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JAPAN OPEN TO FORGIVING IRAQI DEBT --IF OTHERS DO SO
by Norimitsu onishi
New York Times
December 29, 2003

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Pool photo, via Getty ImagesJames Baker, U.S. Special Envoy on Iraqi debt, met with Japanese Prime Minister Junichiro Koizumi in Tokyo today.

OKYO, Dec. 30 — Japan said on Monday that it was prepared to forgive "the vast majority" of the billions of dollars owed it by Iraq to help rebuild that country's economy, provided other leading creditors did the same.

The announcement, which came after Prime Minister Junichiro Koizumi met with special United States envoy James A. Baker III, strengthened Washington's efforts to reduce Iraq's $120 billion in foreign debts owed to members of the Paris Club of creditor nations and other nations.

"Japan would be prepared to eliminate the vast majority of its Iraqi debt, if other Paris Club creditors are prepared to do so in the context of a Paris Club agreement," a Foreign Ministry statement said. "This is essential for ensuring the Iraqi people to have the opportunity to build a free and prosperous Iraq, and is of special importance to the international security and stability."

The Foreign Ministry added that "the precise figures of debt reduction" would be subject to negotiations.

Iraq owes Japan $4.11 billion, but late-payment charges and other fees bring the total to more than $7 billion — the biggest debt to a Paris Club member. While Japan did not indicate whether it would waive the vast majority of the total amount, it has included penalties in debt-forgiveness decisions in the past.

"I think we made some very, very good progress on the very important issues of Iraq debt," Mr. Baker told reporters after his meeting with Mr. Koizumi. "Prime Minister Koizumi and Japan have taken a leadership role in the reconstruction of Iraq, something that is extraordinarily important and for which the United States is very grateful."

After stopping here, Mr. Baker led his worldwide lobbying efforts to reduce Iraq's debts to Beijing, where he met Premier Wen Jiabao. Mr. Wen said after the meeting that China "will consider reducing the debts owed to by Iraq out of humanitarian concern," according to the official Xinhua news agency.

China, which unlike Japan did not support the American-led war in Iraq, has criticized the United States for excluding it and other nations opposed to the war from lucrative reconstruction projects in Iraq. China says Iraq owes it billions of dollars, though the total is unclear.

Mr. Baker also had what he described as a "very cordial and very fine meeting" meeting with President Hu Jintao.

Mr. Baker's trip to this region followed a five-nation swing through Europe earlier this month, during which he secured agreements to reduce Iraq's debt. The exact percentage of the reductions remains open to negotiations, though the Bush administration has been pressing creditors to reduce Iraq's debt by as much as 90 percent.

On that trip, Mr. Baker also secured agreements from France and Germany, the two countries most fiercely critical of the war in Iraq. Iraq owes France about $3 billion and Germany about $2.5 billion, not including accrued interest and penalty fees.

Russia, which also opposed the war, said recently that it would also waive some of its $8 billion in Iraqi debt, though it wants some compensation for Russian companies.

The Paris Club, a group of 19 industrialized countries, holds about $40 billion of Iraq's estimated $120 billion in loans; Arab nations hold most of the rest. The agreements in Europe and now in Asia could help Mr. Baker in negotiating with creditors not in the Paris Club.

Alleviating Iraq's crushing debt is considered a prerequisite to starting the rebuilding of its economy. President Bush selected Mr. Baker, a former secretary of state during the administration of Mr. Bush's father, to act as a special presidential envoy to persuade creditors to waive Iraq's debts. Without debt reduction, foreign governments and companies are reluctant to invest the amount of money needed to resurrect Iraq's oil industry, and most of any oil revenue would be earmarked toward debt interest payments.

Debt relief is also critical to the United States' effort to establish a credible sovereign government in Iraq, since a huge debt would hobble any new government from the start. Under Paris Club regulations, debt reduction agreements can be signed only with a sovereign government along with an economic-restructuring program agreed to with the International Monetary Fund.

Japan had initially opposed forgiving Iraq's debts because of its potential oil revenue and because it had already pledged $1.5 billion in grants to Iraq next year, as well as $3.5 billion in low-interest loans over the next four years. But the Japanese government is believed to have softened its position after European nations agreed to Washington's requests.

Mr. Koizumi's administration has been one of the staunchest supporters of the war in Iraq, despite popular opposition here. Japan is to send 600 troops to southern Iraq over the next few months, the first time Japanese soldiers will set foot in a country with ongoing combat since the end of World War II.

 

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