BERLIN, 21 November 2004 — Germany yesterday unveiled a breakthrough international plan to wipe out tens of billions of dollars of Iraqi debt so that the war-torn country can begin rebuilding in earnest.
The accord, announced on the sidelines of a Group of 20 meeting of finance chiefs in Berlin, could see the Paris Club of creditor nations cut up to 80 percent of Iraq’s debt and the interests it owes them.
Technical aspects of it were being thrashed out by the Paris Club members in the French capital and representatives in Berlin thought that an official announcement was imminent.
A third of Iraq’s crippling $120-billion international debt burden is owed to Paris Club members, and France and Germany, along with Russia, have up until now doggedly refused to go beyond a 50 percent cut. But speaking in Berlin after meeting US officials, German Finance Minister Hans Eichel said that a three-phase plan had been agreed upon.
“In the first stage around 30 percent (will be waived) immediately; in the second stage around 30 percent, tied to an International Monetary Fund program, and in the third stage 20 percent, dependent on the success of this program,” he told reporters. No further details were immediately available.
Eichel warned that the debt waiver should not be seen as a precedent and is a “special situation for Iraq”, where a fledgling US-backed government is trying to encourage rebuilding and elections amid chronic insecurity.
In France, meanwhile, where Paris Club talks on Iraq were continuing, French officials refused to comment on Eichel’s announcement but did not deny it. “We haven’t been negotiating without the French knowing exactly what we’re doing. It’s always been like that,” the German minister confirmed later.
The debt issue has caused tensions across the Atlantic as US troops battle a tenacious insurgency in Iraq more than 18 months after going to war, with Britain alongside, to remove President Saddam Hussein.
US officials welcomed the agreement and expected an announcement soon. “This is a substantial amount of debt relief,” said one senior US official on condition of anonymity. “It’s a good deal for Iraq which wants to get on with its reconstruction.”
Asked if there had been any objections to the accord given that France in particular had grimly stuck to its guns, the official said: “We have not heard any country that has objected to the German position on the table.” “The discussion in the Paris Club is now more on the technical side... and we expect things will be wrapped up soon.”
The club had set a Dec. 31 target date to reach an agreement. If confirmed, the debt reduction deal would come closest to the US and British positions demanding a 95 percent cut, while France, Germany and Russia had only ever agreed to halve Iraq’s financial commitments to the Paris Club.
French Finance Minister Nicolas Sarkozy has argued that before agreeing to a reduction of more than 50 percent there must be time to evaluate the overall Iraqi situation, the price of oil and Iraq’s production capacities.
German Chancellor Gerhard Schroeder also hinted Saturday that the final stages of the relief program could be reconsidered in light of Iraq’s economic evolution as “a country potentially rich” due to its oil reserves.
Iraq’s debt to other countries, in particular its Gulf Arab neighbors and former Soviet-bloc states, such as Bulgaria and Romania, amounts to about $60 billion. Private creditors such as banks and infrastructure suppliers are owed $20 billion to $30 billion.
