Did Bush Create This Monster?

By Richard Lacayo

Nothing inspires more confidence in Republican campaign strategists than the belief that George Bush is unbeatable on the foreign policy front. The President can point to the kind of experience that no mere Governor of Arkansas or Texas businessman can claim. Even the imperfect victory over Iraq, which failed to push Saddam out of power, is a Bush triumph in one crucial respect: it achieved the declared aim of ousting Saddam from Kuwait.

But lately congressional Democrats are trying to credit Bush with Saddam's rise as well as his retreat. No fewer than three House committees are looking into the charge that, first as Vice President under Ronald Reagan and then as President, Bush provided Iraq with substantial U.S. assistance that strengthened Saddam's hand as a regional menace. Even as it became clear that Baghdad was moving to dominate its neighbors, Bush, Secretary of State James Baker and other White House officials urged the Commerce and Defense departments to approve sales to Iraq of sensitive U.S. technology that found its way into Saddam's weapons programs, including his effort to develop a nuclear bomb. The White House also pressed for federal loan guarantees that encouraged banks to extend credit to Iraq in return for assurances that the U.S. Treasury would pay if the Iraqis reneged. They did. Now American taxpayers are left holding the bag for $1.5 billion in bad loans.

North Carolina Representative Charlie Rose, who chairs a House agriculture subcommittee, is looking into why the Agriculture Department's program, designed to help foreign nations purchase American farm goods, approved most of the loan guarantees. "These loans not only permitted Iraq to feed its people," complains another House Democrat, Henry Gonzalez of Texas, "they freed up scarce foreign exchange that was used by Iraq to build up its military arsenal."

Gonzalez chairs the House Banking Committee, which last week resumed hearings into whether the Administration is withholding information about U.S. policy toward Iraq. One matter before the committee involves a Justice Department investigation into charges that, in exchange for kickbacks and other payoffs, officials at the Atlanta branch of one of Italy's largest banks, Banca Nazionale del Lavoro, made $4 billion in illicit loans to Iraq. Those include $350 million in defaulted loans backed by Agriculture Department guarantees. Christopher Drogoul, former manager of the Atlanta office, is expected to plead guilty this week to charges of fraud and money laundering.

The Administration's critics maintain that it was a sign of White House blindness that it continued to court Saddam even after evidence emerged in the BNL probe of substantial Iraqi misuse of the loan-guarantee program. This week Texas Democrat Jack Brooks, chairman of the House Judiciary Committee, will hold hearings on whether to call on the Justice Department to appoint a special prosecutor to determine if the Agriculture Department's program was improperly used.

A long list of Administration officials has already appeared before the Gonzalez committee to admit that the effort to woo Iraq was a flop. "I have said 15 times today that it didn't work," Deputy Secretary of State Lawrence Eagleburger acknowledged wearily at the end of one session. But Administration spokesmen have also denied they were subject to undue pressure to favor Iraq. The combative Gonzalez has moved to counter their claims by reading into the Congressional Record a cloak of secret documents, mostly concerning White House efforts to secure the loan guarantees, which have become the subject of lengthy examinations in the Los Angeles Times and other publications.

The paper trail emanating from the Gonzalez hearings depicts a long, costly courtship of Saddam. In its early stages, during Ronald Reagan's first term, it was intended to serve a plausible policy assumption: by helping Iraq in its war against Iran, the U.S. would counter Iranian influence in the Middle East while encouraging Baghdad to moderate its own policies. In 1982, three years after Jimmy Carter placed Iraq on the State Department's list of nations supporting terrorism, Ronald Reagan removed Iraq from the list, reopening the way for U.S. aid. The Reagan Administration moved quickly to provide Iraq with over $400 million in loan guarantees to buy American grain.

It also began to push for loan guarantees from the Federal Export-Import Bank, which helps American companies sell products abroad by offering loan guarantees. Documents made public by Gonzalez show that in December 1983, Under Secretary of State Eagleburger wrote a secret letter urging bank chairman William Draper III to open a line of credit for Iraq, though most of the world's financial institutions had stopped lending to Baghdad and the Export-Import Bank's own analysts had concluded that Iraq could not be counted on to repay.

The following June, Vice President Bush telephoned Draper, an old friend from Yale, to urge approval of $500 million in loan guarantees for a pipeline through Jordan to deliver Iraqi oil to the Red Sea. The bank approved the loan guarantees the next week. Because the pipeline was never built, the guarantees were never used. But the bank also soon began providing Iraq with $200 million in short-term loans. Within months Baghdad fell behind in its payments.

In 1986 Bush again pressed the bank on Saddam's behalf. Hoping to bring good news to an upcoming meeting with Iraqi Ambassador Nizar Hamdoon, he successfully urged the new bank chairman, John A. Bohn Jr., to provide another $200 million in loan guarantees the bank had earlier denied. At his meeting with Hamdoon, Bush was also able to assure the ambassador that because two more export licenses had been approved -- over Pentagon objections -- Iraq would soon have permission to make two long-sought purchases of American high technology. Eventually hundreds of export licenses would be approved to sell Iraq more than $600 million in dual-use technology. The purchases included a laser-guided welding system that Iraq would use to construct centrifuges that produce weapons-quality uranium.

By the time Bush became President in 1989, Iraq's war with Iran had ended, and the measure of Saddam's ruthlessness had been made apparent by his use of poison gas to slaughter 5,000 Iraqi Kurds the previous summer. But the new President pushed on with his policy of carrots without sticks. Revelations about Iraq that emerged from the BNL scandal in 1989 led the Treasury Department, the Office of Management and Budget and the Federal Reserve to attempt to block the $1 billion in loan guarantees sought for 1990 by the White House. Any resistance was futile after Bush signed National Security Directive 26, which ordered government agencies to pursue closer ties with Iraq.

But when the final guarantees were eventually granted in late 1989, they came with a safeguard. Only half of the $1 billion would be available at the outset. The rest would be released if there were no further problems arising from the BNL probe. Iraq's efforts to secure the second half were cut short when its invasion of Kuwait put an end to U.S. aid.

Though many Democrats would like to make an issue of Bush's cozy dealings with Iraq, it is unlikely the matter will become a focus of voter outrage. Even the Clinton campaign is approaching the matter warily. "We think the issue has some power," says Clinton's campaign manager David Wilhelm. "But it's a complicated question." One complication is that the prewar dalliance with Saddam won widespread support from Democrats as well as Republicans in the Congress, many of whom were eager for their states to benefit from trade with Iraq. Another is that, for Americans preoccupied with domestic issues such as jobs and health care, the ins and outs of commodity credits are an obscure branch of governmental cosmology.

With reporting by Elaine Shannon and Nancy Traver/Washington