From: Reuters
Published May 29, 2008 03:02 PM

Iraq asks creditors to cancel crippling debts

By Mariam Karouny and Simon Johnson

STOCKHOLM (Reuters) - Iraq pressed its creditors to cancel about $60 billion in debts at an international conference on Thursday, but two of its biggest creditors, Kuwait and Saudi Arabia, sent only junior representatives to hear the call.

The Iraqi delegation, led by Prime Minister Nuri al-Maliki, basked in praise from international leaders lauding the country's economic and political development five years after the United States invaded to topple Saddam Hussein.

The Stockholm conference was the first annual review of the International Compact with Iraq agreed in the Egyptian resort of Sharm el-Sheikh last year, which committed Iraq to implement reforms in exchange for greater international support.

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Some 300 demonstrators protested in Stockholm city centre against the presence of U.S. Secretary of State Condoleezza Rice at the conference, shouting, "Condoleezza go home!" and calling on police to arrest her for war crimes.

Maliki said the large debts, some dating back almost 30 years, and compensation payments for Saddam's invasion of Kuwait in 1990, were shackling the economy.

Iraq is obliged to set aside 5 percent of its oil revenues as compensation payments, amounting to $3.5 billion this year, according to the Iraqi government.

"Iraq is not a poor country. It possesses tremendous human and material resources, but the debts of Iraq ... which we inherited from the dictator, hamper the reconstruction process," Maliki told the conference.

"We are looking forward to the brother countries writing off its (Iraq's) debts, which are a burden on the Iraqi government," he said, a pointed reference to Gulf states such as Kuwait and Saudi Arabia, Iraq's biggest Arab creditors.

The two countries' foreign ministers were not at the conference. Riyadh sent a junior foreign minister and Kuwait an under-secretary responsible for international organizations.

"Of course we would have wished to have senior representatives for the Arab states at this conference," Maliki told a news conference after the meeting.

ARM'S LENGTH

Analysts say Sunni Arab countries have kept Iraq at arm's length, concerned at its close ties with neighboring Iran, which has a Shi'ite majority.

Saudi State Secretary for Foreign Affairs Nizar Madani said his government was willing to consider "alleviating" Iraq's debt to Riyadh. Saudi pledges ahead of last year's Sharm el-Sheikh meeting to waive much of Iraq's debts came to nothing.

A senior Iraqi Finance Ministry official, who declined to be identified, said Iraq and Saudi Arabia disagreed over the size of Baghdad's debt to Riyadh. Iraq says it owes $15 billion, while Riyadh says the debt has grown, with interest, to $40 billion, the official told Reuters.

The U.S. Congressional Research Service (CRS) said this month that the Gulf states, which supported Iraq during the 1980-88 Iran-Iraq war, were resisting writing off Iraq's debts.

About $66.5 billion of Iraq's $120.2 billion foreign debt has been forgiven, according to U.S. State Department estimates. More than half the remaining debt is owed to Gulf Arab states.

Kuwait has said it is willing to look at reducing Iraq's compensation payments but that a final decision rests with the U.N. Security Council, which set up the compensation scheme.

United Nations Secretary-General Ban Ki-moon praised Iraq for "notable progress" in meeting economic, political and security targets set at last year's conference.

"If we had to use one word to describe the situation in Iraq today I would choose ... hope," he said.

While security has improved in Iraq, with U.S. officials saying violence is at a four-year low, it is still fragile.

A suicide bomber killed 16 people near a police recruiting station in northern Iraq on Thursday, and in Tikrit north of Baghdad, 12 militants were killed in clashes with members of a U.S-backed Iraqi neighborhood patrol.

(Additional reporting by Adam Cox, Susan Cornwell, Niklas Pollard; Writing by Ross Colvin; Editing by Jon Boyle)

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