Iraq's economic hopes got a major lift on Friday with the IMF clearing a US$685 million standby loan to help the shattered country get back on its feet.
The US government enthusiastically welcomed the IMF arrangement, as well as an US$11-billion debt-exchange agreement between Baghdad and commercial creditors who were owed money by the ousted regime of former president Saddam Hussein.
Both developments should help Iraq win billions more in credit from both sovereign and commercial lenders as it tries to establish a functioning democracy in the face of a bloody insurgency.
"The Iraqi authorities were successful in promoting macroeconomic stability in 2005, despite the extremely difficult security environment," IMF deputy managing director Takatoshi Kato said in a statement.
The IMF last year awarded a "post-conflict program" worth US$436 million to help Iraq negotiate a morass of claims by government and private creditors who were owed money by the Saddam government.
That programme was due to expire at the end of this year, and Iraq's authorities have been in negotiations for months to obtain a formal standby loan to have access to millions more in IMF funds if needed.
But in return, the IMF had called on Iraq to reduce its generous oil subsidies, improve its economic data and shed more light on the resources given to its central bank.
"The medium-term outlook for Iraq is favorable, but subject to many risks," Kato said.
"A strengthening of the security situation will help the authorities to implement the [economic] programme," he said.
"Moreover, Iraq remains vulnerable to shocks, particularly those relating to oil production development and oil export price movements," he said.
US Treasury Secretary John Snow welcomed the financial boost given to Baghdad.
"This [IMF] arrangement will underpin economic stability and help lay the foundation for an open and prosperous economy in Iraq," he said.
The debt agreement, Snow said, was "a historic, unprecedented accomplishment" which, when fully implemented, would reduce the burden of Saddam-era debt by more than US$11 billion.
"We have been working with Iraq to accomplish this and I couldn't be more pleased that it will be completed," Snow added, calling the package "another major milestone" for Iraq's government on the road to stability.
Iraq's finance ministry said that under the agreement, commercial creditors can swap their Saddam-era loans for US dollar-denominated notes or for interest in a multi-currency loan.
The IMF deal clears the path for the next phase of talks between Iraq and the Paris Club of creditor nations, which agreed last year to cancel US$32 billion of the US$40 billion they were owed by the Saddam regime.
Iraq's IMF ambitions had been strongly backed by the US, which is trying hard to promote a measure of economic stability as it seeks to draw down its increasingly unpopular troop presence in the country.
The IMF said Iraq's economic growth this year was estimated at 2.6 percent, following a rebound of almost 50 percent last year.
Inflationary pressures have moderated this year thanks to record-high oil prices, though prices remain volatile, it said.
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