Home / World Business
Fri, May 09, 2003 - Page 12 News List

Debts plague rebuilding of Iraq

REFUSE OF WAR The diplomatic wrangling over the fate of the devastated country has barely begun, as nations haggle about how much money they ought to receive

BLOOMBERG , UNITED NATIONS

Iraqi women walk through the litter-strewn Kuwait Street, one of the main thoroughfares of the Iraq's southern port city of Basra. The World Health Organization said on Wednesday that it expected a cholera epidemic in southern Iraq, where 17 cases have already been registered in two hospitals. The reconstruction of basic infrastructure will be largely dependent on the willingness of the international community to bankroll such projects.

PHOTO: AFP

The Bush administration's plan to rebuild Iraq, including a request that more than a dozen creditor countries forgive US$127 billion of Iraqi debt, is getting little support from France, Germany and Russia, who opposed the US-led invasion that toppled former president Saddam Hussein's regime last month.

Negotiations -- covering sovereign debt owed to such nations as Russia, Poland, Egypt and Germany as well as claims from Iraq's 1990 invasion of Kuwait -- may hinder Iraq's reconstruction, according to Robert Hormats, a managing director of Goldman Sachs Group Inc and a former deputy assistant secretary of state in the Reagan administration.

"This will be the biggest renegotiation of financial obligations in history and probably the most rancorous," said Hormats, who also was an economic adviser in the administrations of Gerald Ford and Jimmy Carter.

"The countries that are in control have very little of the debt, so they will pressure others to give, and those nations will demand concessions," he said.

US Treasury Secretary John Snow asked for debt reduction in meetings of the G7 industrialized nations last month in Washington. While some creditors are willing to discuss debt in global forums such as the Paris Club, they haven't publicly made specific counterproposals.

Agreement to cut Iraq's debt is critical because a resumption of Iraq's oil sales at prewar levels of 2.4 million barrels a day won't be enough to finance a reconstruction that may cost as much as US$100 billion, according to Hormats.

"Not even close," Hormats said in an interview.

Iraq owes US$1.8 billion to France, US$4.3 billion to Germany and US$9 billion to Russia, according to Exotix Ltd, a London-based brokerage for emerging-country debt. These nations provided loans and credit to help Iraq develop its oil fields and wage war against Iran.

Saudi Arabia is owed US$25 billion, according to Exotix, mostly incurred when the Saudis helped Iraq finance its eight-year war with Iran.

In the marketplace for defaulted sovereign debt, money managers are showing signs of confidence that Iraq will pay some of its bills. In September, the US$11 billion of Iraqi debt that's on the market was trading at US$0.8 on the dollar.

That has risen to as much as US$0.25 in recent weeks, said Richard Segal, Exotix's research director.

The debt issue already is complicating US efforts to set terms in the UN Security Council for postwar reconstruction and administration of Iraq. The US favors a supporting role for the UN. France and Russia, which hold veto power, will only back measures giving the UN a central role in postwar Iraq, according to their ambassadors.

"They may be put out of joint if they aren't getting reconstruction contracts or access to the oil fields," investor Michael Lambert said of France and Russia. His Bermuda-based Emergent Alternative Fund has bought rights to US$6 million of defaulted loans to Iraq.

Paris-based Total SA, Europe's third-largest oil company, and OAO Lukoil, Russia's biggest oil producer, had agreements with Saddam's government for oil work once UN economic sanctions were lifted.

Conflicting and overlapping claims, coupled with the theft or destruction of Iraqi central bank records, may make it impossible to determine precisely how much Iraq owes, according to Segal.

Iraqi officials had said some funds from neighbors were grants, while the nations involved say they were loans. There are also disputes about how much accrued interest should be included.

This story has been viewed 2953 times.
TOP top