UAE cancels nearly $7 billion in Iraq debt

By Lin Noueihed

DUBAI (Reuters) - The United Arab Emirates has cancelled almost $7 billion (3.52 billion pounds)of debt including interest and arrears payments owed by Baghdad, becoming the first Gulf Arab country to forgive all of Iraq's debt.

The United States has pressed Arab governments to support Iraq's recovery by joining Western nations in forgiving their share of Iraqi foreign debts that total up to $80 billion.

Washington also wants Arab capitals to establish high-level diplomatic representation in Iraq.

In a step toward easing Baghdad's diplomatic isolation, the UAE appointed its new ambassador to Iraq on Sunday during a visit by Iraqi Prime Minister Nuri al-Maliki.

The move came a month after the UAE's Sheikh Abdullah bin Zayed al-Nahayan became the first Gulf Arab foreign minister to visit Baghdad since the U.S.-led invasion in 2003.

The UAE's official news agency WAM said the principle debt owed by Iraq totalled $4 billion loaned at different times. A UAE diplomatic source told Reuters the total sum that would be forgiven was almost $7 billion including interest and arrears.

"The UAE state's decision to cancel the debts accumulated by Iraq is an expression of brotherhood and solidarity between the two countries and is to help the Iraqi government carry out its reconstruction and rehabilitation plans," WAM quoted UAE President Sheikh Khalifah bin Zayed al-Nahayan as saying.

Maliki, who is also due to visit Bahrain, welcomed the move, which he said would help his government to "restore security and stability" by lifting a major financial burden.

Over the past three years, about $66.5 billion of Iraq's overall $120.2 billion foreign debt has been forgiven. The Paris Club cancelled $42.3 billion, including Russia's $12 billion.

Non-Paris Club members have cancelled a total $8.2 billion. A total $16 billion has been cancelled by commercial creditors.

Last year, Saudi Arabia pledged to cancel 80 percent of more than $15 billion in Iraqi debt but has yet to follow through. Kuwait, also owed $15 billion, has yet to write off any debts.

EASING ISOLATION

In further signs of Iraq's easing diplomatic isolation, the country is expecting visits from Jordan's King Abdullah and Turkish Prime Minister Tayyip Erdogan. King Abdullah would be the first Arab head of state to visit Iraq since the invasion.

Sunni Arab governments who once funded Iraq's 1980-1988 war against Shi'ite Iran have held back from establishing top-level ties with Baghdad since the U.S.-led war toppled Saddam Hussein, citing poor security and extensive Iranian influence.

No ambassador from any Arab country has been stationed permanently in Baghdad since Egypt's envoy was kidnapped and killed shortly after arriving in 2005.