Jan. 4 (Bloomberg) -- The world has heard a lot recently about how Western and Asian nations are going to forgive large amounts of Iraq's $125 billion in foreign debt.

Most of the debt -- which equals about six times the country's annual gross domestic product -- is owed to Saudi Arabia and Kuwait. It's time to hear what the world's two richest Arab nations are prepared to do to help their Iraqi brothers.

Iraq's debts all date from the era of Saddam Hussein. There's no way post-Hussein Iraq can repay the bulk of the debt, so some forgiveness is needed.

Germany, France, Italy and now Japan have indicated a willingness to grant substantial relief. The collective debt owed to members of the so-called Paris Club is $41 billion.

China, not a member of the Paris Club, says Iraq owes it ``billions of dollars.'' China, too, is signaling a willingness to write off significant Iraqi debt.

Russia also may help Iraq with the $8 billion owed to it, but it wants a piece of the lucrative contracts for reconstruction of Iraq, including producing oil there. Iraq holds the world's second- largest oil reserves.

Baker's Work

These concessions are the result of former U.S. Secretary of State James Baker's progress in his mission as special envoy of President George W. Bush to negotiate on behalf of Iraq for relief from its foreign debt.

Baker's most recent success has been with Japan, where Prime Minister Junichiro Koizumi said this week the ``vast majority'' of the debt Iraq owes his nation will be forgiven. Iraq owes Japan $4.ll billion; add late payments and the total is $7 billion.

The next call for Baker was Beijing. Liu Jianchao, a spokesman at the Ministry of Foreign Affairs, acknowledged that Iraq owes China those billions. Premier Wen Jiabao told Baker China would weigh granting debt relief to Iraq, and indicated it would be a ``relatively large cut.''

If there was a sour note to his Asian trip it was South Korea. Curiously, Baker canceled his visit to Seoul that was scheduled for Monday.

Ra Jon Il, South Korean President Roh Moo Hyun's security adviser, told CBS radio that Baker decided against the visit because what Iraq owes his country is small compared with other Asian nations. The total is more than $1.2 billion, of which $1.1 billion is owed to Hyundai Engineering & Construction Co.

Paris Club Next

Baker has indicated that the Paris Club, which has agreed on a moratorium on the repayment of Iraqi debt until next year, will debate forgiveness of Iraq's debts in 2004. Of the approximately $41 billion owed to the Paris Club members, $21 billion is principal and the rest is back interest.

The Paris Club is an informal group of official creditors that meets to discuss granting debt relief and payment rescheduling to cash-strapped debtor nations.

The members include the Group of Seven industrialized nations, Russia, Australia, Belgium, Denmark, Sweden and Switzerland. Parenthetically, the group first met in Paris in 1956 to discuss debt relief to Argentina.

Japan attached an important condition to its participation in reducing Iraq's debt, saying the other members of the Paris Club must also grant relief.

That seems perfectly reasonable. It's more than likely the other Paris Club members will be generous.

So what about Saudi Arabia and Kuwait?

No Thanks

The majority of Iraqi debt is owed to Saudi Arabia and Kuwait. These debts represent money lent to Iraq to fight the 1980- 88 war with Iran.

Al-Jazeera.net reported on Dec. 24 that Saudi Foreign Minister Prince Saud al-Faisal dismissed the possibility of forgiving Iraqi debt for the near term.

``This (debt) has to be discussed with a government with total sovereignty, so...this issue is now premature,'' the agency reported, citing comments made by the foreign minister on Saudi state television,

The prince was referring to Iraq being governed by a council installed by the U.S. after the defeat of Hussein.

Al-Jazeera reported Kuwait hasn't insisted on repayment but refuses to write off the Iraqi loans.

In all likelihood, Iraq will insist that the money from the Gulf States was part of wartime grants, not loans. That's something Hussein once said.

The Saudis have a bigger problem than no permanent government in Iraq. Al-Jazeera also reported that ``some analysts and academics say Saudi Arabia did not bother documenting the loans'' to Iraq.

No documents, hey? Happy New Year, Paris Club.

Last Updated: January 4, 2004 01:30 EST