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Expand chart
Data: Simon Hinrichsen / LSE; Chart: Axios Visuals

When the U.S. invaded Iraq in 2003, it was taking control of the most indebted nation in the world.

Why it matters: Iraq's debt at the time was an astonishing $130 billion, and the eradication of that debt was a rare example of international unity and cooperation in the interests of a debtor country.

  • The full story is told in "Tracing Iraqi Sovereign Debt Through Defaults
    and Restructuring," a new paper from the London School of Economics' Simon Hinrichsen, who has also created the astonishing chart above.
  • To put these numbers in context: Japan's current debt-to-GDP ratio is 238%, while the U.S. is at 106%. Iraq, in the mid-1990s, had a ratio well above 1,000%.

The big picture: Iraq had very few debts before the Iran-Iraq war of 1980–1988. Western countries armed Iraq during that war, and accepted IOUs for their weapons despite knowing that Iraq was already insolvent.

  • In 1990, Iraq invaded Kuwait and, in so doing, lost the support of the West. Subsequent sanctions prompted Iraq's economy to implode, sending its debt-to-GDP ratio into the stratosphere.
  • After 1997, the United Nations' oil-for-food program helped to get Iraq's economy back onto its feet, and the debt-to-GDP ratio started falling. But the total amount of debt only fell after the U.S. invasion of Iraq in 2003.

After the war, the UN took the extraordinary step of immunizing all of Iraq's assets from attachment by creditors. That put Iraq in an extremely strong negotiating position, and ultimately the country managed to persuade creditors to accept a reduction of 80% in the value of their debts.

Where it stands: Iraq today may be facing political turmoil, but its sovereign finances are in good shape, with a low debt-to-GDP ratio, substantial foreign reserves, and a healthy fiscal surplus.

Go deeper: U.S. to send "additional forces" after embassy in Baghdad attacked by protesters

Go deeper

Dave Lawler, author of World
42 mins ago - World

China's Xi Jinping congratulates Biden on election win

Photo: Paul J. Richards/AFP via Getty Images

Chinese President Xi Jinping sent a message to President-elect Biden on Wednesday to congratulate him on his election victory, according to the Xinhua state news agency.

Why it matters: China's foreign ministry offered Biden a belated, and tentative, congratulations on Nov. 13, but Xi had not personally acknowledged Biden's win. The leaders of Brazil, Mexico and Russia are among the very few leaders still declining to congratulate Biden.

Kendall Baker, author of Sports
2 hours ago - Sports

College basketball is back

Illustration: Sarah Grillo/Axios

A new season of college basketball begins Wednesday, and the goal is clear: March Madness must be played.

Why it matters: On March 12, 2020, the lights went out on college basketball, depriving teams like Baylor (who won our tournament simulation), Dayton, San Diego State and Florida State of perhaps their best chance to win a national championship.

2 hours ago - World

Scoop: Israeli military prepares for possibility Trump will strike Iran

Defense Minister Benny Gantz attends a cabinet meeting. Photo: Abir Sultan/POOL/AFP via Getty

The Israel Defense Forces have in recent weeks been instructed to prepare for the possibility that the U.S. will conduct a military strike against Iran before President Trump leaves office, senior Israeli officials tell me.

Why it matters: The Israeli government instructed the IDF to undertake the preparations not because of any intelligence or assessment that Trump will order such a strike, but because senior Israeli officials anticipate “a very sensitive period” ahead of Biden's inauguration on Jan. 20.

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