Baghdad’s interim government received some welcome news in late November after the 19-member Paris Club of sovereign international lenders agreed to write off up to 80 per cent of the $39,000 million Iraq owes them collectively.

Under the terms of the deal, 30 per cent of the money owed will be written off immediately. A further 30 per cent will be wiped off next year on completion of an IMF programme, while 20 per cent will be cancelled on the successful conclusion of the IMF’s three-year programme.

The agreement brought Iraq some breathing space as it struggles to meet annual debt servicing obligations of about $7,000 million. However the Paris Club accounts for only a third of Iraq’s $125,000 million debt. Arab states which are owed the majority of debt have so far been less forthcoming. Baghdad’s two largest creditors, Saudi Arabia and Kuwait, have both indicated they would prefer to wait for the election of a transitional government in January before agreeing any debt relief. Regional institutions to whom substantial funds are owed take a similar view.

There has also been little progress on the billions of dollars Iraq owes in war reparations, estimates of which range from $30,000 million-150,000 million depending on future assessment judgements by the UN Compensation Commission. Baghdad currently pays about 5 per cent of its oil revenues towards its reparations bill, but there is a growing belief that the local population should not have to suffer as a result of the actions of Saddam Hussein (see Special Report pages 31-32).