The United Arab Emirates (UAE) has cancelled the entire debt owned to it by Iraq, which amounts to some $7 billion including interest and arrears payments, according to a UAE diplomatic source.
The United States had been pressing Arab governments to support Iraq by cancelling debt and establishing high-level diplomatic representation in the country.
Iraq's outstanding foreign debt amounts to $80 billion.
The UAE also appointed its new ambassador to Iraq today, a step that eases Baghdad's diplomatic isolation.
No ambassador from any Arab country has been stationed permanently in Baghdad since Egypt's envoy was kidnapped and killed shortly after arriving in 2005.
The appointment of Abdullah Ibrahim al-Shehhi, currently envoy to India, has been approved by the Iraqi government and now awaits a final signature from the UAE president, the source said, but it was not clear when he would arrive in Baghdad.