The Report
of the Iraq Inquiry
833.
The briefing
described that public expenditure issue:
“Provided
debt reduction can be justified on financial grounds, the cost of
writing
off
commercial debts does not score as departmental expenditure but is
borne by
ECGD and
the Treasury. In practice, the most effective way of demonstrating
a good
financial
case is to use the Paris Club process. In contrast, if the UK were
to write
off debts
on policy grounds … the cost would score as departmental
expenditure
and would
need to be financed by DFID or another spending
department.”
834.
The Treasury
briefing identified a fourth interest: to use UK support for debt
relief
for Iraq to
press the US to commit to more generous treatment of HIPCs. That
treatment
should
include extending the HIPC Initiative and providing additional
relief if HIPCs
experienced
external shocks. The briefing observed that the cost of debt relief
for Iraq
was likely
to exceed the cost of the debt relief for all 38 of the countries
which had
benefited
from the HIPC Initiative.
835.
The briefing
stated that the US might be intending to cancel 100 percent
of
Iraqi debt
owed to it, and might press the UK to do the same. Assuming a Paris
Club
agreement
to write-off 80 percent of Iraq’s debt, such an additional
write-off would cost
the UK
£230m. As that additional write off would be on policy (rather than
financial)
grounds,
the cost would fall to DFID, which would almost certainly make a
claim on
the
Reserve. The Treasury advised that while a 100 percent write-off
could have
presentational
benefits, it might not represent the best use of the resources
available
to Iraq and
that other debtor countries, including some that had large debts to
the UK,
might
demand similar generosity.
836.
Just before
Mr Blair and Mr Baker’s conversation, Mr Baker’s
office sent No.10 an
outline
proposal to extend the HIPC Initiative for up to three years and to
accelerate the
provision
of debt reduction under HIPC programmes.508
837.
During the
phone call on 18 May, Mr Baker said that the US agreed with
the UK’s
proposal
that debt reduction for Iraq should be accompanied by an extension
of the
HIPC
Initiative.509
He told
Mr Blair that President Bush was prepared to support
the
HIPC
Initiative only if there was a “parallel agreement” on Iraq.
Referring to the outline
proposal
that his office had sent to No.10, Mr Baker said that it would
not fly if it was
seen as a
US initiative, but might if it was seen as a UK and French
initiative to secure
concessions
from the US on the HIPC Initiative in return for deep debt
reduction for Iraq.
838.
Mr Blair
said that this was an important initiative and undertook to send it
to
President
Chirac.
508
Email
Rogers to Bowman, 18 May 2004, ‘Heavily Indebted Poor Country
(HIPC) Program’.
509
Letter
Quarrey to Bowman, 18 May 2004, ‘Iraqi Debt: Prime Minister’s Phone
Call with James Baker,
18 May’
attaching Paper, [undated], ‘Contingent HIPC Proposal: Extend HIPC,
Accelerate Debt Reduction,
Increase
Grants’.
498