Bad debts

Iraq's debt is being reduced, but by how much?

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By  Anil Bhoyrul Published  November 30, 2004

As we report in the latest issue of Arabian Business, the world’s major economic powers have agreed to write off 80% of Iraq’s debt. In theory, they should be congratulated. But what about the rest of the money? Under an agreement reached last month, the Paris Club of creditor nations, which includes the United States, Japan, Russia and several European countries, are to ignore more than US$31 billion owed to them by Iraq. This reflects 80% of the total US$38.9 billion of debt. And the US deserves congratulations for its efforts, having originally pushed for a 95% debt write off. There is, however, one big problem: the debt-reduction plan will work in three stages, with only 30% written off immediately. The rest is dependent on financial reforms being instigated in Iraq over a three-year period at least. That doesn’t look very likely right now, which leaves a hefty US$27 billion of debt that will still have to be serviced. Extrapolating official United Nations figures used to calculate debt in Africa, my sums suggest that this debt will cost nearly US$40 for every man, woman and child in Iraq. It also means that for every US$1 given to Iraq in aid, about the same amount will go back into servicing the debt. This could turn into a major problem for Iraq and its long-suffering people. I applaud President Bush for having the courage to at least try and write off 95% of Iraq’s debt. It’s a shame most European nations haven’t agreed with him. It’s an even bigger shame that even less is being done about Africa’s US$227 billion of debt.

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