The International Monetary Fund (IMF) said on Friday it had completed a $685 million stand-by financing deal with Iraq, clearing the path for a wider debt accord and access to international financial markets, reports Reuters (12/23). The IMF deal, its first ever with Iraq, is critical for the country's ability to borrow money overseas and necessary to trigger a full debt reduction agreement approved by the Paris Club of creditors a year ago.
The loan, approved Friday by the lending institution's 24-member executive board, represents the IMF's seal of approval that the Iraq government is taking the proper approach to reviving its war-torn economy. The loan should open the door to more funding from countries that want to participate in Iraq's reconstruction.
The loan deal was achieved after months of bargaining between the IMF and the Iraqi government. IMF loans normally are considered a green light for private investors to start doing business with a country. But Iraq continues to have trouble attracting investments from major Western companies, particularly in its critical oil sector. While Iraq has the world's third-largest reserves of oil, without the investment and involvement of major Western oil companies, analysts say Iraq will not be able to rebuild and expand its production of oil.
The IMF loan over the next 15 months will be used partly to finance plans for an expansion in oil production, but analysts are saying that Iraq would first have to come to terms on who owns the oil fields and an argument has been made that the best way to go forward with this is for Baghdad to establish central control over all of the oil assets and then have a state oil company that can deal with overseas private investors.
Iraq Friday also completed an important phase in restructuring the huge debt burden accumulated during the Saddam Hussein era, when commercial creditors - owed about $14 billion - accepted a debt-for-debt exchange offer. The $14 billion accounts for about 60 percent of the known commercial claims against Iraq in a deal which the Iraqi and US governments said should help pave the way towards rejoining the international financial community. The debt swap offer, co-managed by Citigroup and JPMorgan, follows cash buyback deals with some smaller private creditors. It also comes a year after the Paris Club of leading creditor nations agreed to write off 80 percent of about $39 billion Iraq owed to the group in three phases.