- The Washington Times - Tuesday, October 5, 2004

Europe’s wealthy countries just could not decide over the weekend whether they were willing to forgive Iraq’s crippling debt load. They reportedly decided, therefore, on a predictable Third Way approach — neither rejecting Iraq debt forgiveness nor going all the way.

Iraq’s future depends on forbearance of its debts. Iraq owes a tottering $120 billion, with $40 billion of that total owed to the world’s 19 wealthiest creditors in the so-called Paris Club. Iraq owes the remaining $80 billion mostly to Middle Eastern countries. It is difficult to imagine how that colossal amount could be repaid.

During the weekend’s meetings of the International Monetary Fund (IMF), World Bank and Group of Seven, European creditors, most prominently Germany and France, argued that Iraq’s debts could be reduced by 50 percent now, with additional relief to be considered in three years. Since Iraq has the world’s second richest oil reserves, they argued, it might be able to pay its debts later. The world’s poorest countries in Africa and beyond, meanwhile, are bereft of resources anywhere near Iraq’s natural riches, and therefore deserve a total debt write off, they said.

The problem with that argument is that it ignores the conspicuous conflict that is raging in Iraq, costing the country considerable treasure and blood. Establishing security and reconstructing Iraq promises to be costly and the country’s oil industry needs considerable investment to establish sustainable production. For those reasons, Iraq’s debts are as unpayable as those of many poor countries.

Treasury Secretary John Snow also pledged America’s support for debt relief for the world’s poorest and heavily indebted countries, backing Britain’s call for such a move. Unfortunately, Mr. Snow failed to make immediately clear a full, if conditional, willingness to back debt relief, and publications around the world depicted the United States as the weekend’s Scrooge. Given the administration’s call for Iraqi debt forgiveness, Mr. Snow should have made clear from the start U.S. support for debt forgiveness for poor countries.

Still, progress was made. Iraq and the IMF have created an economic program that lays a foundation for a debt write-off by year’s end. The United States and other countries are expected to reach a compromise on debt forgiveness for poor countries after the IMF delivers its recommendations on how to deliver it. Despite some Third Way vacillations, Europe, the United States and others appear to be coming closer to a compromise.

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