Drastic reduction of foreign debt being negotiated
Milan (AsiaNews) – Something seems to be going well in Iraq, as there appears to be real hope for a drastic reduction in the huge amount of foreign debt left behind by Saddam Hussein.
Iraq's Foreign debt, currently 383 billion dollars, could now decrease to around just 35 billion.
James Baker, who last Dec. 5 President Bush entrusted the task of negotiating with various creditors in order to reduce the amount of debt Iraq owed to others countries, managed to obtain numerous positive responses from its creditors.
Only those countries who most benefited from Hussein's regime have showed signs of resistance.
According to the most accurate study available on Iraqi debt, that of the Center for Strategic and International Studies (CSIS), the country's total debt after the fall of the regime stood at 127 billion dollars, 47 million of which was due to matured interest on loans. Moreover, 199 billion dollars are to be added to the figure on account of compensation still due for the Gulf War (following the invasion of Kuwait in 1990) and 57 billion dollars in contracts made between Hussein and private businesses.
Hence the considerable sum of debt amounts to 383 billion dollars. If one compares it to Iraq's 27 billion dollar gross domestic product (GDP) and in relation to the country's 24 million inhabitants, a 16,000-dollar debt per capita is calculated (14 times more than the average 1125 dollar per person income estimated prior to the war). Iraq's debt is equal to 25 times that of Brazil or Argentina and makes Iraq the country with the highest per capita debt in the world. To all this is added not only the costs of rebuilding the country, but also those of its infrastructures which were lacking even before the conflict, as Iraqi public financing was largely orientated toward fulfilling military and security needs and purposes.
Arms in exchange for oil concessions
Iraq's largest creditors are the Arab countries of the Persian Gulf, Russia and the former Soviet-block countries, with whom Hussein had friendly alliances, in addition to Japan, China and some European countries (headed by France and Germany). Iraq owes its Arab neighbors around 45 billion dollars (30 billion to Saudi Arabia alone), principally due to loans made to Iraq during its war with Iran (1980-1988), the bloody conflict that cost the lives of one million persons.
Concerning such loans, the Iraqi regime held that in reality they wouldn't be treated strictly as debt, but as grants given for military and political support, not to be paid back at all. This would be a confirmation of the suspicion that the war fought against the Iranian fundamentalist state was one waged on behalf of all powerful oil-producing countries of the Gulf region. Given that many documents have gone missing during the times of warfare, it is difficult to say with certainty whether this was actually the case.
Iraq's second single largest creditor is the Russian Federation, which took on the debt and credits of the former Soviet Union. The Russian Federation boasts having 12 billion dollars owed to it (according to Channel News Asia, it could be as high as 16 billion dollars with interest), mainly from supplying MiG fighter jets, helicopters and radar equipment to the Iraqi regime.
Bulgaria, Romania and Yugoslavia/Serbia are respectively owed 2, 1.8 and 1.7 billion dollars, likewise for mostly military supplies (minor weaponry).
The most substantial figure is that of 52 billion dollars owed to Russia for failed execution of various businesss contracts, stipulated recently by the regime and in large part related to oil plants and the management or acquisition of oil fields (in violation of the UN embargo). For example in 2002, the Russian oil company, Lukoi, bought the giant West Kurna oil field at a bargain price from Saddam Hussein. The field has more than 20 billion barrels of proven oil reserves.
France is officially reported to be owed 4 billion dollars, even if, according to the former director of the Iraqi Central Bank and current Oxford University professor, Salah al-Shaikhly, the figure is really around 8 billion dollars. The money owed to France is likewise for fighter planes and other military supplies like Exocet missles, laser-guided rockets, army vehicles, assault helicopters and artillery.
Even the French state oil company, TotalFinaElf, was interested in acquiring oil fields placed for sale by the Iraqi government. Yet unlike the Russians, France was concerned about safeguarding its image, hence signing deals allowing for a preemption on the oilfields until the UN lifted its embargo. Other major creditors are Japan (7 billion dollars), China (several billion dollars for military supplies) and Germany (4.3 billion dollars).
James Baker, secretary of state under George H.W. Bush (father of the current US president) has obtained positive responses from many countries. China, Japan and Iran (to which 1 billion dollars is owed) have said that they are willing to cancel a large portion of Iraq's debt.
Positive reactions also came from Saudi Arabia, the Gulf region's largest creditor. Kuwait, even if it is lukewarm about canceling debt, might annul part of the compensations due to its government and citizens for damages caused by the Iraqi invasion.
Russia wants deals made with Hussein to be respected
The greatest resistance to debt cancellation has come from France and Russia. On Apr. 25 French finance minister Nicolas Sarkozy said that France was open to canceling part of the money it was owed, but not to the degree hoped for by United States. Sarkozy also pointed out that it was significant that Iraq is the country with the second largest oil reserves in the world.
Russia, too, might forgive a part of the Iraqi debt. Yet it wants the deals Russian companies had signed to be fully honored. Indeed, the deals struck with Hussein would be to a great advantage to the Russians, particularly on account of the low costs of extracting Iraqi oil.
For example, it is calculated that such costs in southern Iraqi oil fields are roughly 2 dollars a barrel (for comparison's sake: in the North Sea such costs vary 12-18 a barrel and sometimes even 20-25 dollars, still profitable when compared to current international quotes at 35 dollars a barrel). At current prices, this means Lukoil would give up (only for the West Kurna oil field) profits of around 160 billion dollars, calculated on the basis of a 70/30 split (i.e. 70% for Iraq and 30% for Lukoil). Hence it is understandable, despite perhaps not agreeable to many, why Russia has been so insistent that deals struck with Hussein's former regime be respected.
If, however, Iraq could make a deal with Russia and France as well, the country's debt (based on promises made and Baker's hypotheses) could be cut down to just 35 billion dollars.
Adding a new 5-billion dollar loan from the World Bank to that figure, Iraqi per capita debt would become 1650 dollars and the ratio between foreign debt and its GDP would be less than 150%. For other developing countries this would mean high financial exposure. When the Argentinean economy began to collapse after suspending its foreign debt payments, the ratio of public debt to the country's GDP was 54%. Notwithstanding, for a country like Iraq reducing foreign debt to 40 billion dollars would inarguably return the economic crisis to a controllable level. The country's 112 billion barrels in proven recoverable oil reserves could easily become 250 billion barrels if research and development (hindered after decades of nationalism and the embargo) could get underway again.
Lastly, a solution might be on the horizon for compensation for the war damages Iraq caused in 1991. Currently, based on UN Resolution 1330, 25% of income derived from oil sales should go to compensate Kuwait. It is theorized that in the future, such payments can be limited to 1 billion dollars per annum over the next 20-30 years, an affordable rate of payment for Iraq.
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01/07/2008
