Japan undecided on how to tackle Iraq debt

Tokyo (Reuters): Japan has not yet decided whether it will push for a suspension of Iraqi debt servicing as its preferred option for tackling the country's debt problem, Tokyo's top financial diplomat said on Monday.

The United States has called for creditor countries to accept a reduction in Iraq's debt but many nations, including Japan, are reluctant to give write-offs.

The Asahi Shimbun newspaper reported on Sunday that Japan was likely to agree to a temporary suspension of payments as a compromise.

Zembei Mizoguchi, Japan's vice finance minister for international affairs, told reporters on Monday that the government had not yet come to a clear decision.

"But (Iraq) is not in a situation where it can repay immediately, so we will deal with the matter accordingly," he added.

Japan offered staunch moral support for the U.S.-led war on Iraq but its difficult fiscal position has raised doubts over how generous it can be in helping Iraq rebuild.

The Paris Club of sovereign creditors has started discussing the Iraq debt issue.

While there are no official figures, analysts estimate that debt principal and interest owed by Iraq add up to US$120-$130 billion.

Japanese officials said Japan's public-sector lending to Iraq amounted to ¥473 billion ($4.04 billion), on top of which it is owed interest payments from the late 1980s and 1990s.

Hiroshi Watanabe, head of the finance ministry's international bureau, said last week that a clearer picture on Iraq's total debt amount, as well as its economic situation, was needed before a decision on Iraqi debt was made.

Tokyo gave $11 billion for the 1991 Gulf War and paid for 13 percent of the international effort to rebuild Afghanistan, but a growing fiscal debt is a concern as the economy remains stuck in a decade-long economic slump.