Iraq has agreed to pay back hundreds of millions of dollars in outstanding debt owed to a key Arab League financial organisation under a long-term agreement that also ended the suspension of the war-torn country from the fund.
The agreement with the Abu Dhabi-based Arab Monetary Fund (AMF) involved a debt write-off of nearly $125 million and payment in quarterly installments over a period of 18 years, the Fund said in a statement yesterday.
Iraqi Finance Minister Bayan Al Zubaidi signed the deal in Amman on Monday with AMF Chairman Jassim Al Manai, who said the debt settlement ended Iraq's suspension from the Fund and opened the door for a resumption of loans and technical assistance for the conflict-battered Arab nation.
He said Iraq's outstanding debt to the AMF exceeded $500 million but around $125 million of the debt has been written off.
"The debt will be paid in quarterly installments over a period of 18 years instead of the eight year period normally adopted by the AMF. This is a maximum period the Fund can afford in consideration of Iraq's circumstances which are out of its control," Manai said after signing the agreement.
"This settlement will ease the pressure on the AMF and at the same time open the door for Iraq to benefit from the financial and technical support provided by the Fund to member states, including programmes for economic reforms."
AMF sources said the debt written off was mostly accumulating interest not in the principal loans as interest accounts for nearly half the total debt. "The principal loan includes the money paid by member states and can not be written off. What was reduced is the interest on the debt, which has accumulated over the past 15 years because of Iraq's circumstances," one source said.
Iraq's debt to the AMF, one of the Arab League's main financial institutions, began swelling in early 1990s when the Arab country plunged into conflict following its 1990 invasion of neighbouring Kuwait, nearly two years after the end of a destructive eight-year conflict with Iran.
The debt grew to nearly $368 million at the end of 2001 and continued its climb to reach $410 million at the end of 2002 and more than $440 million in 2003. At the end of 2006, the debt swelled to $530.5 million.
The AMF's report showed the 2006 debt covered around $229m in principal loans and the rest involved accumulating interest. "Total defaults owed to the AMF by members reached around 176.6 million Arab Accounting Dinars ($754 million), including nearly $292 million in principal debt," the AMF report said. "Iraq has remained the biggest defaulter in member countries."
The other key defaulter is war-hit Somalia, which owed the Fund around $227 million, including nearly $68 million in principal loans and the rest in interest.
Sudan had been among the three main defaulters before it reached a tentative agreement with the AMF four years ago to settle the debt.
"Those arrears do not include the outstanding debt of around 18.4 million Arab Accounting Dinars ($84.5 million) owed by Sudan to the Fund. It has been excluded under a rescheduling agreement, which involves a write-off at a later stage under a decision by the Fund's governing board," the report said.
The swelling arrears forced the AMF to suspend Iraq's membership and halt loans nearly 15 years ago although it has maintained its technical assistance to the Arab country. During AMF-Iraq talks in 2004, the Fund said it would resume its lending activity and finance post-war reconstruction in the war-shattered country but stressed a solution to the debt must be reached.
The total arrears at the end of 2006 accounted for nearly 28 per cent of the Fund's paid up capital of around $2.68 billion, subscribed mainly by the UAE, Saudi Arabia, Algeria, Iraq, Kuwait, Egypt and Libya.
The problem has hit the AMF's loan activity over the past decade, forcing it to revise its lending policy to give priority to technical assistance and link financial aid to progress in economic reforms in member states.
By the end of 2007, the Fund has extended over $5 billion in loans to members.