What happened to Iraq's debts after the US toppled the government in 2003?

Question

My curiosity for this question came from Nigel Biggar's book In Defense of War where he explores whether or not containment (in the form of sanctions or otherwise) would have been effective in the long run:

Richard Clarke and Peter Galbraith both reckon that continued control of relevant Iraq imports and further intrusive inspections by the IAEA would have been sufficient to avert the threat of WMD. Against this, however, Kenneth Pollack wrote in 2002 that containment was collapsing beyond repair. In that year smuggling conducted by Syria, Turkey, Jordan, and Iran was reckoned to earn Iraq between $2.5 billion and $3 billion (15-22 percent of Iraq's total revenue). What is more, since 1997 France, Russia, and China - all members of the Security Council - had been pressing for a relaxation of sanctions and inspections, in order to obtain oil and military contracts and to collect debts owed.

^{pg. 295-296}

The debts were clearly large enough to deter some countries from backing renewed sanctions as detailed below:

Tony Blair reports that in mid-2001 Russian commercial interests obstructed agreement about new sanctions: "When Vladimir [Putin] and I discussed sanctions at the July 2001 Genoa G8 summit, he joked he was all in favor of them, provided we compensated him for the $8 billion that Iraq owed Russia" (A Journey, p395)

^{Footnote 166, pg. 297}

While it's not common for a country to default on it's sovereign debt, it does happen. Did the new Iraqi government default on it's debts? Given the unique nature of it's creation, did the US assume any of the those debts? Or was there some other mechanism that allowed for their repayment?

Answer 1

The 2011 US Congressional Research Service paper Iraq’s Debt Relief: Procedure and Potential Implications for International Debt Relief covers the topic in detail. It summarizes it:

Following the ouster of the Saddam Hussein regime in spring 2003, Iraq’s external debt was estimated to be around $130 billion. Reducing this debt to a sustainable level has been a priority of the U.S. government. Since 2003, debt relief negotiations have taken place in a variety of fora and led to the cancellation of a significant amount of Iraq’s external debt.

Iraq’s external debt comprised four components: Paris Club bilateral debt ($42.5 billion), non- Paris Club bilateral debt ($67.4 billion), commercial debt ($20 billion) and multilateral debt ($0.5 billion). Debt relief negotiations first led to an 80% reduction of the Paris Club debt. The Paris Club agreement also set the terms for non-Paris Club and commercial debt cancellation levels. A provision of the Paris Club agreement is that Iraq cannot accept a debt cancellation agreement with other creditors on more favorable terms for Iraq than those reached with the Paris Club. Thus, Iraq is expected to receive no more than an 80% cancellation from all of its creditors. Negotiations with non-Paris Club creditors are ongoing, and resolution of the commercial debt is largely complete.

Indeed, Iraq's debt has plummeted from 350% of GDP in 2004 to 50% in 2010.

See also

• Council on Foreign Relations - Iraq: The Regime's Debt is a snapshot of the state of affairs in December 2003.
• CNN - Japan, China offer Iraq debt cuts, again in Dec 2003, shows US efforts to get numerous nations to forgive Iraq's debt and send humanitarian aid to rebuild.
• PBS Newshour - Nations Cancel Bulk of $39 Billion in Iraqi Debt