Is the struggle to rebuild Iraq's economy going any better than the battle to restore security?
Finance Minister Adil Abdul Mahdi's recent mixed experience provides a mixed answer. On November 7 he was nearly killed by a car bomb exploding outside his heavily guarded Baghdad home. Nevertheless, two weeks later Mahdi, 62, and his Iraqi government colleagues were able to persuade the world's biggest creditor nations to write off 80 percent of their Iraq debt -- with a lot of behind-the-scenes help from the U.S. and the U.K.
"This is a very good level," Mahdi tells Institutional Investor. "We always wanted something better, but since the early days these are the general figures we are looking for." And he is quick to add that in bilateral negotiations with individual Paris Club countries, "this will go even higher."
Mahdi had other reasons for feeling joie de vivre in Paris. He spent most of his 35 years in exile from Saddam Hussein's Iraq in the city, and his wife and four sons live there now, while their homeland is so dangerous. Mahdi earned his master's degree from France's Institute of Public Administration and worked in Paris for think tanks and as the editor of French and Arab opinion magazines.
Last month Mahdi and Iraqi central bank governor Sinan al-Shabibi led a ten-man delegation to a meeting of the 19 Paris Club creditor countries at the gargantuan, modern French Ministry of Finance, in Paris's Bercy neighborhood. Initially, they asked that 90 percent of Iraq's foreign debt be forgiven, but Russia and France balked at that steep a figure.
The deal covers only $39 billion of Iraq's $120 billion or so in debt, but the country's other major creditors, including Saudi Arabia and its Gulf neighbors -- owed more than $50 billion -- will likely apply the 80 percent write-off formula.
Mahdi considers the Paris Club terms a major breakthrough for Iraq, a hugely indebted nation that was shut off from most sources of foreign capital during the final 15 years of Saddam's rule. "It was like having a cancer, and this cancer is now gone," says the Finance minister. The debt accord should allow Baghdad to shift its resources into reviving the economy rather than struggling to repay debt.
Still, the terrorism that knocked Mahdi to the floor of his house (he was unhurt) persists, threatening to undermine the Paris Club coup. "Nothing much can be done under these circumstances," contends Haydar al-Uzri, a former international banker who was recruited by Iraq's interim prime minister, Ayad Allawi, to serve as a senior banking adviser. Al-Uzri recently gave up his temporary home in Baghdad's al-Mansour district to return to London.
Meanwhile, Baghdad's planned banking reforms are on hold. This year the central bank licensed five foreign banks to operate in Iraq in hopes of spurring local banks to modernize, but not one of the five has opened so much as a branch. The central bank has now granted three of them -- HSBC, the National Bank of Kuwait and Standard Chartered -- a three-month extension, until the end of March, on its deadline for establishing local operations. The two other licensees, Jordan's Arab Bank and Bahrain's Arab Banking Corp., don't have to go into business until then, either, and have indicated that they have no wish to set up shop until well after the planned January elections -- at the earliest.
Moreover, security concerns have prevented foreign donors from proffering aid. "We hoped more money would be coming in after the Tokyo conference of aid-giving countries in October," says Deputy Planning Minister Faik Ali Abdul-Rasool with a sigh.
Mahdi, who got to spend only a few days in Paris before returning to Baghdad, is both an optimist and a realist. "There are problems," he concedes, "but we are going forward. If you get rid of $100 billion of debts, it's historic. It puts Iraq on the path to sustainability." The path, however, looks like a long one.