Iraq creditors divided on debt write-off

Iraq's creditors are still divided over whether the country needs a huge debt write-off or a repayment rescheduling which would give it a breathing space until it starts pumping more oil, a creditor source told Reuters.
Speaking on condition of anonymity, the source, who represents one of Iraq's smaller creditors at the Paris Club, said any deal could be in place as soon as September or October.
"I would give them a stand-still moratorium for a few years till they export enough oil (to restart payments)," he said.
"These views are quite well-shared. Every country has to use budgetary means for paying its export credit agency," he said, referring to the cost to tax-payers of compensating firms for bad debts in Iraq.
Iraq owes the Paris Club of 19 creditor countries around $40 billion of principal and missed interest payments on debts incurred before its invasion of Kuwait.
The International Monetary Fund estimates Iraq owes a total of $120 billion, much of it to countries like Saudi Arabia, Kuwait, China and former communist states in eastern Europe who are not formally bound to the Paris Club.
Many commentators have called for big reductions for Iraq, which is the world's most indebted country in terms of income per capita.
World Bank President James Wolfensohn said last month he believed most of Iraq's major government creditors were willing to forgive two thirds of the war-ravaged country's debt. France, Germany, Japan and Russia have all promised big reductions.
But there has been resistance from countries who believe Iraq is an oil rich state which has huge export potential and was economically mismanaged by Saddam Hussein.
The source said it was not clear what the cut-off point of any debt reduction would be and there remained disputes within the Group of Seven rich industrial nations over any deal.
"I'm not sure if the G7 is in agreement. All of them have said they would write off the total, but how much is the total?" he asked.
As well as deciding what proportion of debt to write off, the Paris Club would also have to decide which debt was eligible.
"That (a deal) would be possible in September, October," he said.
The IMF has said it could start lending to Iraq in the second half of this year and an IMF policy agreement is a prerequisite for a Paris Club deal.