Time - Man of the Year/Time_Man_of_the_Year_Compact_Publishing_3YX-Disc-1_Compact_Publishing_1993.iso/moy/060892/06089928.000

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                                                                                U.S. POLICY, Page 41

Did Bush Create this Monster?


The President courted Saddam Hussein longer than he should have,
but Democrats aren't making it a campaign issue

By RICHARD LACAYO -- Reported by Elaine Shannon and Nancy Traver/
Washington


    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 comGonzalez 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.