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Official: Creditors agree on Iraq debt reduction

The Paris Club of creditor nations -- excluding Russia -- has agreed in principle to cut debts Iraq owes to the group by as much as 80 percent, an official said on Sunday.
/ Source: The Associated Press

Major economic powers agreed in principle to write off billions of dollars of debt for Iraq, officials said Sunday, with France in particular agreeing to compromise as it seeks improved ties with the United States.

The deal was reached at the Paris Club of creditor nations after overnight discussions that stretched into the early hours Sunday, said a well-placed official who spoke to The Associated Press on condition of anonymity.

Only Russian negotiators had not signed off, because they needed to get their government’s agreement for the accord, which allows for phased reductions of Iraq’s debts to Paris Club nations, to a total of up to 80 percent, he said. The deal could be announced officially later Sunday, he added.

Another official confirmed that all the creditors but Russia had agreed in principle to the deal, but said there were many details to finalize in talks that resumed Sunday morning.

Russian President Vladimir Putin has previously said his country would be willing in principle to write off more than half of Iraq’s $8 billion debt to Moscow through the Paris Club of 19 creditor nations.

Putin told President Bush in a meeting Saturday “that he was prepared to work with the United States, the other members of the Paris Club, as we review this issue in the next hours and days,” said a senior U.S. official. They met at a 21-nation economic summit in Chile of Pacific Rim leaders.

Bush said a Paris Club agreement was close, and he “wanted to work with the Russians so that we could get the substantial debt reduction that we’re looking for — 80 percent write-off,” said the U.S. official.

Boosting Iraq's troubled economy
A large reduction in Iraq’s debts to the group would mark a significant step in U.S. efforts to put the Iraqi economy back on its feet and be a boost for Bush as he embarks on his second term.

It also would represent a considerable concession from France, just as French President Jacques Chirac’s government is pushing to rebuild ties with Bush’s administration that were damaged by disagreements over the U.S.-led Iraq war. France opposed the invasion that toppled Saddam Hussein.

France had long argued that slashing Iraq’s Paris Club debt by more than half would be unfair to other poorer nations that also are saddled with debts but do not have the potential wealth of oil-rich Iraq.

“How would you explain to these people that ... we are going to do more for Iraq than we have done in 10 years for the 37 poorest and most indebted countries in the world?” Chirac said in June at a summit of the Group of Eight powers that Bush hosted.

Germany, another opponent of the war, also had questioned whether a country with rich oil reserves should benefit from huge debt reduction.

Around $42 billion owed
Iraq owes about $42 billion to Paris Club members, which include the United States, Canada, Russia, Japan, European nations and Australia. Iraq owes another $80 billion to Arab governments. Iraq has said that its overall foreign debt of $122 billion is hindering postwar reconstruction.

The official who briefed the AP said the proposed 80 percent reduction would be a compromise for the United States, too, because it had sought support for wiping out as much as 95 percent.

Germany’s Finance Minister Hans Eichel has said the proposed deal 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.”