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Michaela Muscat
The Maltese government ran up a Lm2.8 million debt in a bizarre counter-trade agreement during the eighties, which bartered Soldini and Sanga shoes produced in Malta for Iraqi oil.
That debt has now been written off by Malta, “to express solidarity” with the Iraqi people as part of a Paris Club agreement to drop the debt and aid the Iraqi reconstruction.
But the bad debt, an initiative of the Labour government back in 1986, and repeated again under the Nationalist government in 1989, turned out to be one of the most obscure international arrangements ever forged by a Maltese government.
Former Labour minister for commerce and economic planning Joe Grima, who was responsible for sealing some of the deals as special envoy of the trade delegation to Iraq in the first USD4.2 million protocol signed in 1986, says the agreements were the results of a “goof”.
Sources involved in one of the earliest trade visits to Iraq told MaltaToday how the Iraqis had been unwilling to pay for any Maltese imports, instead pushing for a bartering deal.
The Maltese delegation did in fact consider a forfaiting option: getting a private financial entity to run after the Iraqi bill for the Maltese goods. Several firms turned down the Maltese request to get the Iraqi deal forfaited as the agreement was deemed as “too high risk”. Labour Prime Minister Dom Mintoff, as a consequence, decided to follow the delegation’s recommendations and forgo any kind of trade agreement.
His successor however, Karmenu Mifsud Bonnici, was prepared to take the risk in 1986 – deciding to prop up the Central Bank as forfaiter for the deal.
Ultimately, it was the Maltese government through the Central Bank which obliged by paying the Maltese importers’ dues, and instead chasing the Iraqi debt itself.
It turned out to be a desirable option for the Gulf state engulfed in the midst of the Iraq-Iran war, having been unable to buy the goods for which it could not immediately pay in full.
Grima claims that as minister he was never responsible for counter-trade deals, although he sealed some of the deals as special envoy of the trade delegation. “I always ensured that every drop of crude oil owed to the Maltese government was delivered,” Grima said.
“It is likely however that the Maltese sold more products than how much oil was actually needed, so the extra oil was forgotten by someone.”
Grima remembers that the Gasan shoe producing factory, which produced Sanga – an anagram of the magnate’s last name – had agreed to produce “a whole year of quality shoes” and proudly states that “Maltese goods were found all over stores in Iraq.”
The Central Bank was once again authorised to carry a similar burden when the second protocol, amounting to USD2.2 million, was signed during a Nationalist administration when George Bonello Dupuis was minister of finance.
But as the debt increased, the Central Bank failed to recoup any of the outstanding monies from Saddam Hussein’s Iraq – after having paid the Maltese companies in full.
The agreement to write off the debt was signed in Washington between parliamentary secretary Tonio Fenech and Iraqi finance minister Ali Allawi who expressed his appreciation towards Maltese people, hoping Maltese firms “would take part in the reconstruction of Iraq.”
The Paris Club, an informal group of financial officials from 19 of the world’s wealthiest countries including the US, Russia, Japan and France, agreed last November to write off 80 per cent of the debt owed to them by Iraq. The Paris Club provides indebted countries and their creditors services such as debt restructuring, relief and debt cancellation.
Iraq owes the Paris Club some USD38.9 billion, meaning that over USD31 billion will be written off.
mmuscat@mediatoday.com.mt
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