Nations agree to write off Iraqi debt (20/11/04)

Major economic powers agreed over the weekend to write off billions of dollars of debt for Iraq in a deal that marked a significant step in US efforts to help put the Iraqi economy back on its feet. Under the agreement, the Paris Club of 19 creditor nations will write off 80 per cent of the $42 billion that Iraq owes them, the group's chairman, Jean-Pierre Jouyet said.

The deal is a major step for Iraq

The Paris Club includes the United States, Japan, Russia and European nations. Iraq owes another $80 billion to various Arab governments. The United States had been pressing for up to 95 per cent of the Paris Club debt to be lifted.

Iraq has said that its foreign debt was hindering post-war reconstruction. Iraq's finance minister, Adel Abdul-Mahdi, hailed what he described as an "historic agreement."

"This money is needed for Iraq not only because Iraq is a ruined country but because Iraq is an important player internationally," he said after the deal was signed in Paris. "What will happen in Iraq will effect politically and economically the Middle East and the world."

The deal represents 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 Iraq.

Jouyet, at a news conference in Paris, said the debt reduction plan would work in three phases, with a first tranche of 30 per cent to be written off immediately. Another 30 per cent will be cancelled when Iraq agrees on a reform program with the International Monetary Fund expected in 2005. The third and final tranche, representing 20 per cent of Iraq's debt to the Paris Club, will be cancelled in 2008, once Iraq has completed its three-year IMF program, Jouyet said.

The Paris Club's chairman said the group had "shown its flexibility" over Iraq's reconstruction needs and its limited ability to service its debt in the short term. "Iraq will be able to concentrate its entire resources on its reconstruction," he said.

Source: USA Today