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Germany, France agree to Iraqi debt reduction

US special envoy James Baker won agreement on Tuesday from Germany and France, two of the most ardent opponents of the US-led war to oust dictator Saddam Hussein, to relieve Iraqi debt as a step toward securing the nation's economic future.

Fresh from "very fruitful" talks with President Jacques Chirac in Paris, Baker overcame serious misgivings during a meeting with Chancellor Gerhard Schroeder about the US exclusion of German firms from Iraqi reconstruction.

"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 and with other countries to achieve this objective," the three nations said in a joint statement issued in Berlin, Paris and Washington.

The three nations have agreed that having a new government in place -- expected next summer -- is not a precondition for moving forward on debt forgiveness, a senior Bush administration official said.

Details of how much debt would be restructured and canceled were left for further negotiations.

Iraq owes some US$40 billion to the US, France, Germany, Japan, Russia and others in the 19-nation Paris Club. Other countries and private creditors are owed at least another US$80 billion.

Washington welcomed the agreement, the first concrete signal of cooperation in rebuilding postwar Iraq from two key nations that tried to prevent the war and have refused to contribute any troops to the stabilization mission.

"We all share the same goal of helping the Iraqi people build a better future, a future that is free and prosperous," White House spokesman Scott McClellan said in Washington.

Baker's five-nation lobbying mission was complicated by the Pentagon's exclusion on US$18.6 billion in US-financed reconstruction projects in Iraq against countries that oppose the war. His next stop is Rome, followed by Moscow and London.

Russia, which is owed US$8 billion by Iraq, made clear after learning of the ban that it had no intention of writing off debt.

The former secretary of state made no comment in Berlin, but was upbeat in Paris after meeting with Chirac.

"We are agreed it is important to reduce that debt within the Paris Club -- if possible in the year 2004," Baker told reporters in Paris.

Despite responding to Washington's call for debt relief, Schroeder expressed concerns about the Pentagon's exclusion of German companies from Iraqi reconstruction contracts.

"Germany's position on the awarding of reconstruction contracts in Iraq was clearly expressed in the talks," Schroeder's spokesman Bela Anda said in a statement.

The White House, however, gave no indication that debt forgiveness could result in a slice of the reconstruction contracts.

Senior officials in Schroeder's government have been among the most critical of the US exclusion of firms from anti-war countries.

Defense Minister Peter Struck expressed hope that Baker's visit "will lead the US administration to change its position on the awarding of contracts in Iraq," Struck's spokesman Norbert Bicher said.

"James Baker can expect no success on the debt issue if the United States doesn't give in on the contracts," Development Aid Minister Heidemarie Wieczorek-Zeul insisted in this week's edition of Der Spiegel magazine.
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