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Iraq (Debt)

: My hon. Friend is slightly overstating his argument, which, as I am sure he would accept, he is occasionally prone to do. Some stand-by agreements include an element of privatisation, but we do not yet know whether that will be an element of the SBA that is negotiated with Iraq through the IMF. We will simply have to wait and see. My hon. Friend referred to odious debt law, but there is no such thing as established and accepted odious debt legislation. Were we to pursue the odious debt route, rather than doing what we have tried to do with the Iraqi Government—which has been to take a pragmatic, practical approach to quickly securing the debt relief and aid that the country needs—we would be likely to provoke a series of legal challenges that would tie up efforts to help Iraq for a decade or more. My hon. Friend made a passing, welcome, reference to his strong support for the debt relief and aid programmes that the Government have put in place for Africa. He and I share a sense of pride that the Government have led the international efforts to put in place a comprehensive programme of significant levels of aid and debt relief for the poorest countries, including the recent fresh agreement among G8 finance Ministers. Iraq is not considered to be one of the world's poorest countries. Nevertheless, as my hon. Friend pointed out, it faces immense social and economic challenges and hardships. Although Iraq's first democratic elections were an historic occasion, with 58 per cent. turnout and almost 8.5 million people voting, the upsurge of violence since the formation of the new Iraqi Government only adds to the challenges. Not only does Iraq face the challenge of establishing a truly inclusive political process, drafting a constitution that reflects its diversity and building security, but it faces a significant reconstruction challenge. Iraq has one of the largest estimated petroleum reserves in the world, but years of economic mismanagement, international sanctions and the recent conflict have hit economic activity hard. My hon. Friend vividly described the impact on Iraq's people. Social development that was once well ahead of the regional average has now well fallen behind to be one of the lowest. Neither my hon. Friend nor the Government underestimate the challenges that Iraq faces in rebuilding the economy or the challenge that we face in trying to assist. Under Saddam Hussein, mismanagement and embezzlement of Iraq's resources was rife. The oil sector was starved of investment and the regime built up huge debts. Infrastructure, public services and industry were left in a poor state, unemployment was high and 60 per cent. of the population were dependent on food rations. Overall, GDP per capita is estimated to have fallen from more than $3,000 in the early 1980s to about $500 by 2003. It was then, through analysis by the IMF and World Bank, that Iraq's external debt—approximately $120 billion at that time—was judged to be unsustainable. The UK Government have therefore worked hard with the Americans and others to devise what we regard as a fair and sustainable solution to Iraq's debt problems. We have also been at the forefront of international efforts to rebuild Iraq's economic institutions. In passing, I pay tribute to a number of officials from the Treasury and from HM Revenue and Customs who served for periods in Iraq to help with that rebuilding effort, in some cases putting themselves in danger in the process. Specific economic achievements have included some recovery in oil production, the stabilisation of inflation and the exchange rate, a financial management law, a new currency and an IMF emergency post-conflict assistance package of $436 million. However, by far the most important achievement with the most significant long-term gain was the negotiation of a debt relief deal with the new Iraqi Government. That is the view of the Iraqi Government, abeit not that of my hon. Friend. The Paris club deal in November 2004 was an agreement to give to Iraq 80 per cent. debt relief, to be delivered in three tranches, linked to Iraq's economic reform. The first 30 per cent. tranche of relief was delivered on 31 December 2004. More than £340 million of Iraq's debt to the UK has already been written off. Part of the Paris club agreement was a moratorium on debt repayments until 2008, and part was a rescheduling of debt over 23 years. The latest reports from Iraq indicate that good progress is being made with other creditors, and even though a number of technical issues have to be resolved we feel that the risk of Iraq's not achieving comparable treatment with its other creditors, which was one of the conditions of the deal, is low. Once the agreement is fully implemented, Iraq is expected to receive almost $100 billion of debt relief. The US and a few other creditors have offered to give 100 per cent. debt relief; we welcome that generosity, but we have taken a different view. The UK intends to focus its resources on maximising the immediate benefits to the Iraqi people through aid, and we have pledged $544 million in direct aid over three years to March 2006. That money is being put to good use now, as the Iraqi Finance Minister made clear to my right hon. Friend the Chief Secretary when they met last month. It is being used to rebuild facilities and to set up new infrastructure and new institutions, particularly in southern Iraq, as well as to provide support to key ministries of the new Government. If the UK offered 100 per cent. bilateral debt relief, some of that aid money would have to be diverted, Iraq would not feel the benefit of further debt relief until 2008 because of the moratorium on payments, and the benefits would be spread over 23 years, rather than concentrated now, when the need is greatest. However, as I said to my hon. Friend, we have an historical relationship with Iraq and therefore stand ready to consider any request for aid or debt relief that the Iraqi Government might make of us. Despite the difficulties, there is real hope of progress and hope for the future of Iraq. It is not merely a country beset by severe economic difficulties but one with the prospect of and potential for a sound economic future. However, my hon. Friend will recognise that the deep damage done by decades of a repressive regime cannot be rectified in one, two or three years. It will take time to build Iraqi institutions and to improve infrastructure, and for the private sector to flourish. We hope that by 2008, Iraq will be in a position not only to start repaying the remaining debt, but to become the major economy in the region that it once was. My hon. Friend said that the Paris club debt relief deal was not acceptable to the Iraqi people, but it is acceptable—