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Japan, China to Reduce Iraqi Debt

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  • Japan, China to Reduce Iraqi Debt

    Baker Secures Iraq Relief From Japan

    BEIJING Japan agreed on Monday to cut billions of dollars of Iraqi debts and China said it would consider the idea, boosting the U.S. campaign to ease Baghdad's financial burden.

    Both governments announced their decisions after U.S. envoy James A. Baker III met with their leaders on a lightning trip to Tokyo and Beijing -- part of a global U.S. lobbying effort.

    Japan, which along with Russia says it is Iraq's biggest creditor, abandoned its earlier reluctance to join debt relief (search). It offered to forgive "the vast majority" of Iraqi debt if other members of the Paris Club (search) of major creditor nations do so as well.

    "Japan is committed to provide substantial debt reduction for Iraq in the Paris Club in 2004, and will work closely with other countries including the U.S. to achieve this objective," said a Japanese Foreign Ministry statement after talks between Baker and Prime Minister Junichiro Koizumi.

    Japan said earlier this month that Iraq owes it $4.1 billion -- or $7.76 billion with interest and penalties.

    Baker has already won agreements from Russia, Germany and France -- which opposed the war in Iraq -- to cooperate in debt reduction. The United States praised the Japanese announcement.

    "This very forthcoming position is further evidence of Prime Minister Koizumi's and Japan's global leadership on Iraqi reconstruction (search)," said Sean McCormack, a spokesman for Baker.

    In Beijing, Premier Wen Jiabao said after meeting Baker that China "will consider reducing the debts owed to by Iraq out of humanitarian concern," the official Xinhua News Agency said.

    China says Baghdad owes it at least $1.1 billion -- much of it for work by two state-owned construction companies before the 1990 Gulf War -- though the total isn't clear. The state newspaper China Daily has put the figure at "several billion" dollars.

    China was part of the group of nations that opposed U.S. military action before the attack on Iraq.

    Though China didn't make a firm commitment, describing debt relief in humanitarian terms could make it hard to refuse later. And the communist government, which sees Japan as a rival, might feel compelled to match Tokyo's cuts as a matter of prestige.

    There was no indication whether China was offered concessions such as more access to Iraqi reconstruction contracts -- or whether Beijing's lack of a commitment was an attempt to extract them.

    Beijing has criticized Washington's decision to limit reconstruction work for countries that opposed the war. On Monday, the Communist Party newspaper People's Daily said the United States "wants to monopolize the big cake of Iraq's reconstruction ... to make it hot for those countries which sang a different tune."

    McCormack said the United States welcomed China's offer to consider reducing Iraq's debt "by a relatively big margin." He also said the announcement was especially significant because China is outside the Paris Club of creditors.

    Baker's spokesman said the exact size of China's debt cut was still under discussion. As for access to Iraqi reconstruction work, "lines of communication are still open on the issue," McCormack said.

    Iraq owes about $40 billion to Paris Club members and another $80 billion to other Arab governments.

    Japan's decision to embrace debt relief represented a departure from what a U.S. official, who spoke in Tokyo on condition of anonymity, said was its earlier insistence on examining whether oil-rich Iraq was able to pay its debts.

    The move comes amid severe financial problems for Japan. Its government budget next year relies on bond issues, inflating a national debt burden that already is among the world's highest.

    Baker, a former U.S. secretary of state, undertook the mission as a personal emissary from President Bush.

    In Beijing, he also met with President Hu Jintao (search), who said China wants to "help reconstruction and the restoration of peace and stability in Iraq as soon as possible," Xinhua reported.,2933,106877,00.html