‘The fund’s EPCA is a crucial step toward putting Iraq back on the path to economic stability and strong, sustainable growth,’ said IMF deputy managing director and acting chairman Takatoshi Kato. ‘The fund is making these resources available to Iraq at a difficult time in terms of security, but also at a critical time as Iraq strives to rebuild its economy and prepare for elections early next year.’

The IMF said that progress had been made towards a more ‘market-oriented’ economy and that Baghdad had succeeded in promoting some macroeconomic stability. It welcomed the government’s cautious approach to projecting oil revenues for next year and its decision to use any revenue surplus for additional reconstruction.

It also hoped that its loan would act as a catalyst for other global lenders to follow suit and also for countries to reduce some of Iraq’s $120,000 million debt. ‘The approval of the EPCA will hopefully serve to catalyse much needed financial and technical assistance from the international community and will facilitate the process of reducing Iraq’s external debt to a sustainable level,’ said Kato.

The loan announcement came as the G7 met in Washington in early October to discuss writing off Iraq’s debt, with the White House pushing for lender countries to forgive up to 90 per cent of loans owed to them by Baghdad. However, the difficulties in reaching consensus on the issue were highlighted in late September when Kuwait’s Foreign Minister Mohammed al-Sabah dismissed a US suggestion that Gulf states should write off the $45,000 million they loaned to Iraq in the 1980s.

Washington says that the debt was given to Baghdad as grants to help it fight the war against Iran, but the Gulf states say they were loans and should be paid back.