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.

In the fall of 1989, at a time when Iraq’s invasion of Kuwait was only nine months away and Saddam Hussein was desperate for money to buy arms, President Bush signed a top-secret National Security Decision directive ordering closer ties with Baghdad and opening the way for $1 billion in new aid, according to classified documents and interviews.

The $1-billion commitment, in the form of loan guarantees for the purchase of U.S. farm commodities, enabled Hussein to buy needed foodstuffs on credit and to spend his scarce reserves of hard currency on the massive arms buildup that brought war to the Persian Gulf.

Getting new aid from Washington was critical for Iraq in the waning months of 1989 and the early months of 1990 because international bankers had cut off virtually all loans to Baghdad. They were alarmed that it was falling behind in repaying its debts but continuing to pour millions of dollars into arms purchases, even though the Iran-Iraq War had ended in the summer of 1988.

In addition to clearing the way for new financial aid, senior Bush aides as late as the spring of 1990 overrode concern among other government officials and insisted that Hussein continue to be allowed to buy so-called “dual use” technology--advanced equipment that could be used for both civilian and military purposes. The Iraqis were given continued access to such equipment, despite emerging evidence that they were working on nuclear arms and other weapons of mass destruction.

“Iraq is not to be singled out,” National Security Council official Richard Haas declared at a high-level meeting in April, 1990, according to participants’ notes, when the Commerce Department proposed curbing Iraqi purchases of militarily sensitive technology.

Invoking Bush’s personal authority, Robert Kimmitt, undersecretary of state for political affairs, added: “The President doesn’t want to single out Iraq.”

And the pressure in 1989 and 1990 to give Hussein crucial financial assistance and maintain his access to sophisticated U.S. technology were not isolated incidents.

Rather, classified documents obtained by The Times show, they reflected a long-secret pattern of personal efforts by Bush--both as President and as vice president--to support and placate the Iraqi dictator. Repeatedly, when serious objections to helping Hussein arose within the government, Bush and aides following his directives intervened to suppress the resistance.

The White House declined to comment Saturday.

In the case of the $1 billion in commodity loan guarantees, for instance, senior Bush aides, armed with the presidential order--NSD 26--insisted that the credits be approved despite objections by officials in three government agencies. These officials warned that aid was being diverted to buy weapons in violation of American law, that the loans would not be repaid and that earlier assistance efforts were plagued by financial irregularities.

Bush’s involvement began in the early 1980s as part of the so-called “tilt” toward Iraq initiated by then-President Ronald Reagan to prop up Hussein in his war with Iran. Hussein’s survival was seen as vital to U.S. efforts to contain the spread of Islamic fundamentalism and thwart Iran’s bid for dominance in the Middle East.

Many in the American government, including Presidents Bush and Reagan, also hoped that U.S. aid would gradually cause Hussein to moderate his ways and even play a positive role in the Middle East peace process.

But classified records show that Bush’s efforts on Hussein’s behalf continued well beyond the end of the Iran-Iraq War and persisted in the face of increasingly widespread warnings from inside the American government that the overall policy had become misdirected.

Moreover, it appears that instead of merely keeping Hussein afloat as a counterweight to Iran, the U.S. aid program helped him become a dangerous military power in his own right, able to threaten the very U.S. interests that the program originally was designed to protect.

Clearly, U.S. aid did not lead Hussein to become a force for peace in the volatile region. In the spring of 1990, as senior Administration officials worked to give him more financial aid, the Iraqi leader bragged that Iraq possessed chemical weapons and threatened to “burn half of Israel.” Nor did he change his savagely repressive methods. In the summer of 1988, for example, he shocked the world by killing several thousand Kurds with poison gas.

Even today, the Iraqi nuclear and chemical weapons programs carried forward with the help of sophisticated American technology continue to haunt U.S. and United Nations officials as they struggle to root out elements of those programs that have survived the allied victory in the Persian Gulf War.

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.”

Almost immediately after Iraq was dropped from the list, Washington provided loan guarantees to enable it to buy such American commodities as rice and wheat through the Agriculture Department’s Commodity Credit Corp.

Two years later in 1984, Bush personally pressed the federal Export-Import Bank to guarantee $500 million in loans so that Iraq could build a controversial oil pipeline, according to classified government documents.

And throughout much of the period from 1982 to the end of the Reagan Administration, efforts were made to funnel arms as well as economic aid to Baghdad--sometimes through the Pentagon and sometimes through U.S. allies in the Middle East. Some of the specific arms plans failed to work but government sources said that significant quantities of arms did reach Baghdad as a result of U.S. efforts.

At one point in 1982, for example, a proposal was put forward to trade four American-made howitzers to Iraq for a Soviet T-72 tank, according to classified documents. The T-72 was of particular importance according to a secret July, 1982, report by the Defense Intelligence Agency, because it was protected by a new type of armor, which might prove invulnerable to American firepower. A second plan in 1983 would have allowed Iraq to buy $45 million worth of 175-millimeter long-range guns and ammunition in exchange for turning over a Soviet tank.

Pentagon officials also reported to then-Secretary of Defense Caspar W. Weinberger “that Iraqi officials said it might be possible to exchange a (Soviet Hind) helicopter for permission to buy 100 Hughes helicopters” equipped with TOW missiles, according to a secret Pentagon memo.

For various reasons, each of these deals fell through. The helicopter transaction was scrapped after the late Richard Stillwell, a retired general who was then deputy undersecretary of defense, objected to working with an Iraqi-sponsored arms trafficker with a reputation for questionable dealings.

“While I fully recognize the value to the U.S.A. of obtaining an MI-24 HIND, I recommend against pursuing this particular deal because . . . the potential for causing embarrassment to the U.S. government is too great,” Stillwell wrote in a top-secret memo for Weinberger in 1983.

In a recent interview, Weinberger refused to discuss any of the proposed exchanges. Although low-level Pentagon operatives saw the arms swaps or sales to Iraq as a means to obtain Soviet technology, two officials say that Weinbeger saw it as a pretext to begin covert and direct arms shipments to Iraq. But Weinberger did acknowledge being part of a faction in the Reagan Administration that favored Iraq over Iran. “Many of us thought it would be better if Iraq won,” said Weinberger, now a lawyer in private practice.

A number of classified State Department cables also describe proposals in 1982 and 1983 by William Eagleton, the senior U.S. diplomat in Baghdad, to funnel arms to Iraq through allies in the Middle East. “We can selectively lift restrictions on third-party transfers of U.S.-license military equipment to Iraq,” he said in an October, 1983, cable.

Although initially rejected, other documents and interviews with former U.S. officials indicate that the policy was pursued on a covert basis with Egypt, Jordan and Kuwait and that arms were transferred to Iraq.

“There was a conscious effort to encourage third countries to ship U.S. arms or acquiesce in shipments after the fact,” said Howard Teicher, who monitored Middle East policy at the National Security Council in the Reagan Administration. “It was a policy of nods and winks.”

While the American rationale was that Hussein was a buffer against Iran, classified records show U.S. support for his regime continued unabated after the official cease-fire in the Iran-Iraq War was signed in August, 1988, and after Iraq’s chemical weapons attack on the Kurdish villages on July 19, 1988.

In fact, in August, 1988, Deputy Secretary of State Whitehead recommended in a secret policy memo that “there should be no radical policy changes now regarding Iraq.”

The pro-Iraq strategy was embraced by Bush when he became President. His Administration continued to encourage the transfer of U.S.-supplied arms to Iraq from Arab allies, according to interviews and classified documents.

In NSD 26, he said, “Access to the (Persian) Gulf and the key friendly states in the area is vital to U.S. national security.” Included among those states was Iraq, and Bush ordered federal agencies to expand political and economic ties with Baghdad.

NSD 26 came at the height of attempts by the Agriculture Department and other agencies to slash the largest U.S. aid program to Iraq--the commodity loan guarantees.

Set up to help U.S. farmers increase exports, the program guarantees repayment of bank loans to foreign governments for purchases of American commodities. If the foreign government defaults on the loan, U.S. taxpayers pick up the tab.

Regulations require the Agriculture Department to allocate guarantees on the basis of the receiving country’s agricultural needs, its market potential and the likelihood that the loans will be repaid. Classified documents show, however, that foreign-policy considerations played a decisive role in allocating credits to Iraq.

The Iraqis themselves raised the idea of U.S. guarantees for food aid in 1983, a time when U.S. officials feared that Hussein might be overthrown because of food shortages caused by the Iran-Iraq War.

Before the year was out, the first $402 million in Agriculture Department loan guarantees was approved for Iraq. In 1984, the amount rose to $513 million and it eventually reached $1.1 billion in 1988.

As the guarantees increased, so did concerns. The primary forum for airing these anxieties was a little-known, interagency organization called the National Advisory Council.

Advisory Council documents show that beginning in 1985, a number of members representing the Federal Reserve Board, Treasury Department and the Export-Import Bank counseled or voted at different times against increases of aid to Iraq. They feared that Iraq was not credit-worthy and would not be able to repay the billions owed.

Their concerns intensified when on Aug. 4, 1989, FBI and Customs Service agents raided the Atlanta branch of an Italian bank, Banca Nazionale del Lavoro, and uncovered $4 billion in unauthorized loans to Iraq, including $900 million guaranteed by the Agriculture Department program.

Nevertheless, top Bush Administration officials, including Secretary of State Baker, discounted the protests in the interagency group and sought another $1 billion in loan guarantees for Iraq in the fall of 1989, to be given in two installments.

By early 1990, Iraq had used the first $500 million and was asking for the second installment. The NSC and the State Department pressed to have the aid released.

Again there was resistance. Iraqi officials had been implicated more deeply in the growing Banca Nazionale affair and government analysts were more skeptical about Iraq’s ability to repay its growing foreign debt because it was spending so much on arms.

“In the worst-case scenario, investigators would find a direct link to financing Iraqi military expenditures, particularly the Condor missile,” Paul Dickerson, head of the Agriculture Department program that aided the Iraqis, wrote in a Feb. 23, 1990, memo to his superior.

Condor was an Iraqi effort to develop an intercontinental missile capable of delivering a nuclear warhead. While Dickerson later told a congressional committee that he was only speculating about the Condor, his warning reflected growing evidence that the Agriculture aid had gone for military uses.

Then on March 27, 1990, the U.S. Customs Service thwarted an effort by Iraq to obtain American-made triggers for nuclear weapons. And in a speech that same month, Hussein issued his threat to “burn half of Israel.” Publicly, at least, President Bush promised a crackdown on exports to Iraq, saying that “nuclear proliferation . . . continues to pose serious threats to U.S. interests, as well as the interests of our friends in the region.”

On April 16, 1990, CIA Director Robert M. Gates, then deputy national security adviser, chaired an interagency meeting to discuss Iraqi policy. At that meeting, Commerce Undersecretary Dennis Kloske presented a variety of proposals to restrict licenses of high-tech technology with potential military uses to Iraq. The proposals were rejected.

On June 8, Kloske also sent a classified memo to Gates recommending a limited proposal to tighten up controls of exports to Iraq for technology with ballistic-missile applications. That proposal was rejected as well.

Hussein had also begun his campaign of overt threats against Kuwait, accusing his tiny neighbor of economic warfare and vowing to retaliate.

Yet as late as July 9, 1990, April Glaspie, the U.S. ambassador to Iraq, assured Iraqi officials that the Bush Administration was still trying to get the second $500 million released, according to a classified cable.

Only on Aug. 2, 1990, did the Agriculture Department officially suspend the Agriculture Department guarantees to Iraq--the same day that Hussein’s tanks and troops swept into Kuwait.

Aid on the Eve of War

Classified documents obtained by The Times show a long-secret pattern of personal efforts by Bush--as President and as vice president--to support and placate Iraqi dictator Saddam Hussein. Here are some of the key incidents: 1984

* June: Vice President Bush telephones the president of the Export-Import Bank and helps persuade him to approve $500 million in loan guarantees so Iraq can build an oil pipeline.

1987

* Late February: Vice President Bush telephones the new president of the Export-Import Bank and successfully lobbies for Iraq to receive $200 million in new loan guarantees from the federal agency.

* March 2: Vice President Bush meets with Iraqi ambassador Nizar Hamdoon and tells him that two requests by Iraq for sensitive American technology had been approved over objections from the Defense Department.

1988

* Aug. 19: Iraq and Iran sign official cease-fire ending 8-year war.

1989

* Early October: President Bush signs a secret national security directive ordering U.S. agencies to expand political and economic ties with Iraq.

* Oct. 31: Secretary of State James A. Baker III telephones Agriculture Secretary Clayton K. Yeutter and persuades him to reverse Agriculture’s position and approve $1 billion in new loan guarantees to Iraq.

* Nov. 8: The $1 billion is approved despite concerns by the Treasury Department and Federal Reserve about a growing scandal involving Iraq and the Agriculture credits.

1990

* April 19: White House National Security Council thwarts efforts by Commerce Department to stem the flow of U.S. technology to Iraq.

* July 9: April Glaspie, U.S. ambassador to Iraq, assures officials in Baghdad that the Bush Administration is still trying to obtain the release of the second $500 million of the $1 billion approved in November.

* Aug. 2: Iraq invades Kuwait and the Agriculture Department officially ends loan guarantees to Iraq that have amounted to $5 billion since 1983.