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Joint plan to relieve Iraq debt

Schroeder, Baker
Schroeder (right) and Baker after their meeting.

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BERLIN, Germany (CNN) -- The United States, France and Germany have agreed on a plan to provide the fledgling Iraqi government with "substantial" debt relief, according a joint statement issued by the three governments.

The amount of the debt reduction will be subject to "future agreement" between the countries, the statement, released Tuesday, said.

"Debt reduction is critical if the Iraqi people are to have a chance to build a free and prosperous Iraq," it said.

"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 Paris Club, an informal group of 19 creditor nations, has been discussing ways to relieve the debt burdens of debtor nations, including Iraq, which owes about $40 billion in principal and back interest to Paris Club countries.

The joint announcement came after U.S. President George W. Bush's special envoy for Iraq reconstruction, James Baker, met with French and German officials, amid encouraging signs that both countries -- who opposed the U.S.-led war in Iraq -- were willing to help the newly liberated country get out from under some of the $120 billion debt run up by deposed dictator Saddam Hussein.

The secretary-general of the Paris Club told CNN that Germany is owed about $5 billion of that debt, including arrears. Another $5.5 billion including arrears is owed to France, and $4.4 billion is owed to the United States.

"Germany is ready to make a substantial contribution to help rebuilding a democratic and stable Iraq," said Chancellor Gerhard Schroeder, as his meeting with Baker began in Berlin.

"That will be the subject of our talks today, and I think that we will have an agreement within a foreseeable time."

After the meeting, a German government spokesman hinted that a plan was in the works to forgive some of Iraq's debts.

"Germany and the U.S. -- just like France -- are not only ready for a restructuring, but also to a substantial debt relief regarding Iraq," said the spokesman.

Earlier in the day Tuesday, after what he called "fruitful" talks with French President Jacques Chirac, Baker said France also had agreed with the United States that Iraq's debt needs to be restructured.

Many of the nations have indicated they would like to restructure the debt, rather than forgive it, because Iraq is a wealthy country with large oil reserves that could eventually repay its loans.

Describing his reception by the French as "warm," Baker said, "We want to do what we can to reduce the oppressive debt burden on the Iraqi people so that they can enjoy freedom and prosperity, and we would like to do that in 2004 through the mechanism of the Paris Club."

On Monday, French Foreign Minister Dominique de Villepin told a visiting Iraqi delegation that France was willing to work with them to restructure the debt. (Full story)

America's relations with France and Germany, already strained by the war, were further strained last week when the Pentagon announced that companies from countries that opposed the war could not bid on $18.6 billion in Iraqi reconstruction contracts.

A German government spokesman said, "The position of Germany regarding the handing out of contracts for the reconstruction of Iraq has been clearly stated in the talks [with Baker.]"

Baker is due to fly to Rome Wednesday for discussions on Iraq's debt with Italian Prime Minister Silvio Berlusconi, who supported the war.

One unanswered question as Baker makes his way around the world is what the United States plans to do about the money Iraq owes the U.S. government.

White House spokesman Scott McClellan told reporters "the process is just beginning" and "we'll keep you posted as we move forward."

McClellan said Baker also met in Paris Tuesday morning with Iraq's finance minister and the Iraqi central bank governor.

-- CNN Correspondents Jim Bittermann, Stephanie Halasz and Dana Bash contributed to this report.

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