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IMF contemplates Iraq negotiations

By SHIHOKO GOTO, UPI Senior Business Correspondent

WASHINGTON, June 18 (UPI) -- Iraq's economy remains in shambles, and persistent attacks on its oil fields by insurgents isn't making the country's financial prospects any better either. But the International Monetary Fund said Friday that it will engage in dialogue with the new government, provided that organization officials can meet with Iraq's financial team outside of Baghdad.

"We will be able to work with the (Iraqi) authorities outside of the country," said Thomas Dawson, the IMF's external affairs director at a regular press briefing. He added that the first meeting between IMF officials and Iraqi finance minister Adil Abdel-Mahdi and his economic team, perhaps including oil minister Thamir Ghadbhan, will take place "sometime in July or August."

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Dawson's comments come a day after United Nations Secretary-General Kofi Annan reaffirmed that the UN would still keep its international staff out of the country due to poor security. The UN has withdrawn most of its bureaucrats from Iraq since its Baghdad headquarters was bombed last August, killing its special representative Sergio Vieira de Mello, amongst others. Since then, most of the UN's international staff are working on Iraqi issues from either Amman, Jordan or Cyprus.

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Meanwhile, the IMF as well as the World Bank also withdrew their staff from Iraq last summer, and the two agencies have effectively done all of their analysis of the country's economy from Washington since. The IMF's Dawson did, however, point out that the international organization has been "in contact with the transitional government."

Still, the UN's role will only increase after power is transferred from the United States to the interim government headed by Sheikh Ghazi al-Yawar on July 1, and with that, expectations for international financial agencies to do more to get the Iraqi government back on track will become only higher.

The problem is that the issue of Iraq's debts accumulated by Saddam Hussein's regime for nearly 30 years must be dealt with before any fresh loans are made by the international community. To date, Iraq has about $120 billion in total debts, of which $42 billion is owed to private creditors, while another $15 billion is owed to private sector lenders. The Paris Club, which represents 19 governments of the largest crediting nations including Japan, France, Germany, and Russia, to where the biggest sums are owed, is hoping to reach a debt relief agreement by the end of this year. In the meantime, the Paris Club members have agreed that Iraq will not have to service its debts this year.

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As for the IMF, it presented to the club in May a range of scenarios for debt relief that governments could pursue. Their findings were not made public, but earlier this week, the IMF's newly-appointed Managing Director Rodrigo de Rato said at a conference in Madrid that his agency was simply providing the technical analysis, and that it was up to the creditors to make the final decision on what to do with the debt accumulated by Iraq.

Meanwhile, the IMF's head of Iraq mission team that is responsible for coming up with a lending program to the country, said earlier this year that loans to the country might resume before the end of this year. Lorenzo Perez said that the agency will probably first provide an emergency post-conflict assistance loan which could total $850 million. A regular loan could follow by 2005, Perez said.

But as when and how much Iraq can start borrowing from the international community remains unclear, one thing is certain: prospects of Iraq becoming financially self-sufficient remain bleak, particularly as rebel forces continue to sabotage Iraq's oil supply. Prior to the U.S. attack on Saddam Hussein's regime, Bush administration officials in particular believed that Iraq's oil wealth would actually pay for the U.S. occupation in addition to paying off its debts.

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In light of the changed circumstances, the international community is slowly coming together to provide aid for longer-term growth. Indeed, the World Bank began bankrolling some money to help women and children over the past few weeks. Specifically, the bank provided its first financial assistance to the country in May, namely by offering $40 million in grants which do not have to be paid back to print in distribute textbooks for the upcoming school year. The Iraqi education ministry has estimated that about $700 million will be needed over the next three years to rebuild schools, and $80 million each year in textbook requirements just so that the country's educational level will go back to their levels reached in the 1980s.

The World Bank also awarded in May a $50,000 grant to the Iraqi Widows' Organization for a project to help young widows boost their incomes by providing them with microcredit to start their own businesses.

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