Bush Proud of Role in Secret Iraq Aid Policy

President Bush said Tuesday that he is proud of his role in a secret Ronald Reagan Administration policy that gave financial support to Iraq in an effort to counterbalance Islamic radicals in Iran.

“As you may remember in history, there was a lot of support at the time for Iraq as a balance to a much more aggressive Iran under (Ayatollah Ruhollah) Khomeini,” Bush said in response to articles in The Times over the last few days that detailed the policy.

“So that was part of the policy of the Reagan Administration,” Bush said aboard Air Force One during a campaign trip to California. “I was very proud to support that.”

But Bush did not address revelations that the policy persisted during his own Administration, long after the end of the Iran-Iraq War.

The Times reported Sunday that on Oct. 31, 1989, only nine months before the Iraqi invasion of Kuwait, Bush signed a top-secret national security directive ordering closer ties with Baghdad and opening the way for $1 billion in loan guarantees to finance the purchase of U.S. agricultural products by Iraq.

Secretary of State James A. Baker III confirmed an account in The Times on Tuesday that he lobbied then-Secretary of Agriculture Clayton K. Yeutter to approve the loan guarantees in October, 1989. He also revealed that he was doing so at Bush’s direction.

Documents obtained by the newspaper showed that Baker acted even though officials of the Agriculture Department and three other agencies expressed doubts that the loans could be repaid and despite concern that the Iraqi government had demanded kickbacks from U.S. firms involved in the program.

Baker said Bush wanted to see the loans go through: “I suppose it would not come as a surprise to you that the secretary of state would be supportive of the position reflected by the President in his national security decision directive.”

Baker was warned in a classified memo before he pressed Yeutter to approve the loan that it was “hard to believe that Iraqi Central Bank officials and others were not aware of kickbacks . . . and other gross irregularities.”

Baker was not asked whether he ever informed the President of such concerns.

Meanwhile, Sen. Patrick J. Leahy (D-Vt.), chairman of the Agriculture Committee and the Appropriations subcommittee on foreign aid, called for the General Accounting Office to investigate the circumstances of the 1989 approval of the $1-billion loan guarantee.

Leahy complained that Yeutter, in a letter to him dated Feb. 20, 1990, had denied that foreign policy considerations played a role in his department’s decision to approve the loan. The lawmaker said he now believes that Yeutter’s response was untruthful.

“The story in today’s Los Angeles Times indicates to me that the rumors I was hearing were correct, the response given by then-Secretary Yeutter was wrong and that, indeed, he was pressured by you or by the Administration on foreign policy,” Leahy told Baker during a hearing of his subcommittee.

“So my question is this: Was Secretary Yeutter correct, was he telling me the truth, when he said to me that foreign policy considerations played no role in the extension of credit guarantees to Iraq?” Leahy said.

“Senator, I don’t have any basis to question what Secretary Yeutter wrote to you,” Baker replied. “On the other hand, I will not deny that at the time in question . . . there was a national security decision directive calling for us to seek to improve, if possible, the relationship of the United States and Iraq.”

Leahy said he was concerned because “we use an awful lot of these commodity credit guarantees and others as a sort of a backdoor way of foreign aid.”

“Was the Department of Agriculture being pressured for foreign policy considerations to go forward with (the loan), even though they knew that for credit-worthiness they shouldn’t?” Leahy demanded. “The answer from the secretary of agriculture was that they weren’t being pressured. It would appear, indeed, they were being pressured.”

Yeutter had written to Leahy: “You mentioned that there were ‘rumors’ that foreign policy pressures have encouraged the department to give Iraq special treatment in this case. To the contrary, the extension of (agricultural loan) guarantees in connection with sales to Iraq have recently been subject to special scrutiny . . . . Our current line of (loan) guarantees for Iraq is only half of Iraq’s original request and about half the size of such lines of guarantees which have been made available to Iraq for the past two years.”

Kempster is a Times staff writer and Waas is a special correspondent. Times staff writer Douglas Jehl contributed to this story from California.