In a Major Step, Saudi Arabia Agrees to Write Off 80 Percent of Iraqi Debt

Iraqi Finance Minister Bayan Jabr, in Washington, said Russia was holding out on debt forgiveness.
Iraqi Finance Minister Bayan Jabr, in Washington, said Russia was holding out on debt forgiveness. (By Hadi Mizban -- Associated Press)

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By Steven Mufson and Robin Wright
Washington Post Staff Writers
Wednesday, April 18, 2007

Saudi Arabia has agreed to forgive 80 percent of the more than $15 billion that Iraq owes the kingdom, Iraqi and Saudi officials said yesterday, a major step given Saudi reluctance to provide financial assistance to the Shiite-dominated government in Baghdad.

But Iraqi Finance Minister Bayan Jabr said in an interview that Russia was holding out on debt forgiveness until talks begin on concessions that Russian oil and gas companies had under Saddam Hussein. Russian Embassy officials in Washington declined to comment late yesterday.

The Bush administration has been working for months to persuade other governments to follow the U.S. lead and write off all of their shares of Iraq's debts, which Jabr said total $140 billion. Most of those loans date to Iraq's war with Iran from 1980 to 1988, when the United States, Saudi Arabia and other governments saw Iraq as a buffer against Iran.

Iraq also owes $199 billion in compensation for the Persian Gulf War that followed Iraq's 1990 invasion of Kuwait, analysts said.

The Bush administration wants to make debt restructuring for Iraq a centerpiece of an "international compact" at a meeting of Iraq's neighbors and international aid organizations to be held May 3 and 4 in the Egyptian resort of Sharm el-Sheikh, diplomatic sources said. So far 52 countries, including the Paris Club of creditor nations, have canceled between 80 percent and 100 percent of Iraq's debts, Jabr said.

Russian President Vladimir Putin in December 2003 announced that he would cancel 65 percent of Iraq's debt, and Jabr said that five months ago Russia said it would cancel 80 percent. But Iraq's ambassador to the United States, Samir Sumaidaie, said Russian officials had recently backtracked from that pledge.

"They said that discussions would be based on economic relations," the ambassador said. "Those are code words for whether we let them continue with their oil contracts."

Jabr, who was in Washington for World Bank meetings, said he met with Saudi officials here and pressed them to write off 100 percent of the debt owed by Iraq. But he was unable to secure that pledge.

A senior Saudi official who spoke on condition of anonymity said the kingdom, which is predominantly Sunni, would forgive 80 percent, in line with Paris Club creditors.

Iraq and Saudi Arabia can't agree on how much money Iraq owes the kingdom. During the early 1980s, Saudi Arabia sold $7 billion worth of oil on Iraq's behalf and lent Baghdad an additional $9 billion.

Jabr said Saudi officials told him that unpaid interest brought that amount up to $39 billion; Jabr said the original agreements said no interest would be owed. The Saudi official estimated the debt at $15 billion to $18 billion.

Saudi Arabia has also failed to deliver on a long-standing pledge to provide $1 billion in new aid, Jabr said. Within the past two months, Iran has promised $1 billion and Japan has pledged $3.5 billion in loans on generous terms: 0.4 percent interest over 40 years.

Jabr said China agreed to cancel $4 billion in debt and Egypt to cancel $250 million. Talks continue over nearly $10 billion owed in total to Kuwait, the United Arab Emirates and Qatar.

Back debts have long been a sensitive topic for Iraq. After a U.N.-brokered cease-fire ended the war with Iran, Iraq was unable to win debt relief from key allies, including Sunni countries in the Gulf and Russia, its primary weapons supplier. That heightened economic tensions that contributed to Iraq's decision to invade oil-rich Kuwait in 1990.

"Iraq had borrowed heavily to fight Iran and caused damage in Kuwait, so it went through tens of billions in reserves and came out of both more than broke," said Frederick Barton of the Center for Strategic and International Studies. During the dozen years of U.N. sanctions, Iraq's unpaid interest piled up too, he said.

Later, in the run-up to the 2003 U.S.-led invasion of Iraq, Russia's reluctance to back key U.N. resolutions stemmed in part from concern that a new government in Baghdad would not pay Moscow back.

Today, Iraq could never fulfill its financial obligations. They total about $380 billion, Barton said, including unpaid contracts and Gulf War compensation, 40 percent of which is owed to Kuwait.

Former secretary of state James A. Baker III won agreement in late 2004 from European countries to cancel 80 percent of Iraqi debt. Previously, the most the Paris Club had ever sliced off a developing country's debt was the 66 percent reduction it adopted for the former Yugoslavia after the ouster of President Slobodan Milosevic.

But the Arab governments, particularly Saudi Arabia, have proved harder to win over. "It's tough to get back on your feet when you're paying off from your recovering economy," Barton said.


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