Iraq gets special treatment

Observations on debt relief. By <strong>Sue Branford

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On 21 November, the world's leading industrial nations decided with uncharacteristic generosity to cancel 80 per cent of the almost $40bn owed to them by Iraq. The decision was not reached without wrangling: Washington pressed for 95 per cent debt cancellation, while France and Russia initially argued against any debt relief at all, saying that Iraq, with the world's second-largest oil reserves, was quite rich enough to pay off what it owed. They changed their minds, it seems, when they realised that it was a relatively painless way to gain credit for contributing to reconstruction.

The US is now pressing other creditors, who were not party to the agreement, to follow suit. For example, Bulgaria - the poorest member of the EU, with income per head of under one-third the European average - traded arms for oil during the 1980-88 Iran-Iraq war and is now owed $1.7bn. This is equivalent to almost one-tenth of its total economic output.

There are broader questions. Who will benefit from this deal? Iraq's debt will be cancelled over four years on condition that it implements an economic plan approved by the International Monetary Fund. In other words, the deal will allow the US and the other industrial nations that control the IMF to have a final say in the policies adopted by the "independent" Iraqi government due to be elected in January. If the IMF's record in Latin America and Africa is any guide, Iraq will have to implement the full neoliberal package by privatising state companies, opening up the economy to foreign investment, and so on.

No doubt it would be unfair to saddle a new, democratic Iraq with debts that were incurred to fight Saddam Hussein's wars. But the deal makes a mockery of the painfully slow movement towards debt forgiveness for the world's other developing nations. Rich nations have long argued that debt forgiveness should be limited to the very poorest countries - of which Iraq isn't one. Moreover, only 15 of the 130 to have qualified have got relief because of the stringent conditions that, along with the IMF programme, include the end of internal conflicts. Any country at war is automatically disqualified.

Perhaps the most aggrieved nation should be Nigeria. It was poor enough and had a large enough foreign debt (most of it run up in the early 1980s by a corrupt president) to qualify for forgiveness under the Highly Indebted Poor Countries scheme. But it was discreetly removed from the list of potential beneficiaries. The industrial nations, it seemed, thought its debt of $34bn too large to be cancelled. To qualify for relief, it seems, a country must either be so small and so poor as to be insignificant or it must possess oil reserves large enough for the US to go to war to control.