IMF approves $685m loan for Iraq

The loan indicates a growing faith in Iraq's handling of the economy

The International Monetary Fund (IMF) has backed a new $685m (£395m) loan for Iraq, in a move seen as an endorsement of its economic reforms.

The loan represents the IMF's seal of approval that the Iraq government is taking the correct fiscal measures to mend its war-ravaged economy.

It will also encourage funding from other countries hoping to take part in Iraq's reconstruction.

The US hopes the IMF deal will reduce reliance on its own financial support.

"The Iraqi authorities were successful in promoting macroeconomic stability in 2005, despite the extremely difficult security environment," said IMF deputy managing director Takatoshi Kato.

In 2004, the IMF awarded Iraq a $436m emergency post-conflict loan to help the country negotiate a deluge of claims by creditors who were owed money by Saddam Hussein's government.

Crucial step

The Bush administration applauded the IMF's decision to back the new loan, which will cover a 15-month period.

Washington says progress in its economic reforms have been made, despite almost daily suicide bombings in and around Baghdad which have hindered economic activity and the rebuilding of Iraq's infrastructure.

The IMF's agreement is regarded as a crucial step to help Iraq borrow money from foreign investors, and clears the way for wealthy creditor countries to begin implementing a debt relief programme for Iraq.

One group of creditor countries - the 19-member the Paris Club - has been waiting for the IMF's seal of approval before implementing its own proposed 80% reduction in the $38.9bn debt owed to them by Iraq.

Wider international support for the economic reconstruction of Iraq is seen as a key part of President George W Bush's strategy to reduce Iraq's reliance on US support, and paves the way for the withdrawal of its troops.

US Treasury Secretary John Snow said the IMF's loan would "underpin economic stability and help lay the foundation for an open and prosperous economy in Iraq".

Last year, the US said it would write off 100% of the $4.1bn in debt it was owed by Iraq.