The Bush administration believes most of Iraq's debt must be forgiven to ensure the country's stability but will not specify a percentage, a US official said last night.
The official, speaking on condition of anonymity at the Group of Eight summit, said the International Monetary Fund had circulated to creditors "a very detailed debt sustainability analysis" for Iraq.
Iraq's debts are estimated at about $120 billion, and Washington was expected to press Iraq's foreign creditors to forgive at least 80 per cent of it as an Iraqi caretaker government prepares to take up the reins at the end of June.
"In our view, I think it's clear it shows the need for the reduction of the vast majority of Iraq's debt," considering its future oil revenues and costs of rebuilding the war-torn country, said the official.
Iraq can potentially generate about $20 billion of oil revenues annually, but it has little other economic capacity currently, the official noted.
"Just the numbers show that in order to get a sustainable debt situation in Iraq, you're going to have to reduce the vast majority of that debt," said the official, who spoke as G8 leaders arrived for a three-day summit 80 miles away at Sea Island, Georgia.
The IMF has given members of the Paris Club - a group of sovereign creditors that meets in Paris to consider requests by debtors to postpone debt repayments or reduce service obligations - a detailed study of Iraq's financial condition.
"When you think about it, you've got about $120 billion in debt for Iraq and you have an economy that can produce about $20 billion in oil and that, for the near term, is its GDP (gross domestic product) so the debt-to-GDP ratio is staggering," the US official said.
A senior Canadian official who had seen the IMF analysis of Iraq's indebtedness said it supported a view that hefty relief will be needed.
"The IMF document spoke of the need for more than what has been viewed as substantial, which is 66 or 67 per cent," the Canadian official said. "The debate will be of course how much more."