Iraq is close to resolving outstanding issues on its Paris Club debt deal, Central Bank of Iraq (CBI) governor Sinan Al-Shibibi said in Washington this weekend – although deals with major Gulf creditors, and on compensation to Kuwait for the 1990-91 invasion, remain elusive.
The Paris Club deal set a framework for handling all of Iraq’s $130 billion Saddam Hussein-era debt, Al-Shibibi told a gathering of US-based Iraqis chaired by Samir Sumaidaie, Iraqi ambassador to the US. Baghdad wanted other creditors to follow the Paris Club framework, which provided an 80% haircut on Iraqi official debt.
“Only Russia held out [on finalising Paris Club terms] but we are now at a very advanced stage of negotiations,” Shibibi said. The key sticking point is Moscow’s insistence that Baghdad should honour other Saddam-era agreements – led by the massive but controversial oil and gas deals inked by Lukoil and Gazprom.
“We are trying to explain to them that debt is different from oil,” British educated economist Al-Shibibi said.
Arab debtors have been reluctant to provide accurate data for Baghdad to reconcile outstanding debt, and “there is a big dispute over amounts”. Iraq also wants to know if any Arab outstandings – mostly contracted during the 1980-88 war with Iran – might qualify as “odious debt” that might, legitimately, be repudiated.
The compensation issue seems intractable. “We have always demanded [a] decrease” in the amounts paid in recompense for Saddam’s invasion of Kuwait, Al-Shibibi said. But the Gulf monarchies “have all argued that we have had our debt decreased in the Paris Club” and that is reward enough, “so we should pay the compensation”.
Some $20 billion of commercial debt has been treated along Paris Club lines, of which some $1 billion must still be resolved. “We are telling creditors they have to submit to a formal process ... there remains a lot of trade-related liquidity”, Al-Shibibi said.
Al-Shibibi emphasised that the central bank was genuinely independent in setting monetary policy. The CBI advocates a strong dinar, to help create a strong economy that would favour debt/equity swaps and other instruments to encourage investment. “Our aim is for people to use the dinar, not to get rid of it.”
Iraq is thus building up strong foreign currency reserves “which are the weapon that helps us stand up to potential shocks”, including inflationary pressures.
Asked by Emerging Markets whether the weak dollar undermined the economy by lowering the worth of oil exports, Al-Shibibi said that, for now, the high oil price compensated for the weak dollar. CBI was now “studying hedging solutions”, to be prepared for the time when global oil prices fall back.
Relations with international institutions are good, Al-Shibibi said. Iraq on Saturday signed the agreement making it the 174th country to join the World Bank’s Multilateral Investment Guarantee Agency.
International Finance Corporation regional director Michael Essex told Emerging Markets that the World Bank’s private sector arm had projects underway in northern Iraq, backing cement and construction materials expansion, and across the country the IFC was looking to strengthen local banks, potentially by taking more equity stakes.