Major economic powers agreed Sunday to write off more than $31 billion in debt for Iraq in a deal that boosted 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 $38.9 billion that Iraq owes them, group chairman Mr Jean-Pierre Jouyet said. The Paris Club includes the United States, Japan, Russia and European nations.
Iraq owes another $80 billion to various Arab governments. A clause in the agreement gives the Paris Club the option to suspend part of the debt reduction if it were not matched by Iraq's other major creditors - led by Saudi Arabia and Kuwait.
The United States had been pressing for up to 95 per cent of the Paris Club debt to be lifted. Iraq has said its foreign debt was hindering postwar reconstruction, already struggling amid the country's persistent insurgency.
Iraq's finance minister, Adel Abdul-Mahdi, hailed what he described as a "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 affect politically and economically the Middle East and the world."
The deal is a considerable concession from France, just as French President Jacques Chirac's government is pushing to rebuild ties with the Bush administration that were damaged by disagreements over the US-led Iraq war.
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.
Germany, another opponent of the war, also questioned whether a country with rich oil reserves should benefit from huge debt reduction.
The Paris Club's 19 permanent members are Austria, Australia, Belgium, Britain, Canada, Denmark, Finland, France, Germany, Ireland, Italy, Japan, The Netherlands, Norway, Russia, Spain, Sweden, Switzerland and the United States.