"We agreed yesterday that as quickly as possible but hopefully by the end of 2004... that we must undertake a restructuring of the debts," Koch-Weser told a breakfast briefing on Saturday ahead of a meeting of G7 finance ministers in Dubai.
United States officials have repeatedly said Iraq will need some form of forgiveness on debts estimated to be between $60 billion and $130 billion to help the country get its economy up and running again after the invasion.
But calls for debt relief have been met with resistance from countries like Russia, France and Germany, all opponents of the US-led invasion of Iraq. These countries lent Iraq a much larger amount than the $2.1 billion the US loaned to Iraq.
Koch-Weser said a restructuring agreement by the Paris Club of creditors was important to allow the World Bank to determine how much it could lend Iraq for reconstruction.
"We agreed yesterday that as quickly as possible but hopefully by the end of 2004... that we must undertake a restructuring of the debts"
Deputy Finance Minister, Germany
He added that he expected much of the rebuilding in the oil-rich country to be financed by loans from institutions like the World Bank as well as regional Arab development funds.
"We assume that due to the fact this is an oil country and on the condition that it undertakes programmes for macroeconomic stability that the international finance institutions can make a significant contribution in the medium-term," he said.
Koch-Weser said he hoped the International Monetary Fund and the World Bank would present a detailed needs assessment report in time for a donors' conference in Madrid October.
He said a calculation must be made of income available to Iraq from oil revenues, assets frozen during the rule of Saddam Hussein and cash left over from the UN-supervised fund to use oil earnings to buy food prior to the lifting of sanctions.
On the expenditure side, he said estimates were needed for how much running an Iraqi administration would cost on an annual basis as well as reconstruction costs.
As the costs of its Iraq occupation soar, Washington is trying to persuade other countries to contribute more troops and cash and has drafted a new UN resolution with that in mind.
But Germany, who helped pay for the Gulf War of 1991, has held back on making any specific financial commitments to try to wring concessions on the draft resolution. It seeks a bigger role for the United Nations and a faster handover to Iraqis.