Deal could ease Iraq's debt

PARIS -- The Paris Club of creditor nations on Saturday was debating a plan to write off as much as 80 percent of the debts Iraq owes them, a key step in the United States' push to ease the financial burden on the nation as it tries to rebuild.

U.S. Treasury Secretary John Snow and German Finance Minister Hans Eichel sealed the agreement, Eichel said earlier Saturday, adding that he expected the Paris Club would approve the deal.

Iraq owes around $42 billion to the members of the Paris Club, a grouping of 19 countries including the United States, Japan, Russia and European nations.

An agreement by the Paris Club to forgive its Iraqi debt would be a significant step toward freeing the country from paying interest on the money owed just as it struggles to put its economy back on its feet.

Still, Iraq owes another $80 billion to various Arab governments.

"We agreed that there should be a write-off of debts in several stages amounting to 80 percent in total," Eichel told reporters on the sidelines of a meeting of finance officials from the Group of 20 industrial and developing countries.

German Chancellor Gerhard Schroeder later stressed that "there is no final outcome -- there are discussions, particularly with France," which opposed last year's U.S.-led war in Iraq and previously had called for a lower level of debt relief.

Still, the German-U.S. agreement was being discussed by the Paris Club and "our expectation is that it will be accepted," said Eichel's spokesman, Joerg Mueller.

"We have made substantial progress today -- we're advancing toward an agreement. Several details still need to be examined," said a French official close to the Paris Club talks, being held in the French capital.

The official, who spoke on condition of anonymity, said an agreement could be announced today.

Eichel said the proposal would see 30 percent of Iraq's Paris Club debt written off immediately, another 30 percent in a second stage "tied to a program of the International Monetary Fund" and a further 20 percent "linked to the success of this program."

"Within this framework, the necessary decisions can now be taken in the Paris Club," Eichel said. He did not elaborate and took no questions.

The United States has been pushing for a generous debt write-off for Iraq, trying to win support for wiping out as much as 95 percent.

However, other governments, including Germany, have questioned whether a country with rich oil reserves should benefit from huge debt reduction. France has previously proposed that the Paris Club write off just half of the debt, postpone debt service for three years and revisit the issue when Iraq's economy is in better condition.

But World Bank President James Wolfensohn last year said that Iraq needs to have two-thirds of its debt forgiven for the country to have a chance at economic recovery.

Schroeder, noting that the final stage of the proposed deal would be conditional, suggested that it could at some point be reassessed.

"If the situation in Iraq improves fundamentally -- Iraq is a rich country with respect to its oil reserves -- we should be able to talk about it again," he told reporters at the meeting.

Iraq has said its overall foreign debt of $122 billion is hindering postwar reconstruction.

The Paris Club of creditor countries comprises Austria, Australia, Belgium, Britain, Canada, Denmark, Finland, France, Germany, Ireland, Italy, Japan, the Netherlands, Norway, Russia, Spain, Sweden, Switzerland and the United States.