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Bush Secret Effort Helped Iraq Build Its War Machine : Persian Gulf: Documents show that 9 months before Hussein's invasion of Kuwait the President approved $1 billion in aid. Objections from others were suppressed.

BUSH AND AID TO IRAQ: First of three parts. Next: Reagan and Bush administrations pressure the Export-Import Bank.

February 23, 1992|DOUGLAS FRANTZ and MURRAY WAAS | SPECIAL TO THE TIMES; Frantz is a Times staff writer and Waas is a special correspondent.

What drove Bush to champion the Iraqi cause so ardently and so long is not clear. But some evidence suggests that it may have been a case of single-minded pursuit of a policy after its original purpose had been overtaken by events--and a failure to understand the true nature of Hussein himself.

"When the Iran-Iraq War ended and Iran was really flat on its back, there should have been some immediate kind of repositioning of U.S. policy so you wouldn't give Saddam this signal that we were backing him as the big shot in the region," said William B. Quandt, a Middle East expert at the Brookings Institution.

"We missed so many cues. Saddam wasn't behaving as you might expect an exhausted, war-weary leader to behave. He was showing that he had just won a war and he was a power to be reckoned with and he concluded that the Americans were not too upset about that," Quandt said.

Much of the blame for failing to perceive Hussein's expansionist ambitions and the dangers of building him up has fallen on mid-level officials and on agencies such as the Commerce Department, which approved the sale to Iraq of $1.5 billion worth of American technology, and the Agriculture Department, which authorized a total of $5 billion in loan guarantees.

However, classified documents from several agencies and interviews over the last two months demonstrate that it was foreign-policy initiatives from the White House and State Department that guided relations with Iraq from the early 1980s to the eve of the Persian Gulf War--and that Bush and officials working under him played a prominent role in those initiatives.

For example:

* In 1987, Vice President Bush successfully pressed the federal Export-Import Bank to provide hundreds of millions of dollars in aid for Iraq, the documents show, despite staff objections that the loans were not likely to be repaid as required by law.

* After Bush became President in 1989, documents show that senior officials in his Administration lobbied the bank and the Agriculture Department to finance billions in new Iraqi projects.

* As vice president in 1987, Bush met personally with Nizar Hamdoon, Iraq's ambassador to the United States, to assure him that Iraq could buy more dual-use technology. It was three years later that National Security Council officials blocked the attempt by the Commerce Department and other agencies to restrict such exports.

* After Bush signed NSD 26 in October, 1989, Secretary of State James A. Baker III personally intervened with Agriculture Secretary Clayton K. Yeutter to drop Agriculture's opposition to the $1 billion in food credits. Yeutter, now a senior White House official, agreed and the first half of the $1 billion was made available to Iraq at the beginning of 1990.

* As late as July, 1990, one month before Iraqi troops stormed into Kuwait city, officials at the National Security Council and the State Department were pushing to deliver the second installment of the $1 billion in loan guarantees, despite the looming crisis in the region and evidence that Iraq had used the aid illegally to help finance a secret arms procurement network to obtain technology for its nuclear weapons and ballistic-missile program.

An Agriculture Department official cautioned in a February, 1990, internal memo that, when all the facts were known about loan guarantees to Iraq, the program could be viewed as another "HUD or savings-and-loan scandal."

Of the $5 billion in economic aid provided to Iraq over an eight-year period, American taxpayers have now been stuck for $2 billion in defaulted loans.

Washington's supportive policy toward Iraq began in 1982. Hussein was in the second year of his war with Iran and the conflict was not going well for Baghdad. The Reagan Administration, while officially neutral, decided to help Iraq as a means of containing the Ayatollah Ruhollah Khomeini.

U.S. relations with Iraq had been severed in 1967 after the Arab-Israeli war, but the biggest obstacle to renewed ties was the fact that Iraq was on Washington's official list of countries supporting international terrorism. That meant that most forms of U.S. aid were prohibited by law.

The State Department responded by removing Iraq from the terrorism list in February, 1982, an action opposed by some within the Administration. Four former officials said in interviews that there was no evidence that Iraq's support of terrorists had waned.

"All the intelligence I saw indicated that the Iraqis continued to support terrorism to much the same degree as they had in the past," said Noel Koch, then in charge of the Pentagon's counterterrorism program. "We took Iraq off the list and shouldn't have. . . . We did it for political reasons."

The assertion was supported by a secret 1988 memo in which Deputy Secretary of State John Whitehead wrote, "Even though it was removed from the terrorism list six years ago, (Iraq) had provided sanctuary to known terrorists, including Abul Abbas of Achille Lauro fame."

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