Iraq Will Receive 80% Debt Relief

This seems like a rather significant, and extremely positive,
Major economic powers agreed on Sunday to write off billions of dollars of debt for Iraq (news – web sites) in a deal that marked a significant step in U.S. efforts to help put the Iraqi economy back on its feet.
Under the agreement, the Paris Club of 19 creditor nations will write off 80 percent of the $42 billion that Iraq owes them, the group’s chairman, Jean-Pierre Jouyet said.
That still leaves eight billion outstanding, which isn’t peanuts but certainly seems a far more manageable sum.
Relieving nations emerging from dictatorship of the debts incurred by their former tyrants strikes me as solid policy from both a moral and practical sense. It is a good thing if doing business with strongmen is a risky business which might result in losing one’s investment after said strongman finds himself on the wrong side of history. Wiping out debt of this type helps Iraq get back on its feet (good for all sorts of reasons) as well as punishing the bad behavior of those who supported the regime (yes, I’m looking at you, France and Russia).
Note that the benefits of debt relief don’t apply in all cases: if a reasonably democratic and free country is simply choosing bad leaders who mismanage the treasury and economy, then debt relief doesn’t make sense, because it discourages the citizens of that nation from taking responsility for their own troubles, and encourages potentially stupid management on the theory that if it doesn’t work out, they won’t really have to pay the bills anyway.
But for Iraq: definitely. Note that there are some conditions attached:
Jouyet, at a news conference in Paris, said the debt reduction plan would work in three phases, with a first tranche of 30 percent to be written off immediately.
Another 30 percent will be canceled when Iraq agrees on a reform program with the International Monetary Fund (news – web sites) expected in 2005. The third and final tranche, representing 20 percent of Iraq’s debt to the Paris Club, will be canceled in 2008, once Iraq has completed its 3-year IMF (news – web sites) program, Jouyet said.
That IMF bit worries me a little. I’m not a finance expert by any means, but my limited understanding of the IMF’s success rate in its “programs” doesn’t make me terribly optimistic that IMF orthodoxy is the right prescription for a successful Iraqi economy.
Also, note that the 80% relief only applies to the debt owed to the “Paris Group” countries, which, according to this Reuters piece, is about 1/3 of Iraq’s total debt.