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Nations write off billions in Iraq debt

Nineteen creditor nations in the Paris Club agree to reduce Iraq's debt by 80 percent, or $31-billion. In Iraq, elections are set for Jan. 30.

Major economic powers agreed Sunday to write off more than $31-billion in debt for Iraq in a deal that boosted U.S. efforts to help put the Iraqi economy back on its feet.

The news came as Iraq's electoral commission set Jan. 30 for elections to choose a National Assembly, a vote that could deliver power to Iraq's Shiite Muslim majority after decades of disenfranchisement. The balloting, however, remains imperiled by calls for a Sunni Muslim boycott and a persistent insurgency that has roiled Sunni regions.

Under the debt agreement reached in Paris, 19 creditor nations will write off 80 percent of the $38.9-billion that Iraq owes them, group chairman Jean-Pierre Jouyet said.

Iraq owes $80-billion more to various Arab governments. A clause in the agreement gives the Paris Club the option to suspend part of the debt reduction if it is not matched by Iraq's other major creditors, led by Saudi Arabia and Kuwait.

The United States had been pressing for up to 95 percent of the Paris Club debt to be lifted. Iraq has said its foreign debt was hindering postwar reconstruction, already struggling amid the country's persistent insurgency.

Iraq's finance minister, Adel Abdul-Mahdi, hailed what he described as a "historic agreement."

"This money is needed for Iraq not only because Iraq is a ruined country but because Iraq is an important player internationally," he said after the deal was signed in Paris. "What will happen in Iraq will affect politically and economically the Middle East and the world."

The deal represented a considerable concession from France, just as French President Jacques Chirac's government is pushing to rebuild ties with the Bush administration that were damaged by disagreements over the U.S.-led Iraq war. France opposed the invasion that toppled Saddam Hussein.

President Bush praised the deal as a major boost for Iraq.

"The Iraqi people have an historic opportunity to build a free and democratic Iraq after more than two decades of political oppression and economic devastation under the brutal regime of Saddam Hussein," Bush said in a statement from Santiago, Chile, where he was attending a summit of Pacific Rim leaders.

Jouyet, at a news conference in Paris, said the debt reduction plan will work in three phases, with 30 percent of the debt being written off immediately.

Another 30 percent will be canceled when Iraq agrees on a reform program with the International Monetary Fund expected in 2005. The third and final portion, representing 20 percent of Iraq's debt to the Paris Club, will be canceled in 2008, once Iraq has completed its three-year IMF program, Jouyet said.

The Paris Club's chairman said the group had "shown its flexibility" over Iraq's reconstruction needs and its limited ability to service its debt in the short term.

"Iraq will be able to concentrate its entire resources on its reconstruction," he said.

The deal was reached after Russia, the one country that still needed to sign off on the deal, gave its approval after talks that began Saturday and ended Sunday, officials said.

France had long argued that slashing Iraq's Paris Club debt by more than half would be unfair to other poorer nations that also are saddled with debts but do not have the potential wealth of oil-rich Iraq.

Back in Iraq, the election date set Sunday was no surprise, because under the interim constitution, the election must take place before the end of January.

But in recent weeks, attacks have intensified in towns such as Mosul and Ramadi, as well as Baghdad, where battles this weekend between rebels and U.S. troops backed by Apache helicopters sent a shudder through the capital. Key Sunni figures have said that unless the election is delayed until a semblance of calm returns, they will sit out the vote.

Campaigning for the election is scheduled to begin Dec. 15, although Hussain Hindawi, chairman of the nine-member electoral commission, acknowledged security is a problem.

Iraq's interim prime minister, Ayad Allawi, has insisted the rebellion will be crushed by U.S. troops and their Iraqi allies before voting takes place, and Shiite religious leaders such as Grand Ayatollah Ali Sistani have pushed hard for a vote to take place on time. Posters have gone up in Shiite neighborhoods endorsing the elections, and even anti-American clerics such as Muqtada al-Sadr have stopped short of joining the largely Sunni boycott.

The election will choose a 275-member National Assembly. In turn, that body will select a new government to replace the current, appointed leadership and oversee the drafting of a constitution. If the constitution is ratified, another election will be held in December 2005 to seat a permanent government.

Information from the Washington Post and Associated Press was used in this report.

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WHAT'S THE POINT? Iraq says its foreign debt hinders reconstruction. Iraq owes $80-billion to Arab nations.

WHO'S IN THE CLUB? Austria, Australia, Belgium, Britain, Canada, Denmark, Finland, France, Germany, Ireland, Italy, Japan, Netherlands, Norway, Russia, Spain, Sweden, Switzerland, United States.