Paul Carrel
Reuters
November 18, 2004

Paris: The Paris Club of creditor nations, which includes all the Group of Seven states, met for talks on Thursday aimed at narrowing a trans-Atlantic rift over how much of Iraq’s $125 billion in debt to forgive.

The 19 countries are seeking to bridge a gap between the 90-95 percent write-off Washington has pushed for, and France’s proposal that the leading creditors should initially cancel half of Iraq’s debts and then review the situation after three years.

A dispute over the issue at a meeting of finance ministers from the G7 rich countries last month revived lingering tensions between Washington and Paris over the U.S.-led war, which France opposed.

Financial officials from the Paris Club member states reconvened after listening to a presentation on Wednesday by Iraqi Finance Minister Adel Abdul Mahdi on his country’s debt position, a source close to the Paris Club said.

France argues that Iraq has the world’s second-largest oil reserves and should not be treated like impoverished African nations without such natural resources.

The United States says Iraq needs enormous debt relief to get back on its feet and become economically viable.

The Paris Club talks could go on beyond Thursday, the source said.

Officials at the Paris Club, an informal grouping that seeks sustainable solutions to the payment difficulties of debtor countries, say they are aiming to reach a deal by the end of this year. France backed that aim this week.

“We are committed to this goal of a result before the end of the year,” President Jacques Chirac’s spokesman, Jerome Bonnafont said on Tuesday. “We are convinced that a significant gesture needs to be made in Iraq’s favour.”

Such a gesture should “remain within proportions compatible with what is done elsewhere for the world’s poorest countries”, Bonnafont added. He declined to put a figure on how much debt France wanted forgiven.

At the October G7 meeting, French Finance Minister Nicolas Sarkozy said Russia, Germany and Italy all backed his proposal that leading creditors initially waive half of Iraq’s debts and revisit the issue after three years.

Britain’s finance minister, Gordon Brown, appeared to show support for the U.S. position on Tuesday, saying the “vast majority” of Iraq’s debts should be forgiven.

An accord on Iraq debt forgiveness at the Paris Club could serve as a benchmark for relief deals with other creditors such as Saudi Arabia, Kuwait and eastern European states.

Finance ministers from the G7 nations – the United States, Japan, Germany, Britain, France, Italy and Canada – will meet in Berlin on Friday at a broader gathering with their other counterparts from the G20 group of developed and emerging market economies.