Banks reject Baghdad's $30bn debt plea

24 November 2007
Baghdad has suffered another setback in its efforts to have $30bn of debts owed to Kuwait written off, after the region's central banks rejected a call to deal with the issue at a forthcoming summit.

The debt originates from the war between Iran and Iraq in the 1980s, when neighbouring Arab states helped to finance Saddam Hussein's regime.

At a Union of Arab Banks (UAB) conference in early November in Qatar, designed to prepare for the Arab Economic Summit in Kuwait in 2008, Ahmed Ibraihi Ali, governor of the Central Bank of Iraq, asked the body to consider dealing with the issue of Iraq's debt.

The plea was made to attendees including Qatar's prime minister and central bank governor, representatives of the Arab League at the UN, and the central bank governors of Jordan and Libya. However, the UAB has since rejected the plea, saying the proposal was “off track” for the economic summit's agenda.

Estimates of how much Kuwait loaned to Iraq vary. The Export-Import Bank of the US estimates the debt to be $10bn in 1989, while in 2004, the International Strategy Group, which manages attempts to get the debt repaid, put the figure at $30bn.

Saudi Arabia made similar loans to Iraq, thought to amount to $25-30bn, although it takes a softer stance over the issue of writing off debt.

“The regime of Saddam Hussein is now gone and Kuwait is at peace with the people of Iraq,” says Ali. “Why does it continue to force Iraqis to pay for the crimes of the old regime?”

“Gulf countries are holding back from making any firm commitments on debt relief,” says Justin Alexander, a legal affairs officer in the Office of Constitutional Support at the UN Assistance Mission to Iraq (Unami). “There have been more conciliatory statements from Saudi Arabia and Kuwait over the issue, but no action has been taken.”

Because of the circumstances of the payments, no repayment schedule or interest rate terms were ever agreed. Subsequent arguments between Iraq and its debtors have focused on whether the money constitutes loans that must be repaid or grants.

The appeal in Qatar by Ali is the latest of many attempts to resolve the issue, beginning in 1989 with an appeal to Gulf states, including Kuwait, to drop demands for the repayment of funds.

The exact details of Iraq's debt are still unclear. This is because of the destruction of records during the looting in Iraq in April 2003 after the US-led invasion, the loss of documents in creditor nations and the unwillingness of some creditors to officially raise claims during the current turmoil in Iraq.

The war reparations which are also being paid to Kuwait are understood to be $20bn. Under current repayment terms, they are not expected to be paid off for decades.

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