G7 powers agree joint approach on Iraq

Finance ministers from the world's most powerful nations claimed the first diplomatic agreement on Iraq yesterday since the rift in the UN Security Council, after Britain brokered a last-minute deal paving the way for the economic reconstruction of the Arab state.

The Group of Seven nations agreed on the need for a "multilateral effort to help Iraq" and cleared the way for negotiations on resolving Iraq's estimated $190bn debt crisis and for paying for the rebuilding of the country's fractured economic system.

The G7 meeting in Washington was the first held between the key opponents of the war – France and Germany – and the United States and Britain, who pushed for military action against Saddam Hussein's regime.

Diplomats heralded the declaration of a multilateral approach as a breakthrough. However, there are still splits over what the next stage would be, and disappointment among some officials that the G7, which also includes Canada, Italy and Japan, had failed to produce something more concrete.

The G7 communiqué, later echoed by a larger group of countries on a committee of the International Monetary Fund that Britain chairs, showed broad agreement that the IMF and the World Bank should play an important role in helping to finance any new Iraqi regime, once it was safe for them to visit.

But it also supported the need for a new UN resolution – something that America had resisted for fear of giving the UN too great a role in the rebuilding process.

The communiqué said: "We recognise the need for a multilateral effort to help Iraq. We support a further UN Security Council resolution. The IMF and World Bank should play their normal role in rebuilding and redeveloping Iraq, recognising that the Iraqi people have the ultimate responsibility to implement the right policies and build their own future."

The finance ministers also agreed the debt issue must be addressed by the Paris Club, an organisation of creditor countries that negotiates deals with cash-strapped states.

America has urged France, Germany and Russia, the main creditors, to cancel the debt.

Those countries are angry at being coerced into writing off billions of dollars in debt to help rebuild a country damaged in part by military action that they did not approve.

Hans Eichel, the German Finance Minister, said: "Any speculation about debt forgiveness is very, very premature, to put it in cautious terms."

Iraq owes $85bn to other countries, of which $60bn is owed to Paris Club members. In addition, there is an estimated $30bn of debts to other Arab states for oil contracts and $80bn in compensation for the 1991 Gulf War.

There was frustration among some countries that there was no financial action plan, despite evidence Iraq was descending into chaos while they met in the US capital. Urgent issues include organising a new currency and paying Iraqi officials and workers to start the rebuilding work.