US wants Iraq debt forgiven

2004-06-09 10:51

Savannah, Georgia - The United States on Tuesday stepped up pressure on the world's economic powers to forgive the "vast majority" of Iraq's debt in the face of resistance from creditors France and Germany.

President George W Bush's administration, hosting a three-day summit of world leaders starting on Tuesday, said it was winning the argument for wiping out 80 to 90% of the Iraqi debt, estimated at $120bn.

Iraq war opponents France and Germany, whose leaders are attending the Group of Eight meeting in the Atlantic beach retreat of Sea Island, have balked at letting Iraq off the hook on such a huge sum.

A senior US administration official said the International Monetary Fund had issued Iraq's creditors with a detailed analysis of the Iraqi debt situation, including its economic growth prospects and reconstruction requirements.

Each of the members of the Paris Club - a gathering of public creditors - was examining the IMF report, the official said on condition of anonymity.

"I think that analysis supports strongly the position that we have been taking for some time that the vast majority of Iraq's debt needs to be reduced," the administration official said.

The dispute mars US efforts to show a united front on Iraq's future.

Bush secured a coup after France and Germany said they would vote for a new UN Security Council resolution endorsing the new Iraqi interim government and allowing US forces to stay in the country after self-rule begins.

But Germany and France have indicated they are not willing to go beyond forgiving half of the Iraq debt.

In Paris, French sources said it was impossible for political reasons to forgive 80 to 90% of the debt, noting that debt cancellations traditionally only amount to two-thirds of the total.

Difficult to explain

It would be difficult to explain to Nigeria, Indonesia and other debtor nations why Iraq had been given more over the course of a year than the rest of the world's poorest countries combined, sources in Chirac's office said.

German Chancellor Gerhard Schroeder said he was ready to lower the Iraqi debt "substantially" through the Paris Club.

In exchange, however, Schroeder said German companies should be able to benefit from Iraq reconstruction contracts.

"We would like money coming and yet to come from Iraqi oil to be available for reconstruction," he said.

Washington has put enormous pressure on its partners to forgive Iraq's debt, arguing that such a gesture would help stabilise the violence-wracked country and put a stop to attacks by insurgents.

French sources said that while Paris and Berlin were on the same page with respect to the debt issue, Britain, Italy and Japan were "more open" to fulfilling US demands.

About one-third of Iraq's debt is owed to the Paris Club, an informal group of industrialised creditors that meets monthly with debtor nations to discuss debt restructuring.

- AFP