PARIS — France and Germany agreed Tuesday to work with the United States toward a "substantial reduction" of Iraq's towering foreign debt next year. The accord marked a significant step forward in the United States' effort to rebuild the devastated country as well as progress in mending ties with the two countries most opposed to the American-led war there.
"Debt reduction is critical if the Iraqi people are to have a chance to build a free and prosperous Iraq," said a statement issued by France after meetings by former Secretary of State James A. Baker III with the French president, Jacques Chirac, in Paris, and the German chancellor, Gerhard Schroeder, in Berlin. "Therefore, France, Germany and the United States agree that there should be substantial debt reduction for Iraq in the Paris Club in 2004, and will work closely with each other to achieve this objective."
The Paris Club is a group of 19 industrialized countries that have worked together to alleviate the financial obligations of over-indebted countries since 1956. Those nations hold about $40 billion of Iraq's estimated $120 billion in loans; Arab nations hold most of the rest. The agreement is likely to strengthen Baker's hand in eventual negotiations with those countries.
Adding to its debt load, Iraq is liable for $100 billion in war reparations to Kuwait; Iran also demands reparations.
France's statement, echoed in Washington and Berlin, said that the exact percentage of debt reduction was subject to future negotiations. But American officials said the three countries had agreed to begin work before the establishment of sovereignty in Iraq, a previous Paris Club precondition to debt reduction talks.
The agreement is the most concrete accord reached by the three countries since France and Germany angered the United States by opposing the war and ruining the American-led coalition's chances of winning a more explicit United Nations mandate to invade Iraq. It comes despite Washington's move to bar the two countries from bidding on billions of dollars in American reconstruction contracts in Iraq.