US President George W. Bush may prod Europeans at a summit in Ireland on Saturday to write off much of Iraq's $120 billion foreign debt, but a solution may not be reached until the year-end as divisions persist.
A European official familiar with the talks said the US-EU summit is likely to stress that Iraq's debt should be reduced, but avoid the question of precise levels of debt write offs.
The official told Reuters that creditor nations want a deal on Iraq's massive debt to be hammered out by the end of 2004 but serious negotiations are unlikely to start until October as there's still lot of groundwork to be done.
"They are working hard. But I don't think they are close to an agreement," said Gregory Kronsten, emerging markets economist at WEST LB.
Iraq owes about $40 billion to Paris Club, a group of sovereign creditors including all of the world's industrialised economies.
The United States, which has led the war in Iraq, wants to write-off around 90 percent of the debt, while Japan and Britain have talked about forgiving 80 percent.
White House national security adviser Condoleezza Rice on Thursday said Iraq needs up to 95 percent of its debt to sovereign countries forgiven to avoid overburdening its economy.
Analysts said it will be difficult for Iraq's battered economy to repay the debt, at least for the next decade.
J.P. Morgan in a research report said Iraq's external debt estimated at $125-$130 billion represents 1,100 percent of its 2003 GDP (gross domestic product) and "is clearly unsustainable given the current economic situation and huge reconstruction needs".
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