The Paris Club of creditor nations agreed yesterday to write-off up to 80 per cent of Iraq's $40 billion (€30 billion) debt at the end of the G20 meeting of rich and developing countries in Berlin.
After hours of uncertainty, Russia backed the deal hammered out by the German and US finance ministers on behalf of the Paris Club at a meeting overshadowed by the rising price of oil and the transatlantic war of words over the continuing slide of the dollar.
"I would be lying to say that we did not talk about it," said Mr Hans Eichel, the German finance minister, when asked about the dollar rate.
"Exchange rate issues were not on the order of business... [ but a] double-digit deficit in the US is a problem," he said.
Earlier, the German Chancellor, Mr Schröder, said the ballooning US deficit was "clearly" behind the exchange-rate slide. US officials in Berlin said that Japan and Europe could do more to encourage economic growth.
"You can't demand structural reforms from the Europeans and then not highlight the economic necessities that from our perspective are necessary," said Mr Schröder.
Mr John Snow, the US Treasury Secretary, said in Berlin that Washington was "deadly serious" about reducing debt.
"I told the Chancellor we want to get a handle on the budget, and that the president wants that too," he said, adding that the White House "is obliged to adopt fiscally responsible behaviour".
The G20 communiqué issued at the end of the conference made no direct reference to the dollar's slump, but instead referred to the "need to bring public spending and debt in relation to economic data to a reasonable level" in relation to economic data.
The G20 finance ministers voiced their concerns about the "increased risks due to oil price volatility" and called for "greater co-operation between oil producers and consumers to ensure adequate supply".
The price of oil will, in the medium term, drop from current levels of around $50 per barrel to $35 - $40, the statement said.
The final deal to forgive Iraq's Paris Club debt and interest, a third of its total foreign debt, is a diplomatic success for the US in its reconstruction efforts in the country. The deal is a compromise between opponents to the Iraq war in Europe and Russia, who were prepared for a 50 per cent debt reduction, and the 95 per cent write-off sought by the US and Britain, the initiators of the war.
"In the first stage, around 30 per cent (will be written-off) immediately; in the second stage around 30 per cent, tied to an International Monetary Fund programme; and in the third stage 20 per cent, dependent on the success of this programme," said Mr Eichel yesterday.
Iraq owes around $40 billion to countries in the Gulf and $20 billion to private banks.
Its largest creditors outside the region are Japan ($4.1 billion), Russia ($3.5 billion), France ($3 billion) and Germany ($2.4 billion).
