BAGHDAD, 8 Nov 2005 (IRIN) - The Japanese government has agreed to write off 80 percent of the debt it is owed by Iraq, a move that will give the local reconstruction effort a much needed boost, government officials said on Tuesday.
"It is the beginning of a new era in Iraq's economy," said Khudaifah Ibrahim, a senior official at the Ministry of Finance. "The money that was owed to Japan can now be invested in the reconstruction of the country."
The write-off follows an agreement in November 2004 by the Paris Club to cancel about 80 percent of Iraqi debt to each of the club's 19 creditor nations. Iraq initially owed Japan - the club's biggest creditor - some $7.3 billion.
A formal agreement is expected to finalise the debt cancellation by the end of 2005, opening the way for Japan to resume loans of up to $3.5 billion towards the reconstruction of the war-torn nation.
According to Ibrahim, the debt had been accumulating since before the Iran-Iraq war, which lasted throughout most of the 1980s. He added that fresh funds now made available by the write-off would be channelled into reconstruction projects, particularly in the fields of health and education.
"We have to take advantage of this wonderful deal and improve the sectors in Iraq that have most badly deteriorated," Ibrahim explained.
"Most of the national budget allocated to reconstruction has been used instead for security issues, leading to a lack of investment in important sectors of development," he explained.
Samer Mounir, an economist at the Ministry of Finance, said large amounts of money had been used, for example, to pay for security agencies providing protection to senior government officials. "More than $2 million is being allocated to the ministries every month for security," he said.
In 2004, the US cancelled Iraq's entire $4.1-billion tab, while Canada has also written off a significant chunk of Iraqi debt. Debt negotiations with Russia, France, Saudi Arabia and Kuwait are ongoing.
Despite the cancellations, though, Iraq still owes the Paris Club a total of some $39 billion. "We still having a huge number of creditors who haven't written off any debt," said Ibrahim.
According to Ali al-Jalil, a senior official at the Ministry of Reconstruction, much more debt relief is needed in order to rebuild much of the national infrastructure destroyed in the war or dilapidated over a decade of punishing economic sanctions.
"The deficit for reconstruction is as high today as it was after the war," he said. "The lack of investment has caused many ongoing projects to stop, especially those concerning health and education."
Al-Jalil added that continued fighting in the western governorate of Anbar and the northern city of Mosul meant that, in the wake of ongoing US offensives in those areas, new reconstruction projects would be made necessary.
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