East-West Debt may 2005 news, debt update
80% of Iraq debts forgiven by Paris Club
It has taken less time than expected for the Paris Club to decide what percent-age of the outstanding Iraq debt will be forgiven. The political contradictions between Europe, the United States of America and Russia appeared to have less in?uence in this area than was thought.
Driven by different feelings, the above mentioned major creditors in the Paris Club did not want to have a new foe amongst themselves and felt an urge to show their generosity. The result achieved on November 21st, 2004, is remarkable ; only 20% of the face value of the outstanding debt will have to be repaid by Iraq. It must seem unjust though to a lot of other debtors, like Argentina and several African countries, that a country, full of possibilities to repay a large portion of its outstanding debt, receives preferential treatment whereas they have to negotiate for months every single percentage of forgiveness.
1. General background
The protagonists of the Paris Club all had their reasons for not letting the negotiations drag on for years and to come to a quick deal for the Iraq case, containing a considerable effort from their side. For obvious reasons, the United States presented themselves as the great defender of the Iraq cause. The rhetoric of bringing freedom and democracy to the country could not be upheld without making substantial efforts in the debt field. After the quarrels over the Iraq situation in the period preceding the second Gulf War, many European nations were terrified of starting up a new round of heavy tensions with the big brother from the other side of the ocean. Of course, it was also of big help to suppress discussions with France by promising that Total would not be pushed out of the oil market in post-war Iraq. With two sides already on the same side of the fence, Russia had cilantro choice than to follow suit, however, not before obtaining some additional concessions relating to its own outstanding debt and its current position on the Iraq market.
2. Influence of the decision
However, this decision of the Paris Club is not the end of discussions in respect of the Iraq debt, it is merely the beginning. A lot of creditors think that the decision of the Paris Club settles everything, once and for all. However, this is far from the truth. An agreement in the bosom of the Paris Club is only the big frame setting, the rough borders of the playing field in which the various players can have their “faites vos jeux”. Besides the fact that only a first hurdle in the negotiations has been tackled, the impact of the decision is also limited by the very scope of the Paris Club itself. In first instance, we will take a closer look at the limitations of the decision of the Paris Club. A next chapter will then examine why the declaration of the Paris Club has ultimately an influence in the long term.
2.1. Limitations of the Paris Club
2.1.1. A framework decision to be worked out.
A lot of confusion has emerged among creditors of Iraq. Lots of them tend to think that it is only a matter of time before all Iraq debts will be settled at 20% of the face value and expect this to happen as soon as the newly elected government will be installed. However, this view is far too optimistic. The Paris Club agreement is only a general indicator which will need to be put into practice by bilateral negotiations between Iraq and every single Paris Club creditor country. It goes without saying that these bilateral negotiations and the execution of a reached agreement can take several years and even decades. The Paris Club itself is for the moment referring to 23 years. In the end, the various bilateral agreements can also contain a set of additional requirements for the creditor country which makes the agreed 20% to be far less in reality, due to debt swaps, preferential treatment a.o.Moreover, it depends to be seen for each and every single creditor whether its own government will include or try to include their debt in the bilateral negotiations. And even in case their own government is willing, it is not certain that Iraq will accept. Indeed, the Paris Club has set a range of rules to which the debt in question has to adhere in order to fall within the scope of the Paris Club agreements