Paris Club Nations Debate Proposal to Forgive 80% of Iraq Debt

The Paris Club of creditor nations was debating a plan Saturday to write off as much as 80% of the debt Iraq owes the group’s members.

German Finance Minister Hans Eichel said that he and U.S. Treasury Secretary John W. Snow sealed the agreement in principle and that he expected the Paris Club to approve it.

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

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

Iraq owes an additional $80 billion to various Arab governments.

Iraq has said its overall foreign debt of $122 billion is hindering reconstruction after war damage.

Last year, World Bank President James D. Wolfensohn said the country needed to have two-thirds of its debt forgiven for it to have a chance at economic recovery.

“We agreed that there should be a write-off of debts in several stages amounting to 80% in total,” Eichel told reporters in Paris.

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 had called for a lower level of debt relief.

Still, the German-U.S. agreement was being discussed 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,” a French official said.

The official, who spoke on condition of anonymity, said an agreement could be announced today. France had previously proposed that the Paris Club write off just half of the debt and revisit the issue later, when Iraq’s economy is in better condition.

Eichel said the proposal would have 30% of Iraq’s Paris Club debt written off immediately, another 30% in a second stage “tied to a program of the International Monetary Fund” and a further 20% “linked to the success of this program.”

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%.

However, other governments, including Germany, have questioned whether a country with rich oil reserves should benefit from huge debt reduction. 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 said.