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April 12, 2003
IMF Says It Will Help in Iraq After UN Resolution


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April 12

By Mark Egan

WASHINGTON (Reuters) - The International Monetary Fund's policy-setting committee said on Saturday the fund and World Bank will help in the reconstruction of war-ravaged Iraq once a United Nations resolution gives them a mandate.

The two Washington-based lenders have firmly resolved in recent days against being dragged into a political wrangle over who would lead a rebuilding effort and whether it would be done under a UN banner.

Some countries, particularly France and Germany, had been concerned that the United States -- as the lenders' largest shareholder -- would use the institutions to bypass the UN while still claiming multilateralism.

But the IMF and the bank, holding meetings here, said they would help only if all their shareholders were on board.

"The IMF and World Bank stand ready to play their normal role in Iraq's redevelopment at the appropriate time," a communique issued after the meeting of the IMF's policy-setting committee in Washington said. "We support a further U.N. Security Council resolution," it added.

Committee leaders appeared relieved at the willingness of finance chiefs to agree on the need for a UN resolution.

"It's an enormously positive step forward," said British finance minister Gordon Brown, who is also chairman of the International Monetary and Financial Committee (IMFC).

IMF Managing Director Horst Koehler called the decision "a wonderful outcome."

Koehler said with the three-week war in Iraq apparently near an end and Saddam Hussein's regime defunct, he was more optimistic about the global economy's prospects that just two or three weeks ago.

And, raising the possibility of restructuring or forgiving some of Iraq's debt to give the oil-rich but crippled country a boost, the IMFC said: "It is important to address the debt issue, and we look forward to early engagement of the Paris Club (group of creditor nations)." Germany, France and Russia are Iraq's three largest creditors.

The U.S.-UN relationship has been strained since the United States and Britain went into Iraq without UN backing. America had wanted the World Bank and IMF to take the top role in the rebuilding. European nations, including Germany, France, Russia and Britain, wanted the UN in charge.

Muslim countries including Iran, Pakistan, Egypt and Syria, said in a statement earlier in the week that they too wanted the UN to lead the rebuilding effort.


Tensions eased when finance leaders opted for a united front, realizing that public bickering over how to handle the reconstruction when the Iraqi people sorely need aid would set a bad tone for further talks on all aspects of post-war Iraq, an official at the IMFC meeting this weekend told Reuters.

Earlier on Saturday, the Group of Seven finance ministers agreed at a session on the fringes of the IMF and World Bank gatherings that the framework for rebuilding Iraq should be based on a new UN Security Council resolution. The 184-strong IMF membership backed that view unanimously.

IMF experts have been working for weeks to develop plans for an Iraqi currency and ways to reestablish commerce in the country after the war.

The idea of some sort of debt forgiveness for Iraq was raised earlier this week by U.S. Treasury Secretary John Snow who said Iraqis should not be saddled with debts run up by a dictator. Should those debts be forgiven or written down, it would set an intriguing precedent for many other nations who saw their national debts balloon under despots.

Debt forgiveness advocate Oxfam on Saturday said Snow's call for writing down Iraqi debts should be extended to African nations, who it said were "undermined by crippling debts often incurred in previous decades by undemocratic regimes and dictators who have now been replaced."


With the Iraq leadership crushed after weeks of pounding by U.S.-led forces, Koehler expressed hope the global economy could resume stronger growth.

"I am much more optimistic now than I had been two or three weeks before," the IMF chief told a news conference. "Not only because of news that the war will be short, but also because of the confirmation that the (IMF) spirit of cooperation is strong and intact. This gives me a lot of confidence."

The war build-up, which lasted months longer than expected due to rows between the United States and Europe over how to proceed, landed hard on an already bruised global economy.

That "fog of war" was one reason the IMF this week cut its forecasts for global economic growth this year to 3.2 percent from the 3.7 percent the lender forecast just last September.

But while Koehler may now be more upbeat, IMF Chief Economist Kenneth Rogoff has warned against excessive optimism because risks to the global outlook are still high.

He said the "insidious effects" of the ongoing terror threat may linger and curb activity for decades.

The Iraq war badly strained the transatlantic alliance with America and Britain, who led the attack, opposed by France, Germany and Russia. As the debate grew up over who should lead the rebuilding effort, Britain crucially decided not to stand behind the Bush administration position.

One burning question is the creation of a new currency to help the Iraqi people get back to normal life and Koehler said that, "the IMF can contribute to this issue, to the plan and the concept, to build up a solid currency."

Copyright 2003 Reuters News Service. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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