Speaking on Monday at a meeting of the Paris Club, countries and agencies with claims on indebted countries, de Villepin told reporters that France could help establish an agreement to reduce Iraq's debt, by 2004.

France chairs the Paris Club, as well as being a creditor itself, Paris said that it was optimistic about the prospects of a deal to reduce Iraq's debt burden.

"France could in those circumstances envisage debt write-offs that would be suitable and in line with Iraq's financing capacity," Villepin said.

Iraq's has an estimated debt of $40 billion, owed to countries that make up the 19 Paris Club countries.

Future agreement

Sources close to the Paris Club said recently there were two major prerequisites to any Paris Club deal, a fully recognised government in Iraq and a basic agreement between Baghdad and the (IMF) on Iraq's economic strategy.
   
One source said the US-led occupation authority in Iraq would not be deemed as sufficiently legitimate to sign legal debt deals concerning write-off and rescheduling of repayments over decades, as well as issues such as oil output.

Members of the Iraqi delegation that was in Paris, welcomed the French offer to push for debt relief with the Paris Club.

"We asked France to show some initiative to the Iraqi people, and they were forthcoming," said Hoshyar Zebari, Iraq's interim foreign minister.

"This is a gift... We hope other European countries will now act like France," said Jalal Talabani, a member of the Iraqi Governing Council and head of the Patriotic Union of Kurdistan.

Russian hopes

Russia, another major creditor, appealed on Monday for a debt deal to be worked out under the auspices of the Paris Club, clearly keen to ensure that every creditor gets a fair share of whatever money is paid back in the end.
   
Deputy Foreign Minister Yuri Fedotov was quoted by Interfax news agency as saying: "Iraq is not the poorest of states. But I want to stress that Paris Club mechanisms are very flexible and provide for restructuring and easing of debtors' burden."

US special envoy James Baker leaves on Monday to discuss Iraq's debt with France, Germany, Italy, Russia and Britain.