"Everybody is going to be fighting for the money"

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Iraqis left to fight debt mountain up to 383 billion dollars
Fri Apr 11, 3:18 AM ET  Add Mideast - AFP to My Yahoo!

WASHINGTON (AFP) - The war over the recovery of Iraq (news - web sites)'s
staggering foreign debts and liabilities -- amounting to as much as 383
billion dollars -- is yet to begin.

Creditors and claimants will be the losers, analysts say.

With a total annual economic output of perhaps 25 billion dollars, no new
Iraqi government could survive such a crushing burden and a massive debt
restructuring is certain.

Rick Barton, director of the Iraq post-conflict reconstruction project at the
Center for Strategic and International Studies (CSIS), a Washington think-
tank, said the liabilities broke down as follows:

-- 199 billion dollars in Gulf War (news - web sites) compensation claims. Of
this, 172 billion dollars is for companies, governments and institutions. The
rest is money still owed to families and individuals.

-- 127 billion dollars in debt, of which 47 billion dollars was accrued
interest.

-- 57 billion dollars owed for pending contracts, such as energy and
telecommunications deals. Most of this is owed to Russia.

"It is going to take some tough bargaining. Once Saddam has gone, everybody is
going to be fighting for the money even though they were never going to get it
in the first place," Barton said.

A likely deal might mean shutting down most of the Gulf War compensation
claims, telling big claimants such as Kuwait and Saudi Arabia to give up and
accept Saddam's removal as the best compensation, he said.

Remaining family claims, now costing Iraq four billion dollars a year, might
be put on hold for five years until the economy picks up.

"This is an interesting point on US policy because, of course, the US has been
pushing for these claims to be paid," Barton said. But the survival of Iraq
was now the priority.

The debt, removing the accrued interest, would be 80 billion dollars, of which
about 30 billion dollars is due to Gulf States, 17 billion dollars to Kuwait
and 12 billion to Russia.

"Like a typical bankrutpcy, it is probably worth a penny to two pennies on the
dollar," he said.

Pending contract payments could be passed up, Barton added.

Michael Mussa, former chief economist at the International Monetary Fund
(news - web sites) and scholar at the Institute for International Economics,
said the debt was expected to be written down substantially.

"You need to have a new Iraqi government in place that is capable of
negotiating its side of that issue. It is not something that is going to be
settled by an interim military administration or an interim UN-backed
administration," he said.

Mussa agreed that Iraq, even with potential oil exports worth 25 billion
dollars a year, could not meet its debts.

Any restructuring agreement may vary from debt instrument to instrument, he
said.

"So debt on old weapons purchases is probably not going to be honored very
much whereas debt for civilian services that were provided, building hospitals
and so forth, may be in a different category."

Barton, however, pressed for a quicker solution, preferably wiping out all of
the Iraqi debts and obligations, with the struggle starting as soon as IMF-
World Bank (news - web sites) meetings here this weekend.

"At the first opportunity, with the World Bank meetings this weekend, donors
conference, or whatever, just say: 'Look, the best thing we can do for these
people is to disencumber their money as opposed to pretending we are going to
pull some of our own out of our pockets'," he said.

The best solution would leave Iraq with no debts or obligations, he said.

"You want to give them the best chance possible. It is not as if these people,
what remains of the Iraqi people, should be held responsible for the despot."

US Treasury Secretary John Snow said Thursday he expected "substantive
discussions" about the Iraq debt with his partners from the Group of Seven
powers and during International Monetary Fund and World Bank meetings here
this weekend.

"It is a debt that is very large relative to the economic condition the
country finds itself in," Snow said.

G7 countries were in a unique position to consider the question and
offer "expertise, ideas and leadership," he said