Iraq's Debt Relief: Procedure and Potential Implications for International Debt Relief
Publication Date: January 2009
Publisher(s): Library of Congress. Congressional Research Service
Following the ouster of the Saddam Hussein regime in spring 2003, Iraq's external debt was estimated to be $125 billion. Reducing this debt to a sustainable level has been a priority of the U.S. government. Since 2003, debt relief negotiations have taken place in a variety of fora and led to the cancellation of a significant amount of Iraq's external debt.
Iraq's external debt comprised four components: Paris Club bilateral debt ($37.15 billion), non-Paris Club bilateral debt ($67.4 billion), commercial debt ($20 billion) and multilateral debt ($0.5 billion). Debt relief negotiations first led to an 80% reduction of the Paris Club debt. The Paris Club agreement also set the terms for non-Paris Club and commercial debt cancellation levels. A provision of the Paris Club agreement is that Iraq cannot accept a debt cancellation agreement with other creditors on less favorable terms than those reached with the Paris Club. Thus, Iraq is expected to receive no more than an 80% cancellation from all of its creditors. Negotiations with non-Paris Club creditors are ongoing, and resolution of the commercial debt is largely complete.
The negotiations and process of providing debt relief to Iraq may shed some light on the approaches bilateral and corporate creditors take toward providing international debt relief to middle-income countries who would not be eligible for the debt relief already provided to the poorest countries. In light of Iraq's experience, three new precedents appear to have taken shape: (1) a willingness by the international community to grant a stay on the enforcement of creditor rights to collect unpaid sovereign debt; (2) an increased flexibility in Paris Club debt relief decisions; and (3) an unwillingness by successor regimes to claim that their debt is odious and repudiate it.
This report will be updated as events warrant.