The Report
of the Iraq Inquiry
The UK’s
position remained that Iraq required debt reduction of at least 80
percent
to deliver
debt sustainability. The US and the Iraqi Government sought 95
percent,
which the
UK assessed would leave Iraq in a “very strong” financial position.
The UK’s
negotiating
line, including in a bilateral meeting with the French on 1
September 2004,
was to
support the US position “while hinting flexibility”.
846.
The IMF Board
approved a US$436m Emergency Post-Conflict Assistance
programme
for Iraq on 29 September.518
The UK
Delegation to the IMF reported that
unanimous
approval had followed “tetchy” discussions, with a number of
Executive
Directors
expressing unease at the speed of approval (the timetable had been
driven by
US demands
and the IMF had cut back substantially on formal review processes)
and
whether the
Iraqi Government would be able to implement the necessary policy
reforms
if the
security situation did not improve. The IMF had commented that
agreement paved
the way for
discussions on debt relief.
847.
In early
November, at the request of the Paris Club and in anticipation of
an
agreement
on debt relief for Iraq later that month, the IMF revisited its DSA
for Iraq.519
Treasury
officials briefed Mr Brown that, on the basis of the new
figures, debt reduction
of between
75 and 85 percent was required to restore sustainability; debt
reduction
above 85
percent could not be justified financially. Officials also told
Mr Brown that
the US had
now circulated a draft proposal seeking debt reduction of 89.5
percent in
three
phases, with a generous repayment profile. The UK supported that
proposal as
a negotiating
position, but doubted that it could be agreed with Paris Club
members.
848.
A Treasury
official warned Mr Brown on 12 November that the US had
decided
to offer
Iraq additional debt relief following a Paris Club deal, writing
off 100 percent
of Iraq’s
debt.520
If the UK
did the same it would cost between £172m and £344m,
depending
on the deal agreed at the Paris Club. Echoing the arguments offered
in
May 2004,
the official advised that, while there were “political arguments”
in favour of
offering
additional debt relief, there were also arguments against
it:
•
Significantly
poorer countries had not received 100 percent debt
relief.
•
Iraq had no
track record of using savings generated by debt relief for
poverty
reduction.
•
Providing
100 percent debt relief would set a precedent for the UK’s
treatment
of other
countries.
849.
The official
recommended that the UK should not offer additional debt relief to
Iraq.
518
Telegram 25
UKDEL IMF/IBRD to Treasury, 30 September 2004, ‘Iraq: IMF Approves
Emergency Post
Conflict
Assistance’.
519
Minute
Habeshaw to Chancellor, 8 November 2004, ‘Iraq Debt: New Debt
Sustainability Numbers’.
520
Minute
Treasury [junior official] to Brown, 12 November 2004, ‘Iraq Debt:
Update’.
500