Press Release: IMF Executive Board Approves US$436.3 Million In Emergency Post-Conflict Assistance to Iraq

IMF News, September 29, 2004

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The Executive Board approved SDR 297.1 million (about US$436.3 million) in Emergency Post-Conflict Assistance (EPCA) to Iraq.
Purpose: support Iraq's economic reconstruction efforts through 2005 and help catalyze additional international support, including debt relief.
EPCA is designed to promote a strengthening of administrative and institutional capacity necessary to sustain economic recovery and a higher level of financial assistance.

Stabilize the economy.
Lay the groundwork for the development of a reform program that could be undertaken in years to come.
Begin the process of restoring Iraq's external debt sustainability.
Underpinning policies:
- prudent fiscal policy aiming to limit spending to available government revenues and external resources;
- use of the exchange rate to anchor inflationary expectations;
- implementation of key structural reforms to transform Iraq into a market economy.

Fiscal approach endorsed:
- 2004 and 2005 budgets to focus on providing the minimum adequate level of social support and carrying out urgent reconstruction projects.
- Caution in projecting oil revenues in 2005; commitment to use any windfall oil revenues for additional reconstruction investment and/or to help meet budgetary needs in 2006 and beyond.
Monetary policy assessment and recommendations:
- Authorities have succeeded in managing monetary policy consistent with price stability.
- Recommendation to remain vigilant and closely monitor developments that may threaten the inflation objective.
- Recommendation to strengthen monetary policy by developing and implementing a wider menu of instruments for managing liquidity conditions.

Immediate focus (as early as possible) on:
- rebuilding administrative capacity,
- improving program monitoring.
Development of a reform program in areas requiring progress in 2005 to set the economy on a sustainable path, including:
- tax reform,
- financial sector reform,
- restructuring of state-owned enterprises,
- enhancing the governance and transparency of the oil sector.
Objective: promote recovery and growth of the private sector.

Identified risks:
- program implementation risks,
- external developments, such as lower oil prices,
- hazardous security situation,
- Iraq's unsustainable level of external debt.
Creditor responses to mitigate Fund risk:
- The bulk of Iraq's official bilateral creditors—through the relevant Executive Directors—reaffirmed recognition of the Fund's preferred creditor status in respect of Iraq's drawing under the EPCA.
- Those creditors indicated willingness to make their best efforts—given Iraq's continuing cooperation with the Fund—to provide debt relief on appropriate terms to ensure timely repayment to the Fund of the amounts provided under the EPCA.
- Creditors 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.

Iraq settled overdue financial obligations to the IMF on September 22, 2004, totaling SDR 55.3 million (about US$81 million); Iraq is now current on its financial obligations to the IMF.
Iraq paid its quota increase under the IMF's Eleventh General Review of Quotas:
- New quota: SDR 1.19 billion (about US$1.75 billion).
- Previous quota: SDR 504 million (about US$740.1 million).
The amounts provided under the EPCA to Iraq represent 25 percent of its current quota.

Press Release No. 04/206 — September 29, 2004. International Monetary Fund.