President Bush's special envoy for reducing Iraq's debt, Mr James Baker, yesterday announced an agreement in principle with France to work towards cancellation of Iraq's staggering foreign debt.
"The French and the US governments want to reduce the debt burden on Iraq so that its people can enjoy freedom and prosperity," Mr Baker told journalists as he left the Élysée Palace after an hour-long meeting with President Jacques Chirac. "It is important to reduce the Iraqi debt burden within the Paris Club (of creditor states), in 2004 if possible."
Though Mr Chirac made no official statement, his spokeswoman Ms Catherine Colonna said the two agreed on the importance of cutting Iraq's debt next year.
Iraq owes more than $120 billion. One third of that is claimed by the US, France, Germany, Japan, Russia and other members of the 19-strong Paris Club, which renegotiates debts. The other $80 billion is owed to Arab countries and nations outside the Paris Club.
Mr Baker's visit had appeared doomed by the Pentagon's announcement last week that none of the countries which opposed the Iraq war could bid on $18.6 billion of reconstruction contracts in Iraq. But prospects improved with the capture of Saddam Hussein, and the effusive messages of joy and congratulations sent by French, German and Russian leaders.
Prior to Mr Baker's arrival, the French foreign minister rolled out the red carpet for the former US secretary of state, saying that an agreement on debt reduction was possible within the framework of the Paris Club next year..
The Bush administration is eager to restore a viable Iraqi economy in advance of the November 2004 US presidential election. Iraq will not be eligible for World Bank loans until the debt question is settled.
Mr Howard Leach, the US ambassador to Paris, told French radio that Saddam's capture will "reinforce" Franco-American relations. He said "the next stages" would be discussed by Mr Chirac and Mr Baker, and that "France perhaps will be able to participate in the reconstruction of Iraq". It appears there will be a trade-off between debt reduction and reconstruction contracts.
Mr Baker was to travel from Paris to Berlin to see the German Chancellor, Mr Gerhard Schröder. As he went in to his meeting with Mr Baker, Mr Schröder said Germany was ready to make a "substantial contribution" to rebuilding Iraq.
He said he believed there would be an agreement "within a foreseeable time".
Mr Baker will also visit Rome, Moscow and Britain.
The Franco-American agreement in principal masks the vagueness of both countries' commitment. Neither Paris nor Washington, who are owed $3 billion and $2.1 billion respectively, have given any indication of how much of Iraq's debt they would be willing to write off.
Washington is reportedly seeking the cancellation of 90 per cent of Iraq's debt by other creditors. But members of the Paris Club note that such generosity is shown only to impoverished African countries, and that Iraq, with the world's second largest oil reserves, should be able to pay.
Russia, like Paris, insists that all negotiations take place in the forum of the Paris Club, with a sovereign Iraqi government.