By Ben Richardson
BBC News Online business reporter
A rebuilt Iraq is more likely to pay off its outstanding debts
The war in Iraq has created a growing market for the country's unpaid debts as banks and companies try to recoup some of their cash.
Current estimates put the total amount owed at close to $120bn (£65.2bn; 94.4bn euros), with about 90% of that lent by governments and the rest from commercial banks.
Iraq's repayments on that lump sum, which does not include war reparations, would cripple any efforts to rebuild the country following decades of rule by Saddam Hussein and the subsequent US-led invasion.
As a result, US President George W Bush has sent former Secretary of State James Baker on a global tour to convince creditors to write off most of the outstanding money.
So far, the response has been pretty good.
On Wednesday Mr Baker got Saudi Arabia to agree to a "substantial" reduction in the amount of money it is owed.
Money owed by Iraq
Source: Paris Club
That follows similar pledges from Kuwait, the United Arab Emirates and Qatar.
The Paris Club of rich country creditors, whose members include countries such as France, Germany, Japan and Russia, and many other smaller creditors are also planning to offer relief.
Economists expect that as much of 70% of the total will eventually be forgiven.
Many banks and companies have already classed their Iraq loans or unpaid bills as lost.
And that's where the speculators come in, because as the repayments get smaller there is more chance of the remaining debts being paid off.
This attitude may seem predatory, but economists and traders argue that there are benefits.
By creating a viable debt market, Iraq will be able to improve its credit rating, raise money more cheaply to pay off earlier loans and put itself on a better economic footing.
As interest rates fall, it will be easier for Iraqi companies and consumers to borrow, boosting growth.
Trading in so-called distressed debt is nothing new.
For some investors, especially in the US where the appetite for this type of product is highest, companies and countries which emerge from difficulties are often seen as safe investments.
Their books have been scrutinised, debts restructured and the underlying business usually remains sound.
Investor sentiment towards Russia has thawed in recent years
In 1998, Russia defaulted on bonds sending markets into freefall. Since then it has persuaded creditors to write off about a third of its Soviet-era debts, restructured much of the rest and seen its economic growth surge.
It's hoped that Iraq, home to the world's second-largest proven oil reserves, will follow a similar pattern.
While there is no trading of government debt, defaulted loans owed to commercial banks are changing hands for a fraction of their original face value.
Sellers reckon that something is better than nothing, while buyers are lured by the country's prospects. Some investors also are betting that they will be able to swap their holdings for stakes in the newly-formed and profitable Iraqi companies.
Demand as a result is picking up.
Three years ago Iraqi debt was changing hands at less then 10 cents for every dollar of face value.
Today it can sell for as much as 30 cents on the dollar.
It would, however, be misleading to think that the market is booming.
Iraq's debt market is less vibrant
Out of the $120bn outstanding, none of the government debt is traded. And only about $2bn of the $12bn in loans from commercial banks is saleable at present.
There is no standard issue, or benchmark, making the market fragmented and complicated and ensuring wild swings in prices.
And with a limited number of buyers and sellers a trade, tending to be between $5m and $15m, can take weeks to complete.
Further complicating matters is the need for clear documentation which proves that the money wasn't used to purchase goods such as weapons.
Still, for a handful of European companies, it is worth the trouble.
Exotix is a brokerage based at the foot of London Bridge, whose clients include commercial and investment banks, as well as specialist and emerging market investors.
A look at their trading floor reveals nothing remarkable.
Their prospectus is a different story, with the table of contents reading more like a Foreign Office danger list.
Countries covered include Algeria, Sudan, Congo and North Korea. Some of the less dangerous are economic basket cases such as Argentina and Ukraine.
London offers investors access to markets they don't fancy visiting
According to Exotix's managing director Peter Bartlett, Iraq's debt market is at the "Neolithic stage" of its development.
But he points to the way Yugoslavia has developed since it was attacked by the North Atlantic Treaty Organisation and leader Slobodan Milosevic was ousted.
Three years ago the country hardly registered on the investment horizon. Today volumes have almost tripled and an increasing number of investors are interested.
"It's an investment for the future," said Mr Bartlett. "One day it will be a liquid market".
Some may argue that trading in distressed debt is profiteering, benefiting very few people other than the traders themselves and those wanting control of key national resources.
But others maintain that re-establishing Iraq's credibility on international financial markets is a vital step on the road towards a prosperous and free country.