Iraq Used US Loans to Finance Military Machine Washington Agencies Charged with Ignoring Export-Import Bank Warnings of the Strategy

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KEY officials of the United States Agriculture, Commerce, and State Departments ignored years of warnings from the US Export-Import Bank (Exim) that Iraq was using credits to build its military machine, say Treasury Department sources.

From 1987 to 1989, the officials were present at Exim's scheduled board meetings where it documented concern over Iraq's priority defense financing and policy of only paying back creditors who issue fresh money first.

According to Exim documents obtained by the Monitor, Iraq's primary goal since the early 1980s was to acquire high-tech military superiority through international credits. Exim repeatedly warned of Iraq's "ruthless strategy of securing strategic financial partners, (and) employing financial secrecy, private bilateral negotiations, and blatant unequal treatment of creditors."

June 1989 Exim documents state that "Iraqi leaders believe that advanced military technologies - bombers, missiles, chemical and bacteriological weapons, and nuclear capability - are the key to military power."

Anxious to buttress US-Iraqi ties, State Department policy makers cast Exim's warnings aside in favor of US exports and financing to Baghdad. A general past "policy of engagement," now is broadly acknowledged by Bush administration officials.

In its October 1989 risk assessment of Iraq, Exim issued a stern warning about the Iraqi military threat: "Iraq is expanding purchases of foreign military equipment and technical assistance in order to beef up its forces for possible future combat." Iraq's defense spending - $5 billion annually - continued unabated after the cease-fire with Iran. Exim also pointed to mounting financial pressures confronting Saddam Hussein's regime: rising demands of Iraq's population, which expected more consumer goods and better services after fighting an eight-year war with Iran.

US officials took their cue from Iraqi government ministers, who insisted that expanded trade and financial links with Washington were the only means of improving bilateral political relations.

Deputy Foreign Minister and former Ambassador to Washington Nizar Hamdoon - founder of the US-Iraq Business Forum, a group composed of leading American corporations which aggressively pursued Iraqi contracts - delivered Iraq's offer to the US: "In order to stabilize political ties you should start stabilizing the trade ties.... Involvement of US companies should have a substantial impact on US-Iraqi ties."

Iraqi planners boasted a $35 billion postwar reconstruction opportunity for American and other Western suppliers in 1988. According to Exim documents, Iraqi planners grossly miscalculated the oil revenues that would be available to meet their needs.

In fact, Iraq's revenues were slashed by a series of events: Syria's closure of two important Iraqi pipelines, the collapse in oil prices during the mid-1980s, and Iraq's counterproductive efforts to increase its OPEC (Organization of Petroleum Exporting Countries) quota, which actually depressed world oil prices instead of increasing Baghdad's export receipts. …

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