WASHINGTON, 3 October 2004 — The world’s seven leading industrialized countries have vowed to reduce Iraq’s $120-billion debt by the end of the year but remained divided yesterday on the scope of the cut. “We made progress on the Iraqi debt,” French Finance Minister Nicolas Sarkozy said a day after the Group of Seven — Britain, Canada, France, Germany, Italy, Japan and the United States - made clear its commitment following a meeting here to easing Iraq’s debt burden by January. “We agree on a reduction and everyone agrees on reaching an agreement before the end of the year,” Sarkozy said.
He said France had suggested an immediate reduction of 50 percent. Over the next three years, as Baghdad implemented measures proposed by the International Monetary Fund, creditors would consider future debt-related moves.
“The Russians, the Germans and the Italians said they agreed with us,” Sarkozy reported, adding Britain would go along with the French proposal if the initial cancellation were 80 percent. “The Americans didn’t say anything,” Sarkozy said.
The United States and Britain have been arguing for the forgiveness of 95 percent of Iraq’s obligations.
Following a meeting yesterday with German Finance Minister Hans Eichel, US Treasury Secretary John Snow insisted that headway was being made on Iraqi debt. “We’re going to have an opportunity to address this later. We’re making progress.”
Sarkozy said he had put forward his suggestion because it was similar to an approach adopted by the United States to ease the debt owed it by Egypt and Poland in the 1990s.
A French source who asked not to be named noted that Paris “hoped that the Americans and the British might want to arrive at a debt agreement quickly in order to present a brighter picture of Iraq’s future in light of elections there.”
Iraq is scheduled to hold elections in January but the likelihood that the poll will take place has become increasingly uncertain because of a spreading insurgency and resistance to the presence in the country of foreign forces.
Iraq earlier this week nonetheless took a major step toward debt rescheduling when the IMF approved a $436 million emergency loan and said it would work with the interim Iraq government on a possible longer-term credit arrangement. “We will be working with the Iraqi government,” IMF Managing Director Rodrigo Rato said at a press briefing here. “And we will start looking at the possibility of a standby program,” he said, referring to an IMF arrangement under which funds are made available to governments that commit themselves to economic reform projects and targets.
The assistance approved this week became available after Iraq on Sept. 22 paid off its overdue financial obligations to the fund, which totaled $81 million.
The IMF executive board said emergency aid was “a sign of support for Iraq’s economic reconstruction efforts through 2005” and was also aimed at helping “catalyze additional international support, including debt relief.”