DUBAI, 24 November 2004 — Arab countries made clear yesterday they are far from committing to a deal to forgive the billions of dollars Iraq owes them, despite continued US pressure and a recent promise by Europe, Russia and Japan to forgive up to 80 percent of their part of Iraq’s debts.
The two biggest Arab creditors — Kuwait and Saudi Arabia - have so far brushed aside pressure from the US and from Iraq’s interim government to offer any immediate debt relief. Both countries have said no such deals are possible until after Iraq has an elected and internationally recognized government.
Iraq takes the first step in that process in January, when it holds elections to choose a National Assembly to draft a new constitution. If that is ratified, another election to choose a national government will be held in December 2005. It remains unclear at what point in that lengthy process the Arab countries would view a debt-relief deal as possible. Iraq’s interim prime minister, Ayad Allawi, has called repeatedly for Arab countries to forgive his country’s debts soon.
The Arab hesitation on a similar deal could have widespread ramifications. A clause in the Paris Club agreement gives that group the option to suspend part of its debt reduction if it is not matched by Iraq’s other major creditors — led by Saudi Arabia and Kuwait. Iraq has said its foreign debt is hindering postwar reconstruction, already struggling amid the country’s persistent insurgency.
Kuwait, Iraq’s single-biggest creditor worldwide, said Monday it would support “a major reduction in debts” owed by Iraq — but only after such a deal could be negotiated with an internationally recognized and elected government of Iraq. Kuwait also said any such deal must be approved by its Parliament.
The country’s foreign minister, Sheik Mohammed Al Sabah, said Kuwait knew “how important this is, so that Iraq can regain some of its financial abilities,” he official Kuwait News Agency reported.
Kuwait’s refusal to forgive the Iraqi loans, which Saddam Hussein considered as grants, was one reason Saddam used as justification for invading Kuwait in 1990. Saudi Arabia’s stance also has not changed.
In January, the country told former US secretary of state James Baker during a debt-relief lobbying trip that it also was willing to forgive some of the debt — but again, only after Iraqi elections. It also set the condition that Saudi companies be able to participate in Iraq’s reconstruction. Kuwait is owed $15 billion. Iraq’s debt carries annual servicing charges of $7 billion to $8 billion.
Unlike the Gulf states, Jordan is unlikely to write off Iraq’s debt at all, a Jordanian government official said yesterday.
Amman might allow Baghdad to repay the debt in small installments with a long grace period or exchange the debt into Iraqi investments in Jordan or vice versa. Jordan has a much smaller economy compared to its Gulf neighbors, with few natural resources.
Iraq owes Qatar $4 billion and the United Arab Emirates $3.8 billion.
