Iraq and the IMF
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The Executive Board of the International Monetary Fund (IMF) approved today SDR 297.1 million (about US$436.3 million) in Emergency Post-Conflict Assistance1 to Iraq as a sign of support for Iraq's economic reconstruction efforts through 2005 and to help catalyze additional international support, including debt relief.
Emergency Post-Conflict Assistance (EPCA) is designed to promote a strengthening of administrative and institutional capacity, which will be necessary to sustain economic recovery and a higher level of financial assistance. To assist in this capacity building, the IMF has been providing extensive technical assistance and training to Iraqi officials in a number of areas, including tax policy, budget preparation and execution, central banking, the creation of a treasury bill market, and statistics.
Following the Executive Board's discussion of Iraq, Mr. Takatoshi Kato, Deputy Managing Director and Acting Chair, stated:
"The Fund's Emergency Post-Conflict Assistance to Iraq is a crucial step toward putting Iraq back on the path to economic stability and strong, sustainable growth. The Fund is making these resources available to Iraq at a difficult time in terms of security, but also at a critical time as Iraq strives to rebuild its economy and prepare for elections early next year. The approval of EPCA will hopefully serve to catalyze much needed financial and technical assistance from the international community and will facilitate the process of reducing Iraq's external debt to a sustainable level.
"The authorities' main goals under the EPCA-supported program are to stabilize the economy, lay the groundwork for the development of a reform program that could be undertaken in years to come, and to begin the process of restoring Iraq's external debt sustainability. The authorities' program is to be underpinned by a prudent fiscal policy that aims to limit spending to available government revenues and external resources, the use of the exchange rate to anchor inflationary expectations, and the implementation of key structural reforms to transform Iraq into a market economy.
"The Iraqi authorities have already taken some important steps to facilitate progress toward a more market-oriented economy. The authorities' policies have succeeded in promoting a degree of macroeconomic stability despite the difficult security environment. The authorities' continued commitment to their reform agenda, and the assistance of the international community, will play critical roles in advancing the rehabilitation of Iraq's economy.
"The authorities' commitment to an economic program geared toward stabilizing the economy and laying the groundwork for adopting policies to support economic growth is particularly welcome. In that regard, the authorities' approach in preparing their 2004 and 2005 budgets-focusing on providing the minimum adequate level of social support and carrying out urgent reconstruction projects-seems the most appropriate under the current circumstances. Similarly, the authorities' strategy of caution in projecting oil revenues in 2005 is welcome, particularly when accompanied by their commitment to use any windfall oil revenues for additional reconstruction investment and/or to help meet budgetary needs in 2006 and beyond.
"The authorities have succeeded in managing monetary policy in a manner consistent with price stability. The authorities should nevertheless remain vigilant and closely monitor developments that may threaten their inflation objective, and also take steps to strengthen monetary policy by developing and implementing a wider menu of instruments for managing liquidity conditions.
"The authorities will be focusing, as early as possible, on implementing key structural reforms, particularly in the areas relating to rebuilding administrative capacity and improving program monitoring. The authorities will also be working on developing a reform program in areas in which progress must be made in 2005 to set the economy on a sustainable path, including tax reform, financial sector reform, restructuring of state-owned enterprises, and enhancing the governance and transparency of the oil sector, all of which will be key in promoting the recovery and growth of the private sector.
"In addition to risks related to program implementation, external developments, such as lower oil prices, and the hazardous security situation, Iraq has an unsustainable level of external debt. In order to allay the risks to the Fund from lending to Iraq under these circumstances, the bulk of Iraq's official bilateral creditors-through the relevant Executive Directors-have reaffirmed their recognition of the Fund's preferred creditor status in respect of the drawing by Iraq under the EPCA and, similarly, have indicated that they are willing to make their best efforts-given Iraq's continuing cooperation with the Fund-to provide debt relief on appropriate terms to ensure the timely repayment to the Fund of the amounts provided under the EPCA, in accordance with the Fund's preferred creditor status. They have also confirmed that during the period of the economic program supported by the EPCA, a deferral will be in place with respect to those obligations of Iraq that are falling due to them," Mr. Kato said.
Iraq's access to emergency assistance was possible following Iraq's settlement on September 22, 2004 of its overdue financial obligations to the IMF. With the settlement of these arrears, which totaled SDR 55.3 million (about US$81 million), Iraq is now current on its financial obligations to the IMF.
The Iraqi government has also consented to and paid its quota increase under the IMF's Eleventh General Review of Quotas, which brings its current quota in the IMF to SDR 1.19 billion (about US$1.75 billion), up from SDR 504 million (about US$740.1 million). The amounts provided under the EPCA to Iraq represent 25 percent of its current quota.
IMF EXTERNAL RELATIONS DEPARTMENT