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.