Iraq’s foreign debt and protect his money

D. Appearance of Mohammed Saleh Issued Security Council Resolution 1956 in December 15, 2010 to lift the immunity from Iraqi funds deposited in the official out of the country. The immunity based mainly on a UN Security Council resolution 1483 in May 2003 on Iraq’s exports of oil, gas and petroleum products and returns confiscated or placed under legal seizure by creditors of Iraq during the reign of the former regime. After removal of immunity is possible for Iraq to be subjected to legal action unfriendly from the remnants of trade creditors of the previous era system.

In order to assess the march of international financial relations to Iraq since 2003, we will two major themes; first is Iraq’s foreign debt and the evolution of international inputs and outputs; and the second is under the protection of Iraqi funds through the current international financial system according to the areas of jurisdiction where Juridictions.

After agreement Iraq in November 2004 with a group of creditor nations of the Paris Club terms debt restructuring under the previous regime, he followed Iraq program very careful to select all trade creditors during the rule of the former regime, and display filter claims debt settlement trade creditors on terms similar to agreed with Paris Club (in terms of net present value and a discount of at least 80% of the debt). The estimated debt at the time, and before the signing of the agreement, about $ 140 billion to different creditors, both of sovereign debt to Paris Club countries or sovereign outside the Paris Club, including commercial debt.

On 21 October 2004, Iraq signed an agreement with a group of creditors of the Paris Club, which received an 80% reduction of the total official debt with the international group consisting of (19) countries, which amounted to debt on Iraq really until the end of December 2004 about 38.9 billion in nominal terms (of Iraq’s total debt estimated at about 120 billion dollars).

On this basis, Iraq has signed bilateral agreements (debt restructuring with each member of the Paris Club to settle the debt amounted to more than 51.1 billion dollars since before the year 1990) and according to the following mechanism:

First: to address the origin of religion, with the adoption of three stages to achieve debt reduction by 80%. The first phase was to delete 30% of total debt as it was on the first of January 2005, under which Iraq received a reduction of $ 11.6 billion. In the second phase was an additional reduction of 30% of the total debt of the case that Iraq has signed an agreement support arrangements with the International Monetary Fund (IMF), which occurred in 2005, and estimated reduction at this stage about $ 11.6 billion as well. As will be scheduling the rest of the debt of 40% over 22 years with a grace period of 6 years standing. It was in the third stage to reduce the total last of 20% on the total debt as stated in its preliminary, but this unconditional completion of Iraq program arrangements support SBA with the IMF, which was completed in about three years from the date of signature of the program, any year-end 2009 , the total reduction to this point about $ 7.8 billion.

In the light of the foregoing, that the debt treatment by stages will lead to a reduction in total indebtedness of Iraq to Paris Club countries from 38.9 billion dollars to about 7.8 billion dollars. A similar percentage reduction of 80%, provided that the nominal par value of the debt with the net present value NPV.

Second: to address interest, any capitalized interest accrued on the total remaining debt of 20%, where accumulated interest will be capitalized during the first six years after the signing of the Paris Club formula capitalized on the year: 2005: 100%; 2006: 100%; 2007: 100% ; 2008: 90%; 2009: 73%; 2010: 47%.

Notes that after six years on the reduction of the burden of cash flows, any help Iraq to postpone the payment of principal with a high degree of capitalized interest, will be payable debt gradually over 28 years in equal semi-annual installments of 34 batch. It will be the first installment on the first of January 2011, and was (minus 0.37%); and the second installment on the first of January 2012 amounted to (minus 0.39%), and the last batch will be the first of January 2038 the rate of (minus 5.07%), one of the largest payments that will be realized at the time.

In order to implement the Paris Club agreement and ensure the safety of its applications, Iraq has appointed French banking financial institution known ancient LAZARD to act as a financial advisor, and follow-up mechanism for the settlement of remaining indebtedness Iraq with a Paris Club countries.

With regard to bilateral agreements with non-member countries of the Paris Club, the International Monetary Fund has conducted in 2003 a survey on the ground between the presence of about 55 non-member State of the Paris Club made its claims against Iraq, all of which date back to the era of the former regime. Starting in 2005, demanded that Iraq these countries to liquidate their debts and settled on financial terms similar to those agreed with the Paris Club. Of the 55 of these countries, to reach Iraq to resolve issues of bilateral debt with 42 countries. The remaining countries are Algeria, Brazil, Egypt, Jordan, Kuwait, Morocco, Pakistan, Poland, Qatar, Saudi Arabia, Sudan, Turkey, United Arab Emirates.

And on the trade creditors, called on Iraq in December 2004 all business enterprises, which have a contractual debt on Iraqi public sector operators, to register their claims with the settlement agent Iraq’s debt, a firm Ernst & Young. After the settlement process and the liquidation of claims under the previous regime under conditions similar financial terms of the Paris Club, was settling over 13 thousand and 60 individual claim to present a total of more than 20 billion and $ 900 million.

The process continues debt settlement business for a continuous two-way Iraq. First; represents small business debt, estimated at $ 5 billion, and was the payment of such indebtedness, which represents small creditors (those under the indebtedness of $ 35 million) to pay a percentage of 10.25% out of debt in cash. Iraq has paid an amount of $ 450 million immediately upon completion of the settlement (which is similar in principle terms of the Paris Club terms of discount Iraq’s debt by 80% and rescheduled over 28 years interest rate of 5.8% in terms of net value NPV).

The second trend to accept sovereign bonds Iraqi being traded in the international financial market on under the terms of the Paris Club, where extinguished 80% and interest and scheduling itself in the above, with lower foreign debt of this segment of the $ 20 billion and $ 900 million to two billion and 700 million dollars. As Iraq’s bond yield International estimated 7% annually, putting Iraq B classification in terms of international creditworthiness in the global financial market.

2 – Protection of Iraq’s money:

Look at the economic analysis of law

But there are forms in the transition to successor arrangements for the Development Fund for Iraq. On the basis of assessment phase UN Security Council Resolution 1905 in 2009, may be subjected Iraq to legal risks posed by claims a number of trade creditors who have not settled indebtedness, as well as individuals claiming damages for being affected by policies of the former regime, at the end of the legal protection provided by the UN Security Council Resolution 1483 in 2003 on Iraq’s oil exports and revenues, which will end its effectiveness at the end of this year.

It estimated some international bodies an initial amount of $ 629 million for those claims, in addition to the creditor nations remaining 13 countries outside the Paris Club.

* Deputy Governor of the Central Bank of Iraq