The appointment of ex-Iraqi interior minister Bayan Jabr to the finance portfolio won’t slow Baghdad’s external debt settlement process – one of the few economic success stories in post-invasion Iraq – according to bankers.
New Iraqi prime minister Nouri Al-Maliki chose to overlook questions over Jabr’s handling of security policy during his time on the Iraqi Transitional
Government (ITG) in assigning the crucial role. Nevertheless, market players are confident that the former engineer and businessman-in-exile can get the job done.
“The debt’s a done deal, worked out to virtually everyone’s satisfaction and allowing us all to move on,” commented one secondary market player.
Independent arbitrators in July are expected to finish the assessment of potentially disputed commercial claims, allowing the Baghdad authorities to complete the process of retiring more than $18 billion in Saddam Hussein-era debts, with small creditors to take a discounted cash buy-back of debt, while large creditors have a choice between tradable 23-year bonds or a share in a multi-currency loan deal.
With creditors accounting for 96% of the eligible commercial debt’s value agreeing to participate, the incoming government is just a few weeks away from learning what proportion of the arbitrated claims it will have to pay. This means Iraq is close to removing almost all Saddam-era commercial debt from the state balance sheet.
Outgoing Iraqi finance minister Ali Allawi told Emerging Markets: “Iraq has retired more debt in less time than ever before in the history of sovereign finance. The mountainous stock of debts accumulated by the Saddam regime is quickly being reduced to a manageable size.”
With the endgame so near, “no one’s going to rock the boat now,” the secondary market player said. “It’s a done deal, and anyone who tries to undo it could be sued to kingdom come,” another international banker told Emerging Markets.
This will make little immediate practical difference to Baghdad’s financial situation, but it is an important step towards restoring the market’s credibility. In another symbolic move, the World Bank welcomed Al-Maliki’s new team by announcing that it would finally establish a permanent Iraq office following the earlier withdrawal in August 2003.
Noted Joseph Saba, director of the World Bank’s Middle East and North Africa region: “with the advent of a permanent Iraqi government, the bank sees opportunities for increased stability, more fruitful cooperation, and enhanced programme effectiveness that warrant a further incremental strengthening of the bank’s presence in Iraq.”
The World Bank will be well placed to observe Jabr’s management – its resident country director’s office will be housed in the same Green Zone building as the finance and planning ministries.