France, Germany May Forgive Some Iraq Debt

President Bush's special envoy on Iraq (searchwon agreement Tuesday from Germany and France, two of the most ardent opponents of the American-led war, to ease Baghdad's huge debt burden.

The agreement came after former Secretary of State James A. Baker III (searchovercame serious German misgivings during a meeting with Chancellor Gerhard Schroeder (searchabout the U.S. exclusion of German firms from Iraqi reconstruction. Baker earlier had what he called "very fruitful" talks with French President Jacques Chirac (searchin Paris.

France, Germany and the United States agree that there should be substantial debt reduction for Iraq in the Paris Club, a 19-member group of creditor nations, the leaders of the three nations said in a joint statement issued by the White House Tuesday afternoon.

"Debt reduction is critical if the Iraqi people are to have any chance to build a free and prosperous Iraq," according to the statement by President Bush, French President Jacques Chirac and German Chancellor Gerhard Schroeder. The three said they will "work closely with each other and with other countries to achieve this objective."

"The exact percentage of debt reduction that would constitute `substantial' debt reduction is subject to future agreement between the parties."

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.

Iraq owes $40 billion to the United States, France, Germany, Japan, Russia and others in the Paris Club. Other countries and private creditors are owed at least $80 billion in addition.

The agreement was the first concrete cooperation in rebuilding postwar Iraq from two nations that tried to prevent the war and have refused to contribute troops to the postwar stabilization mission.

It appeared to be an effort to project a united front. Germany and France have been eager to reconcile with the United States despite their misgivings about the U.S. invasion.

Germany repeated its concerns about the contract issue and U.S. officials left open the possibility that they would discuss it further.

"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 of war opponents from $18.6 billion in U.S.-financed reconstruction projects in Iraq. His next stop is Rome, followed by Moscow and London.

Russia, which is owed $8 billion by Iraq, said it had no intention of writing off debt after learning it could not participate in the U.S.-funded reconstruction projects.

Asked if the United States might revise its contract policy, U.S. Defense Secretary Donald Rumsfeld said Tuesday it was a matter for negotiations between U.S. agencies.

Baker 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 said 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 deals.

"We've made it very clear that when it comes to the U.S. taxpayer dollars, that we believe those tax dollars should be going to the countries that have been involved in helping to liberate the Iraqi people and help them build a free and peaceful and prosperous future, and also to Iraq as well," McClellan said.

"If additional countries want to join the efforts of some 60 countries and the Iraqi people in the overall reconstruction, then circumstances can change."

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

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

Critics in Germany also have questioned the need for massive debt relief given Iraq's oil wealth. The Foreign Ministry's top official on German-U.S. relations, Karsten Voigt, said he found it "hard to explain" that the United States was now pressing Iraq's creditors to help out.

"Before the war, the U.S. government always said that reconstruction would finance itself," Voigt told The Associated Press.