SKOPJE, Macedonia, April 17 (UPI) -- The French were at it again last Friday. Any reduction in Iraq's mountainous $120 billion external debt should be negotiated within the Paris Club of creditor nations, they insisted. The issue should not -- indeed, cannot -- be tackled bilaterally.
And what about an additional $200 billion in war reparations and contractual obligations? This, said French Foreign Ministry spokesman Francois Rivasseau, is to be discussed.
A day earlier, U.S. Deputy Defense Secretary Paul Wolfowitz had urged France, Russia and Germany to write off Iraq's debts, so as to facilitate the recovery of its $25 billion a year economy. He echoed the views of U.S. Treasury Secretary John Snow, who had suggested, in an interview with Fox News, that Iraq's debts be discarded as had the dictator who ran them up.
At first, Russian President Vladimir Putin made conciliatory noises upon exiting a gloomy meeting with the two other co-founders of the discredited "peace camp." Russia, he reminded the media, was the leader in forgiving debts owed it by poor countries.
But he was swiftly contradicted by the chairman of the Duma's Committee on the State Debt and Foreign Assets, Vladimir Nikitin, who called the American proposals "more than bizarre." Iraq's debt to Russia -- some "well-verified and grounded" $8 billion -- is not negotiable. Contradicting his own contradiction, he then added that discussions on debts have to be held bilaterally.
Gennady Seleznyov, chairman of the lower house of the Russian parliament, concurred. For good measure, he also demanded $2 billion from the United States for contractual losses due to the war. The Russian government and especially Finance Minister and Deputy Prime Minister Alexei Kudrin cautioned Wolfowitz that applying his proposal consistently would lead to the scrapping of the debts of another evil regime -- the U.S.S.R.
Russia needs the money, especially if oil prices fall. According to Russia's central bank, the federation's foreign debt was up $2.7 billion in 2002 and reached $153.5 billion, of which $55.3 billion is Soviet-era debt, $48.4 billion is post-Soviet debt, and the rest is comprised of various bonds and obligations.
But the United States was unfazed. U.S. Ambassador to Russia Alexander Vershbow reiterated to Russian news agency Rosbalt his government's position thus: "We intend to organize a conference of creditors in order to discuss ways of finding a balance between the rights of the creditors and the rights of the Iraqi people to develop their economy. In my opinion, it would be unwise to immediately demand large sums of money from the new Iraqi government."
In this debate, everyone is right.
Iraq's only hope of qualifying for the status of a Highly Indebted Poor Country is by reaching iron-clad debt rescheduling agreements with both the Paris and London clubs. Still, as the Americans envision, creditors can unilaterally forgive Iraqi debt -- especially one arising from Saddam's misdeeds -- without hampering the process with the World Bank or hindering future access to global or internal capital markets.
This is especially true when it comes to the U.N. Compensation Commission, which administers Iraqi reparations to victims of its aggression against Kuwait in 1990-91.
Signs of utter confusion abound. The International Monetary and Financial Committee of the IMF, headed by U.K. Chancellor of the Exchequer Gordon Brown, is also committed to the Paris Club multilateral route. Yet, James Wolfensohn, president of the World Bank, a twin institution, plumped for a bilateral resolution of this novel controversy.
With a view to this beneficent outcome, $2 billion in traded Iraqi sovereign and commercial loans, harking back to the 1980s, have doubled in value to about 20 cents to the dollar. According to The Economist, brokers are betting on a 70 percent to 90 percent reduction of Iraq's debt. This is way too exuberant. Moreover, not all creditors are created equal.
Iraq owes the IMF and World Bank a mere $1.1 billion. But there is an abundance of unpaid but high-priority trade credits and bilateral loans. Private banks and commercial firms come a dismal third.
But, following Nigeria's example, Iraq might choose to ignore Paris Club creditors and deploy its scarce resources to curry favor with those willing and able to extend new financing -- namely, private financial intermediaries.
(Part 2 of this analysis will run Friday. Comments to: [email protected].)
