German Finance Minister Hans Eichel said on Saturday that the Paris Club had reached a framework agreement to forgive 80 percent of Iraqi debt.
The breakthrough on Iraq's crippling $120-billion (€92-billion) debt came after major government creditors groped for common ground in Paris this week on easing the country's debt in a bid to keep a promise to resolve the question by year-end.
A third of the debt is held by Paris Club members, notably France, Germany, Russia and Britain.
German Finance Minister Hans Eichel
Eichel (photo) said the debt forgiveness plan would have three stages: 30 percent of debt would be forgiven immediately, 30 percent in connection with an International Monetary Fund program, and a further 20 percent conditioned on the successful implementation of the IMF plan.
His remarks confirmed that an agreement had been reached in the Paris Club to forgive 80 percent of Iraqi debt, as was indicated by a Group of Seven official, who asked not to be named, earlier Saturday.
But the German finance minister contradicted the G7 official's statement that the debt would be forgiven "without conditions" by outlining the gradual three-step process that conditions a further 20 percent of debt forgiveness on Iraq's successful completion of the IMF program.
No further details were immediately available.
A formal announcement was expected later from the Paris Club, an informal group of 19 advanced industrialized countries.
More debt forgiveness sought
The club had a Dec. 31 target date, agreed on last spring by Group of Eight leaders, to reach an agreement to ease Iraq's debt burden.
US soldiers during military operations in Fallujah in November.
France, Germany and Russia had agreed to halve Iraq's debt, while the United States and Britain, whose troops went to war to oust Saddam Hussein in 2003 and still remain in the country, are seeking a 95 percent reduction.
French Finance Minister Nicolas Sarkozy has argued that before agreeing to a reduction of more than 50 percent there must be time to evaluate the overall Iraqi situation, the price of oil and Iraq's production capacities.
French presidential spokesman Jerome Bonnafont this week said the time had come to make a "significant gesture" toward Iraq but added that Paris believed "it is necessary that this gesture remain proportional with what is being done for the world's poorest countries."
He said Iraq's other creditors should make similar moves to ensure that the debt relief initiative contributes to Iraq's reconstruction.
Debt to other countries
Iraq's debt to other countries, in particular its Gulf Arab neighbors and former Soviet-bloc states such as Bulgaria and Romania, amounts to about $60 billion.
Private creditors such as banks and infrastructure suppliers hold 20 to 30 billion dollars of Iraqi debt.
The International Monetary Fund last October approved a loan to Iraq of $436 million as emergency assistance to countries emerging from conflict, a step seen as essential to further talks on debt easing.
Allawi calls for German assistance
Iraqi Premier Ayad Allawi on Saturday meanwhile called on German businesses to help rebuild his country, according to Reuters news service.
Iraq's Prime Minister Ayad Allawi
Writing a guest column for the German mass-tabloid Bild am Sonntag, Allawi (photo) added that his country was not asking for German troops to come to Iraq but appreciated the German effort to help train Iraqi soldiers in the United Arab Emirates.
The German government has rejected the possibility of German soldiers being stationed in Iraq.