State Department Ignored Warnings of Military Buildup According to the US Export-Import Bank, Iraq Used Foreign Credit to Purchase Arms from US Firms

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CONGRESS, scrutinizing the US Export-Import Bank's past policy toward Iraq this week, has exposed the State Department's refusal to listen to repeated warnings from Exim about Baghdad's military buildup.

Key Exim officials testified before the House Committee on Banking, Finance, and Urban Affairs Wednesday on the bank's strident posture toward Iraq despite constant US government and private sector pressures for a softer stand.

The Bush administration issued a National Security Council directive in 1989 calling for improved relations with Iraq; it endorsed business activity in Iraq to help satisfy Baghdad's demand for US financing and exports. Baghdad had constantly reminded Washington in recent years that improved commercial links were essential to warmer political relations.

Committee chairman Henry Gonzalez (D) of Texas said it was "shocking" that US policy awarded billions of dollars in US export credits to Iraq, while Exim warned of Iraq's military buildup through foreign credits.

Exim chairman John Macomber said his agency offered "strong, straightforward analysis" permitting "short-term credit that doesn't amount to very much. We refused medium and long term."

The bank "has a deliberate policy of staying open in high-risk countries," said Daniel Bond, Exim's vice president for Country Risk Analysis. As the highest risk, Iraq was charged the highest fee "with a surcharge on top of that," he added.

Exim disappointed US business because it refused to exceed a $200 million short-term credit limit.

The USDA's Commodity Credit Corporation, which supported US farm exports to Iraq, did $1 billion a year in business with Baghdad in the past four years. The CCC failed to notice that Iraq was abusing its program for military purchases, many from US-based firms. CCC's rate for Iraq was significantly lower than Exim's, despite its much higher risk. Iraq was often in arrears to CCC, with no prospect of repayment.

House Banking Committee members were incredulous of Washington's "policy of engagement" with Iraq as they pored over Exim's country risk analysis. Seven Exim reports from 1986 to1989 detail Iraq's inability and unwillingness to repay debts. They point to Baghdad's manipulation of foreign credits to meet priority spending for a variety of "advanced military technologies," including chemical and biological warfare plants and a budding nuclear program. …