Tuesday, February 10, 2004

All of Iraq’s major creditors, except China, have agreed in principle to reduce “substantially” the country’s overall debt, and negotiations on the exact amount of debt forgiveness will begin soon, President Bush’s special envoy James Baker said yesterday.

Mr. Baker, secretary of state in the administration of the previous President Bush, said in an interview that Iraq’s future government, which is expected to assume power from the U.S.-led coalition by July 1, will finalize the agreements with the creditors.

“But we must begin [negotiations] now to have any chance to complete the project in 2004,” he said.

When his mission began in December, he noted, its objective, in addition to the timeline, was to secure the creditors’ pledge that “any reduction must be substantial, or a vast majority of the total debt.”

“They all agreed to those principles, except the Chinese. Their agreement was a little bit less definitive than that,” Mr. Baker said by telephone from Houston.

In the past two months, he visited 10 countries in Europe, Asia and the Persian Gulf — France, Germany, Italy, Russia, Japan, China, Saudi Arabia, Kuwait, Qatar and the United Arab Emirates (UAE) — that are owed the bulk of Iraq’s estimated $120 billion debt.

“Getting some of the Middle Eastern countries committed to those principles wasn’t easy, because they don’t want to give their debt reduction to us. They’d rather give it to the new government to create political favor with it,” Mr. Baker said.

“But we got them to do it,” he added. “Now we have to go back at some point and get the exact percentage reductions.”

Mr. Baker also said that he and his team “still have … to deal with” some former communist nations in Eastern Europe that are owed “a surprising amount of debt.”

“Serbia has around $2.5 billion. Romania and Bulgaria have over a billion. It’s all arms [sales] during the Cold War, probably,” he said. “That debt represents such a significant part of their asset possession … it’s hard for them [to reduce it]. But they will have to help us, too.”

In a speech at the Center for Strategic and International Studies late last month, Mr. Baker said one of his main challenges in the upcoming negotiations will be “in reconciling the numbers and in dealing with differences of opinion between Iraq and some creditor countries as to whether some loans were really grants.”

“We are dealing with a postconflict economy after 10 years of sanctions, three wars, and over three decades of dictatorship and misrule,” he said. “The debt-to-[gross domestic product] ratio is an estimated 600 percent or more. Iraq’s debts can never be paid in full, even under the most optimistic scenarios.”

During Mr. Baker’s trip to the Gulf, the leaders he met went out of their way to emphasize that they would sign deals with no one but Iraq’s sovereign government after the end of the U.S. occupation.

“The results of these negotiations would have to be endorsed by the internationally recognized Iraqi government, hopefully in 2004,” Saudi Foreign Minister Prince Saud al-Faisal said after Crown Prince Abdullah bin Abdul Aziz met with Mr. Baker on Jan. 21.

Similar statements came from the UAE and Kuwait, which also made clear that the waiving of any Iraqi debt “does not include war reparations” from the 1991 Gulf war.

Mr. Baker played a central role in assembling a broad coalition in support of that war, which was a response to Saddam Hussein’s invasion of Kuwait in August 1990.

“We have acknowledged that there has to be a government in place to accept the overall debt reduction,” Mr. Baker said yesterday.

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