World Bank Press Review: Headlines for Saturday, April 12, 2003

US Treasury Secretary John W. Snow gingerly began soliciting support from foreign economic policymakers yesterday for the reconstruction of the Iraqi economy, amid signs that he will get a favorable response on one key issue at meetings this weekend-the need to forgive at least some of Iraq's debt, reports the Washington Post. A discussion between Snow and French Finance Minister Francis Mer was the beginning of Snow's effort to enlist support on Iraqi reconstruction from his overseas counterparts at the spring meetings of the IMF and the World Bank this weekend.

Snow has said he hopes the gatherings, which also will bring together G8 finance ministers and central bankers, will begin an international consensus on reconstruction issues, including debt relief for Iraq. The country's obligations are estimated at $60 billion to several hundred billions of dollars-including war reparations to Kuwait and Iran-which experts widely agree that Iraq cannot pay in full.

Snow and Mer agreed there was a need to "get a handle" on just how much debt Iraq has, Dow Jones reports. They had different Iraqi debt numbers and the British also have different figures, a US Treasury official is quoted as saying. "There are vast discrepancies" in the Iraqi debt estimates, he said. "The numbers are all over the map." Reuters and Agence France-Presse also report on the meeting.

The US, France, Germany and Russia are major creditors of Iraq, notes the Post. US Deputy Defense Secretary Paul D. Wolfowitz said this week that one of the most important things the European countries could do to help was to forgive all or part of their claims. However the Guardian notes that Germany flatly rejected calls by Snow to forgive Iraq's loans and quotes Finance Minister Jorg Muller as saying, "It only makes sense to address this question with other countries in the Paris Club". The Financial Times adds that the US hopes significant write-offs of Iraqi debt can be negotiated at an international conference to be held soon, a senior US diplomat said on Friday.

Iraq's indebtedness is estimated at about 400 percent of GDP, making it a heavily indebted country. Among key lenders belonging to the Paris Club of creditors, Russia and France are each owed about $8 billion by Iraq, while its loans to Germany total about $4.3 billion. The biggest single creditor is Saudi Arabia, to which Iraq owes $25 billion.

Even if Iraq's new rulers succeed in quickly reviving the oil industry, hard currency earnings are not expected to be sufficient for repaying the debt, and analysts expect the Paris Club of official creditors to forgive 60 to 80 percent of the $25.5 billion Iraq owes its members. Once Iraq's Paris Club creditors have agreed on the size of debt relief, other creditors would be likely to follow that formula.

In a separate report, the FT notes that the three strongest critics of US-led military intervention in Iraq last night said they would consider writing off some of the billions of dollars in debt owed to them by the regime of Saddam Hussein. At a briefing in St. Petersburg, Russian President Vladimir Putin of Russia, French President Jacques Chirac and German Chancellor Gerhard Schröder said they would table the idea of a possible write-off at the G8 meeting of leading nations scheduled for Evian in France at the start of June.

"On the whole, the proposal is understandable and legitimate," Putin said at news conference, the Boston Globe adds. "Russia has no objection to such a proposal."

But Putin, who raised the idea at the briefing, said Iraq was not among the world's poorest nations and any restructuring should take place within the broader context of the Paris Club of sovereign lenders.

Le Figaro notes that a spokesman for the French Ministry of Finance noted that debt cancellation for Iraq should take place within the framework of the Paris Club, and not unilaterally, as Wolfowitz had suggested on Thursday. The Frankfurter Allgemeine Zeitung (Germany) and the Financieele Dagblad (The Netherlands) also report on the discussions of Iraq's debt at this weekend's meetings in Washington.

The Post notes that advocates of debt relief for poor nations, while agreeing on the need to forgive Iraq's debts, accused the Bush administration of hypocrisy because of its reluctance to support wholesale debt cancellation for other impoverished countries. "It seems that after the US prosecutes a nearly unilateral war to take over a devastated, indebted country, it suddenly sees the logic of eliminating illegitimate debts," said Njoki Njoroge Njehu, director of the 50 Years Is Enough Network.

The US and other creditor nations have granted substantial debt relief to the world's poorest countries, says the story, but when it comes to "middle-income" countries such as Iraq, the decisions have to some extent been made on political grounds, with beneficiaries including Poland, Egypt, Jordan and Pakistan, though not others such as Nigeria. "The basic argument is, why should the new government, and the people of Iraq, be saddled with the debts of an old dictator," said Steven Radelet, a fellow at the Center for Global Development. "It's in some ways a compelling rationale, but it's not one we universally follow."