TOKYO (AFX)- Japan has agreed in principle to write off 690 bln yen, or 80 pct, of Iraq's 7.3 bln usd government debts to Tokyo, with Baghdad to repay the remainder over 23 years with a six-year deferment, the Nihon Keizai Shimbun cited government sources as saying at the weekend.

The agreement paves the way for the resumption of Japanese government loans of up to 3.5 bln usd to help with the reconstruction in Iraq, the report added.

The deal came after several working-level meetings following an agreement in November last year by the Paris Club of 19 creditor nations to write off Iraq's foreign debts.

Settling the existing debts will enable Japan to proceed with arrangements to provide government loans to Iraq beginning by March 2006, the business daily said.

As Japan is the largest creditor in the Paris Club, the bilateral agreement is likely to help expedite Iraq's negotiations with other creditor nations, the report cited the sources as saying.

The debt relief will be carried out in three stages -- writing off 30 pct of the principal in the first stage, 30 pct in the second stage after gaining the International Monetary Fund's approval for an adjustment program, and 20 pct in the third stage after the program is completed, the sources said.

Iraq has already completed bilateral negotiations for debt relief with the United States, Canada and some other countries. Agreement is pending with other major creditors such as Russia and France, as well as those not in the Paris Club such as Saudi Arabia and Kuwait.

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