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Capital Markets

Seeking forgiveness of Saddam-era debt

Argentina has over half a million creditors, while Iraq has comparatively few. But dealing with $100 billion of Iraq's debt has given everyone from the IMF to the Paris Club a tough problem to resolve. The US government will urge generosity but a happy solution for all interested parties is next to impossible.

Restructuring debt is top priority

Litigation risk for years to come

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NOT FOR THE first time, sovereign debt restructuring is likely to dominate the IMF/World Bank annual meetings. Most of the discussion this year will concentrate on Argentina: what the country should do, what the IMF should do, whether the debt exchange is going to be a success.

In the background, making far fewer headlines, will be negotiations on $100 billion of another country's debt. Representatives from all the big creditors will be trying hard to reach a solution and there's a good chance that progress will be made.

After all the emphasis on collective action problems and bond restructurings, the official sector has a tough nut of its own to crack. If a small group of countries can't agree on restructuring sovereign debt, they should think twice about lecturing a much larger group of bondholders on doing the same thing. Even if the bilateral creditors do come to an agreement, questions will remain on how and why the private sector should accept the terms of that deal.

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