- The Washington Times - Friday, November 26, 2004

The Paris Club agreed to a plan that takes a big first step toward restructuring Iraq’s crippling foreign debt. An international organization of 18 relatively wealthy developed countries and Russia, the group agreed to write off 80 percent of the $39 billion that Iraq owed its members. Iraq’s total external debt is $120 billion, and the majority of it is owed to Kuwait and Saudi Arabia.

Mr. Bush appointed James Baker, former Treasury secretary and former secretary of state, as his special envoy for Iraqi debt issues. After a year of negotiating with foreign governments, Mr. Baker has achieved a major success.

The United States hoped to convince European Paris Club members to cancel as much as 95 percent of the debts that Saddam Hussein had accumulated. Arguing that Iraq’s massive oil reserves, estimated at 112 billion barrels, made much of the debt manageable, Germany and France wanted to write off a maximum of 50 percent. Notwithstanding Iraq’s energy reserves, the French-German position seemed optimistic in the extreme — considering the utter collapse of Iraq’s infrastructure and institutions following the Iran-Iraq War (1980-88), the 1991 Gulf War, more than a dozen years of U.N.-imposed sanctions and the 2003 U.S.-led war that toppled Saddam.

The compromise figure of 80 percent seems to be quite fair for all concerned. Russia was especially accommodating. Not nearly as wealthy as France and Germany, which were owed about $3 billion and $2.5 billion, respectively, Russia nonetheless agreed to take an 80 percent cut from the $8 billion it was owed. For the Russians, whose own economy imploded only six years ago, a $6.4 billion write-off represents real money.

As noted, resolving the Paris Club’s collective debt of $39 billion still leaves more than $80 billion to address. Roughly $46 billion of this sum dates to the Iran-Iraq war. Then, Sunni regimes in Kuwait and Saudi Arabia lent Saddam’s Sunni-controlled Iraqi dictatorship $16 billion and $30 billion, respectively, to hold off Iran’s Shi’ite theocratic regime, which was determined to export its revolution. In fact, disagreement over how to resolve Iraq’s debt to Kuwait contributed to Saddam’s 1990 invasion.

The Paris Club accord includes a clause that allows its creditor nations to suspend part of their restructuring if Kuwait and Saudi Arabia do not match the Paris Club’s debt reductions. Since the Saudi and Kuwaiti regimes would greatly benefit from a stable Iraq, they should pursue their own self-interest by matching the debt forgiveness enacted by the Paris Club.

War reparations relating to Iraq’s brutal invasion of Kuwait deservedly belong in a different category. U.N.-approved, war-related claims total about $30 billion so far, and could increase in the future. At some point, the 2.2 million Kuwaitis may have to decide that foregoing a portion of their reparations in return for a more stable Iraqi neighbor politically dominated by its 15 million Shi’ites is a fair price to pay.

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