IMF and World Bank.

The IMF has said it can provide Iraq with 2.5 to 4.3 billion dollars in loans over a three-year period now that an internationally recognized government is in place.

"The 80 percent deal only sounds good because the loans made to Saddam were so vast, not because it puts Iraq's economy on a sound footing," said Jubilee Iraq on its website.

The cancellation and its link to IMF programs had some Iraqis concerned as well. The Iraqi National Assembly said in a statement "the Paris Club has no right to make decisions and impose IMF conditions on Iraq."

It argued that Iraq should repudiate the debt but offer creditors the opportunity of a fair legal arbitration to assess if their loans to former President Saddam Hussein's government had actually benefited the Iraqi people, in which cases they could be honoured.

France-based Plate-forme Dette et Développement also criticised some aspects of the deal. The group said that only when there is a democratically elected government in place in Iraq could a legitimate agreement be made on the nation's debt.

It also described as "scandalous" the fact that no Paris Club nation had acknowledged that much of the country's debt was odious, lent to the Hussein's regime to bankroll his war machine and brutal dictatorship.

The announced debt relief comes only days after the New York-based Open Society Institute (OSI) and the United Nations Foundation issued a report warning the Iraqi economy is in shambles and pointing out "the troubling economic legacy left by the occupation forces."

It argued that Iraq's enormous debt would continue to be a burden slowing economic recovery partly because of the damaging economic policies imposed after the March 2003 U.S.-led invasion.

"On a rushed timeline just before the end of the occupation and with little Iraqi involvement, the Coalition Provisional Authority (CPA), which governed Iraq during occupation, committed billions of dollars to projects the Iraqi interim government is now obligated to carry out," said the report.