Paris Club agrees to cancel 80 percent of Iraqi debt

The Paris Club of creditor nations agreed on Sunday to cancel 80 percent of the debt Iraq owes its members, ending a transatlantic dispute and probably setting the framework for debt pardons from other creditors. A Paris Club source said the deal worth about $33 billion would go into effect in three tranches but gave no further details. The Club was due to hold a news conference on Sunday evening in Paris. "An agreement has been made at the Paris Club to cancel 80 percent of Iraq's debt to its Paris Club creditors," the source told Reuters.
The deal came shortly after Russia, at a meeting of Group of 20 developed and emerging market countries in Berlin, agreed to forgive up to 80 percent of Iraq's debt.
Other creditors not in the Paris Club include Saudi Arabia, Kuwait and eastern European states.
Prior to the latest round of Paris Club talks, which began earlier this week, France claimed the backing of Russia, Germany and Italy for its proposal that the Paris Club initially waive half of Iraq's debts and review the situation after three years.
The United States had been pushing for a 90-95 percent reduction. France had argued that, with the world's second-largest oil reserves, Iraq should not be treated like impoverished African nations which lack such natural resources.
The agreement, which Washington wanted to give war-ravaged Iraq a chance to get on its feet, marked a step forward in transatlantic relations after France, Germany and Russia all opposed the US-led Iraq war.
"It's a good arrangement for Iraq ... and it will also show how the world community can come together in a very co-operative way to address a problem," a senior US official said.
A source close to the Paris Club talks confirmed that France backed a write-off of 80 percent of Iraq's debts to the Paris Club's member countries in three stages.
"France is in agreement for a phased cancellation," the source said. "One tranche straight away - the late interest (payments); one tranche of the principal in 2005, and another part of the principal in 2008, depending on fulfilment of the agreement with the IMF."
German Finance Minister Hans Eichel had said on Sunday that an initial tentative agreement meant the 80 percent of Iraq's Paris Club debt would be broken up into three stages of 30 percent, 30 percent and 20 percent, respectively.
Eichel said he and Snow agreed the timing of the second and third tranches of the debt write-off would depend on Iraq respectively concluding and completing an economic programme with the International Monetary Fund (IMF).
A senior US official said on Saturday Iraq's foreign debts had swollen to around $125 billion - from a pre-war estimate by the International Monetary Fund (IMF) of $120 billion - a third of which was owed to the 19 Paris Club countries.