Media release from the Australian Department of Foreign Affairs and Trade
The Australian Government announced today that Australia has joined with other governments in the multilateral Paris Club to forgive 80 per cent of Iraq's debt.
Under this agreement Australia will forgive US$850.7 million of principal, contractual interest and late interest owed by Iraq. Iraq will commence repayment of the key amounts not forgiven in 2011.
The Australian Government's decision to forgive a substantial part of Iraq's debt reflects the overwhelming necessity of contributing to Iraq's recovery and stabilisation. It will free up resources to assist Iraq recover more quickly. Relieved of much of its debt, Iraq has the potential to become a stable partner for Australia in the Middle East, providing new opportunities for Australian exporters and investors. This includes in the market for wheat, which has long been Australia's largest export to Iraq. The Government will continue its efforts to facilitate wheat exports to Iraq.
Australia's participation in the formal terms of the debt agreement follows the announcement on 2 June this year that the Australian Government would forgive the vast majority of the debt owed by Iraq. This decision followed extensive consultation with the Australian Grains industry.
Iraq owes in excess of US$150 billion to around 40 countries, including reparation payments from its 1990 invasion of Kuwait. Its debt is estimated to exceed 500 per cent of gross domestic product, among the highest levels of external debt ever owed by an economy of this size.
The international agreement signed today affects US$42 billion in debt owed to countries participating in the Paris Club negotiations. The main terms of the agreement immediately forgive Iraq 30 per of total debt stock. A further 30 per cent reduction of debt stock will be provided upon signing of a full International Monetary Fund (IMF) arrangement for Iraq, expected to start in 2005. An additional tranche of debt reduction representing 20 per cent of debt stocks will be granted at the end of the three-year IMF arrangement.
The overall cancellation of Iraq's debt in net present value terms will be 80 per cent. It is expected Iraq will also apply the terms of this agreement to countries that were not party to the negotiations.
The Paris Club is an informal group of 19 creditor nations including Australia. Its role is to find solutions to difficulties experienced by debtor nations in repaying official bilateral debt. Since 1983, the Paris Club has entered a succession of agreements with around 80 debtor nations affecting debt obligations totalling over US$427 billion.
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