U.S. Moves Closer to Relief of Iraqi Debts to the West

New York Times - 3 October: WASHINGTON, Oct. 2 - The administration moved closer to its goal of winning forgiveness for the debt that Iraq owes Western nations, the primary aim of the United States here at the annual meeting of the World Bank and the International Monetary Fund this weekend.

Forgiving the debt is considered critical to Iraq's future, as is quelling the insurgency. Even if considerable aid is offered to Iraq at international meetings in the future, Washington believes that Iraq will never attract the foreign investment it needs to revive its oil industry and its economy so long as it carries it unsustainable debt of $120 billion.

"Iraq faces two basic problems: the terrible security situation and the terrible debt situation," said Robert D. Hormats, vice chairman of Goldman Sachs in New York, who is working with Iraq and the administration on this issue. "You have the chance to solve the debt problem here in Washington this weekend."

The Group of 7, which includes most of the important creditor nations in the West, approved an Iraq debt relief program devised by the International Monetary Fund on Friday night; the plan will not be made public.

In a statement, the finance ministers of the Group of 7 nations - the United States, Britain, Canada, France, Germany, Italy and Japan - said, "We welcome the approval of the I.M.F. of a sound and credible program for Iraq, which is an important step toward our commitment to resolve Iraq's debt before the end of the year."

However, the I.M.F. put off any decision on a proposal to forgive 100 percent of the debt of the world's poorest countries and, instead, asked that a study be prepared by year's end that will present the best alternatives for eliminating the debt.

While the details of the accord reached here are unclear, the United States would like to cement a deal when the group of industrial nations known as the Paris Club meets later this month. But there are evident stumbling blocks.

Other poor countries, especially in Africa, are buried in debt amassed by ruthless dictators. They are demanding that generosity toward Iraq should be matched in their cases, so that they can climb out of the debt that has tied their hands in the fight to stop AIDS.

Development experts and activists had hoped to link debt relief for Iraq with help for the poorest nations, but their strategy appeared to crumble late on Friday when the Group of 7 approved a plan dealing only with Iraq.

Gordon Brown, the British chancellor of the exchequer and the author of a plan to pay off the debt of the poorest nations by revaluing I.M.F. gold, said he was not disappointed with the outcome of the meeting.

"There has been considerable progress made this weekend," Mr. Brown said, pointing to what he called a "growing consensus" that poor nations' debt was an urgent problem.

He also said that there was no link between Iraq's debt, which is largely owed to individual countries, and the debt of the poor nations, which is owed to international financial institutions.

But Mr. Brown did offer a challenge to the world's other wealthy nations to follow his lead and unilaterally forgive a portion of this mounting debt of the poor. Last week Britain announced that it would pay off 10 percent of that debt.

Iraq's debt is almost four times larger than the $32 billion needed to pay off all the debt of several dozen countries.

Behind the scenes, France and Germany have been holding out against the United States' demand for a 90 to 95 percent forgiveness of Iraq's debt, saying that Iraq must repay some of its debts when it becomes a successful oil-producing nation in the future.

The two European countries suggested that only half of Iraq's debt to them be forgiven, but the senior Treasury Department official, who asked not to be identified, said late on Friday night that "anything like 50 percent debt forgiveness is unworkable."

The I.M.F. plan is neutral on whether the Paris Club should reduce the debt by 50 percent or 95 percent, said an I.M.F. official, who asked not to be identified.

The French finance minister, Nicolas Sarkozy, said here on Friday that the disagreements had narrowed but that differences remained.

The United States is hoping that a nearly full forgiveness of the debt owed to the Paris Club will set a precedent in regard to the $80 billion of debt that Iraq owes to other Middle Eastern and Persian Gulf countries.

Administration officials are arguing that countries that refused to send troops to Iraq should assist the economic recovery of the nation that has become pivotal in the future of the Middle East.

The Group of 7 meetings were held on the sidelines of the annual meetings this weekend of the monetary fund and World Bank here.