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Wednesday, December 15, 2004

Romania rejects Iraq's $2.6bn debt write off

Romania will start negotiations next year, after the elections, with the future government of Iraq in order to settle the $2.6 billion historic debt claim.

Tanasescu said that Romania is far from ready to commit to a deal to forgive 80 percent of that debt, as rich creditors did few weeks ago.

The issue was discussed as Iraq's Finance Minister, Adil Abdul Mahdi, and the governor of the National Bank of Iraq, Sinan Al-Shabibi paid a visit to Bucharest on their way to Washington, where they will start negotiations with the International Monetary Fund (IMF) on a reform program agreement.

"Back in 1990 we signed an agreement with Iraq in which they accepted only $1.2 billion debt out of the $1.7 billion debt claims Romania had. Now the debt claim stands at $2.6 billion, and we are going to start negotiations to settle the issue. First we'll have to agree on figures, and other matters, such as when and how the debt will be recovered. We made it clear to Iraq's finance minister that Romania can't afford to write off the debt, following the Paris Club creditor's example, but we will have to work on a solution," said Tanasescu.

"We already contacted Ernst & Young to revise the debt figures and then we'll start negotiating at an experts' level," said Al-Shabibi, Iraqi's national bank governor.

Tanasescu said that after the elections, a Romanian team of experts from the Finance Ministry, the National Bank of Romania and the Romanian Commercial Bank will start technical negotiations with their Iraqi counterparts.

Iraq's debts date back to the communist rule of Nicolae Ceausescu, who had strong ties with Saddam Hussein. The $2.6 billion (over 1.9 billion euros) figure now accounts for approximately 3% of Romania's Gross Domestic Product (GDP), estimated at 55 billion euros this year.

"We understand Romania's position, but we agreed with Paris Club creditors on a framework based on the principle of comparable treatment, that means we can not negotiate any privilege with any other country," said Mahdi. In other words, Iraq will start negotiations with what he called an 80 percent benchmark on debt relief.

Iraqi officials didn't say clearly that they will start negotiation with Romania from the same base of debt relief as the Paris Club, and they did not elaborate on possibilities to recover the debt.
But Tanasescu said that "We are going to start negotiations from 100 percent debt value. Probably we will obtain a 75-85 percent deal. We hope to recover some 65 percent of the total debt claims, but only 20 percent will be in cash”.

Posted by Iulia Rasoiu : 12/15/2004 10:05:00 am