Sanctions Finally Hurting Iraq, U.S. Aides Say : Mideast: The noose has tightened recently. But Washington does not expect the economic curbs alone to bring Hussein down soon.

Two years after the divisive debate about whether the United States should rely on economic sanctions or military might to squeeze Saddam Hussein out of Kuwait, the Bush Administration believes that U.N. sanctions on Iraq are finally beginning to kick in.

Over the last two months, two developments--Jordan’s tightening of its leaky 83-mile border with Iraq and Baghdad’s abrupt clampdown on the nation’s free market--have begun to leave telltale signs that Iraqis, even some in Hussein’s inner circle, are having trouble, according to U.S. officials.

Although Administration sources do not expect that the sanctions alone will bring down Hussein any time soon, they are exerting more pressure on his regime.

“It’s a very important element, providing a foundation, but then you have to do more on top of that to bring about results,” a senior Administration specialist said.

Today, after two years of economic isolation, one Iraqi dinar is worth about 4 cents; it was worth $3 before the war. The price of food has soared 1,500% since sanctions were imposed. Many of Iraq’s poor now have to survive on the government’s monthly 10-day food rations, the officials said.

U.S. estimates of underemployment and unemployment now range from 50% to 70%, although even those employed often work in name only.

“The government is paying people to go to work and do nothing,” the specialist said. “And the manufacturing sector is making few products because it doesn’t have access to raw materials, but workers are being paid to be there, too.”

Iraq has gone through tons of stockpiled goods looted from Kuwait, a reserve that cushioned the immediate blow of the U.N.-imposed sanctions.

The fraying of Iraq’s economic sector has accelerated because of a double jolt this summer. Since a visit to Amman by CIA Director Robert M. Gates in late June, Jordan has cut down on sanctions-busting operations.

Traffic at Ruweished, the main desert border post, reportedly is down by as much as 85% from the beginning of July, according to U.S. estimates. Before the cutback, at least a third of the goods passing through Jordan, the main route for medicines, food and other humanitarian goods allowed by the United Nations, violated the embargo.

In August, inspections of ships bound for the Jordanian port of Aqaba also tightened up the search for goods destined for Iraq. Trading with Iraqi front companies in Amman has been a prime way to circumvent sanctions, according to Arab and U.S. officials.

Jordan had turned a blind eye to the under-the-table trading with Iraq largely because its troubled economy relied on Iraqi oil imports and profits from sales and services to Iraq. To prod Amman, Congress froze $40 million in military aid and a proposal for $65 million in economic aid is on hold, State Department sources say.

For Iraqis, the second jolt was even more shocking. In late July, Hussein ordered a crackdown on the private sector, highlighted by the execution of more than 40 merchants and the arrest of about 500 others, U.S. officials said.

The official rationale for the executions, which took place after a period of soaring inflation, was to punish and deter corruption and price gouging. Among the accused were some of Baghdad’s leading merchant families. At the time, Hussein vowed to use “the hammer of the law” to prevent profiteering.

The measures, Draconian even by Hussein’s standards, “will create strong ripples. The private-sector businessmen simply aren’t going to help Saddam out in the future,” said a senior Western diplomat in the Persian Gulf. “It creates fear and it creates anger. And I think there are going to be more supply-type problems inside the country.”

The Administration specialist called the executions “one of Saddam’s stupidest blunders and one that may do more than the war to arouse internal opposition.”

The episode was followed by an import ban on consumer goods, which has left the shelves of Baghdad’s popular import shops all but empty, according to businessmen and diplomats in the Middle East.

The prolonged absence of imported goods, from basics to Western luxuries such as Johnnie Walker Scotch and French fashions, are likely to fuel dissent and even defections from among Baghdad’s ruling elite, the diplomat predicted.

During past crises, including the eight-year war with Iran, Hussein bought public support by using foreign exchange for imports.

Hussein’s ability to rebuild his country’s infrastructure may have peaked this summer. “Through some smuggling, some use of an enormous stockpile of spare parts and some cannibalization, Saddam has managed to rebuild a lot,” the specialist said. “But a lot of it is Band-Aid and patch-up, and he’s now gone about as far as he can.

“Iraqis are really hurting,” he added. “But the question that counts is: Is the close core of regime supporters hurting? And hurting enough to do something?”

Times staff writer Mark Fineman, in Bahrain, contributed to this story.