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U.S. Loans Indirectly Financed Iraq Military : Foreign aid: Baker pushed through agriculture credits that helped Hussein free up money for arms.

Bush And Aid To Iraq. Last Of Three Parts

February 25, 1992|DOUGLAS FRANTZ and MURRAY WAAS | SPECIAL TO THE TIMES; Frantz is a Times staff writer and Waas is a special correspondent

WASHINGTON — On the last day of October, 1989, nine months before Saddam Hussein invaded Kuwait, Secretary of State James A. Baker III placed a telephone call to Agriculture Secretary Clayton K. Yeutter.

A problem had developed. Baker needed to talk with someone who could fix it.

Earlier in the month, President Bush had signed a secret national security directive ordering closer ties with Iraq and the Administration wanted to give Hussein's regime $1 billion in new financial aid, using an Agriculture Department loan-guarantee program to do it. But program officials were balking--saying that Iraq would never repay the money. And a potential scandal was brewing over irregularities in past loans to Baghdad.

Baker's task was to bring the Agriculture Department into line. Sketching out the problem, he asked Yeutter to reverse his department's position and approve the loans, according to classified documents obtained by The Times. The agriculture secretary, today the President's senior domestic policy adviser, apparently saw the light.

"I think we're seeing it the same way you guys are," Yeutter responded, according to a handwritten note by Baker on a memo about the Oct. 31, 1989, conversation. "I'll get into it."

The new loans, pushed through at a time when U.S. intelligence reports indicated Hussein was spending heavily on developing nuclear weapons, were used by a credit-starved Iraq to feed its people, freeing up its cash reserves to finance the massive arms buildup that ended in war with the United States. The Bush Administration, apparently failing to understand the Iraqi dictator's intentions, indirectly helped pay for weapons that were ultimately used against American and allied troops.

And the Agriculture Department loans, which ultimately went bad just as officials of the department and others had warned, were no aberration.

Classified documents show that Bush, first as vice president and then as President, intervened repeatedly over a period of almost a decade to obtain special assistance for Saddam Hussein--financial aid as well as access to high-tech equipment that was critical to Iraq's quest for nuclear and chemical arms.

The policy of helping Hussein was conceived in the Ronald Reagan Administration to prop up Hussein in his long war with Iran and thus slow the spread of radical Islamic fundamentalism in the Middle East.

But the policy--and Bush's repeated personal involvement--continued well beyond the end of the Iran-Iraq war, which was concluded in the summer of 1988. And it did more than enable Hussein to survive: It helped him assemble the war machine that soon became a threat to his neighbors and to vital U.S. interests in the oil-rich Persian Gulf.

It was apparently a case of a policy pursued with head-down determination long after its original purpose had become obsolete by a President and senior officials who overestimated their own ability to influence a foreign leader. Until the eve of the Iraqi invasion of Kuwait, senior Administration officials seemed convinced that, with continued U.S. aid, they could cajole Hussein into mending his ways.

In early October of 1989, the policy had gotten a major new push when Bush signed the top-secret National Security Decision Directive 26 ordering government agencies to expand political and economic ties with Iraq. In the weeks and months that followed, Iraq became the beneficiary of added financial aid as well as fresh access to so-called "dual use" technology--sophisticated equipment with both military and civilian applications.

In responding to the disclosures by The Times about Bush's role in providing assistance to Iraq, a White House spokesman said that, under both the Reagan and Bush administrations, "U.S. policy toward Iraq was based on our national interest.

"Any actions undertaken by the then-vice president were in support of Administration policy," Deputy Press Secretary Roman Popadiuk said. He also stressed that the U.S. stance twoard Iraq "shifted dramatically" after its invasion of Kuwait. "We were in the forefront of stemming that agression and of restoring freedom to Kuwait," he said.

In the case of the commodity loan guarantees from the Agriculture Department, Hussein used the subsidized American foodstuffs to feed his people, while using his cash reserves to buy arms.

The U.S. aid came at a critical juncture for Hussein: International bankers, alarmed by Iraq's soaring debts, its deteriorating record of repayment and its continued obsession with armaments, had cut off his credit almost everywhere.

Beyond the question of understanding Hussein's real intentions, classified documents show that Baker and Yeutter had been warned about irregularities in the Agriculture Department aid program and the possibility that Iraqi government officials were going to be implicated in a major banking scandal involving the program.

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