From: harelb@math.cornell.edu (Harel Barzilai)
Subject: Secret Loans:  STATE SECRETS -- CONGR RECORD (II)
Originator: daemon@pencil.cs.missouri.edu
Organization: misc.activism.progressive on UseNet ; ACTIV-L@UMCVMB
Date: Wed, 22 Jul 1992 08:58:20 GMT



--> 1989 Marked "Secret" Aziz-Baker meetings 
--> I have *not* fully read (let alone digested) all 780 lines
    below but include them for the sake of access for others.
--> Comments in []s within the huge text are Hulme's, not mine.

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Topic 131       STATE SECRETS:CONGR. RECORD IRAQ        Response  2 of  2 
cadwallader 
gn.armstrade     8:38 pm  Jul 11, 1992 
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PART II 
Congressional Record - attachments to Rep. Henry Gonzalez  
speech before an empty House of Representatives on March   
2, 1992. - H 867 
  


US DEPARTMENT OF STATE 
Washington DC November eight 1989 
  
TO:     The Acting Secretary 
Subject:        Letter to Treasury Deputy Secretary Robson on a  
CCC Program for Iraq. 

  
        In your conversation earlier today, Department of the  
Treasury Deputy Secretary John Robson asked that you send  
him a letter outlining the policy reasons for which State  
strongly backed USDA's proposal for a full, billion dollar  
program of Commodity Credit Corporation (CCC) credit  
guarantees, with safeguards, for Iraq. Attached is a  
letter for your signature that outlines those policy  
considerations. It essentially follows the talking points  
provided for your telephone conversation with Mr Robson. 

  
RECOMMENDATION 
        That you sign the attached letter to Deputy Secretary  
Robson. 
Attachment -- Proposed letter to Deputy Secretary robson. 

  
DEPARTMENT OF STATE 
Washington DC, November eight, 1989 
  
Hon. John E. Robson 
Deputy Secretary of the Treasury 
Washington DC 
  

DEAR JOHN: 
        Further to our discussion, on foreign policy grounds  
we support the Department of Agriculture's proposal for a  
full, billion-dollar program of Commodity Credit  
Corporation GSM-102 export credit guarantees in FY90, with  
adequate safeguards for Iraq. 
        In addition to the near term benefits for  
agricultural sales, the CCC program is important to our  
efforts to improve and expand our relationship with Irax,  
as ordered by the President in NSD-26. Iraq is a major  
power in a part of the works which is [of] vital  
importance to the United States. Our ability to influence  
Iraqi behavior in areas from Lebanon to the Middle East  
peace process to missile proliferation is enhanced  by  
expanded trade. Also, to realize Iraq's enormous potential  
as a market for US goods and services, we must not permit  
our displacement as a major trading partner. 
        With regard to the real concerns which arise from the  
investigation into the operations of the Atlanta branch of  
the Banca Nazionale de[l] Lavoro, we have received from  
the Government of Iraq a pledge of cooperation. Our  
intention is to hold Iraq to this commitment and to work  
with the Department of Agriculture to ensure that the  
problems with the program in the past are fully resolved  
in a new program. The safeguards proposed by USDA,  
including disbursement of the CCC guarantees in tranches,  
buttress the program and merit our backing. 
        I appreciate your support in this connection. 
        Sincerely, 
  
LAWRENCE S. EAGLEBURGER 
Acting Secretary 
  
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------------- 
  
US DEPARTMENT OF STATE 
Washington DC, October twentysix, 1989 
  
To:     The Secretary 
Subject:        The Iraqi CCC program 
  
ISSUE FOR DECISION 
Whether to push for a full CCC program for Iraq. 
  
ESSENTIAL FACTORS 
        Over the last five years USDA's Commoditiy Credit  
Corporation (CCC) has guaranteed some four billion dollars  
in loans for US agricultural exports to Iraq under its GSM  
program, which Iraq so far whas repaid on schedule. This  
year, concern over possible Iraqi involvement in the  
scandal in the Atlanta branch of Italy's Banco Nazionale  
del Lavoro (BNL) caused USDA to withdraw its first,  
billio-dollar offer for FY90 and put forward instead an  
*interim* program for four hundred million. The Iraqis,  
believing so large a reduction would be widely viewed as a  
US vote of n0-conficence in their economy, rejected the  
four hundred million. They hope we will come back offering  
the full program but also have begun to hedge their bet by  
looking into other sources of supply. Tariq Aziz raised  
the issue with you on October six, and you promised to  
look into it personally. 
        Earlier this monty, the President signed NSD-26,  
mandating pursuit of improved economic and political ties  
with Iraq. Since last year's cease-fire [with Iran] in the  
Gulf, trade has become the central factor in this  
relationship. Iraq is now our NINTH LARGEST CUSTOMER for  
agricultural commodities, and the US is Iraq's largest  
supplier of non-military goods. 
  
[Namely: free cash.] 
  
Iraq has signalled the  
importance it places on the relationship by giving first  
priority to repaying the CCC-guaranteed loans at a time  
when it faces severe financial difficulties.  [Apparently,  
these repayments were made from the proceeds of the next  
level of financing.] (Treasury and the Fed cite these  
difficulties -- Iraq had failed to make some payments on  
its thirty to forty billion debt to non-Arab creditors --  
in opposing any FY90 CCC program for Iraq.) Our ability to  
influence Iraqi policies in areas important to us, from  
Labanon to the Middle East peace process, will be heavily  
influenced by the outcome of the CCC negotiations. 
        USDA has looked into the BNL investigation and ***** 
has spoken with USDA and independently with the US  
attorney's office in Atlanta. **** believes the  
investigation is largely focussed on widespread,  
systematic banking fraud by persons working for BNL or  
under consulting relationships with BNL. It may also  
involve several high Iraqi officials, though this is  
unclear. USDA, which has come under pressure from US  
exporters, is prepaed to reopen talks with Iraq, but leans  
toward a partial offer. We doubt the Iraqis would accept  
this, unless it includes a US commitment to complete the  
program early next year. In view of the evidence  
available, **** believes that, to wall off a FY90 CCC  
program from the BNL investigation, it is sufficient to  
exact Iraq's promise to cooperate in the investigation  
into past practices and to cooperate with USDA in  
establishing monitoring procedures and safeguards for  
future deliveries. 
  
[Safeguard. Isn't that a deodorizing toilet soap? Perhaps  
the effectiveness of Proctor and Gamble's advertising  
campaign has eaten away at people's judgement...] 
  
the CCC contract could be discussed as a full program but  
include built-in periodic reviews and related disbursement  
in tranches to ensure Iraqi compliance with CCC  
obligations and cooperation with the BNL investigation. In  
this regard, Tariz Aziz responded positively to your  
message of October twenty three and -- in an unprecedented  
step for Iraq -- promised Ambassador Glaspie full  
cooperation in the BNL investigation. To daye, no  
investigating agency has adsjked Iraq for help. 
  
DISCUSSION OF OPTIONS 
        There is no point in going back to the Iraqis with a  
partial program they have already rejected, especially wen  
it seems clear they would accept reviews and other  
reasonable safeguards. Offering a program of up to one  
billion dollars would strengthen relations with iraq, in  
line with NSD-26, and help US exporters. *** favor, ****  
first instinct is to give USDA leeway in negotiations, but  
**** supports on commercial grounds a program with  
safeguards, made available in tranches, that could go up  
to the full amount. 
  
RECOMMENDATION 
        That you telephone Clayton Yeutter to urge that we go  
forward rapidly with a CC program, with safeguards and to  
be made available in tranches, that could go up to the  
full one billion dollars, provided the review process  
turns up no evidence of Iraqi wrong doing. Talking points  
attacked. 
         
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TALKING POINTS 
        The CCC program is crucially important to our  
bilateral relationship with Iraq. We strongly support your  
effort to reeinstitute it. 
        Obviously we should not go forward with the program  
if we have substantial evidence of a pattern of serious  
violations of US law by high-ranking Iraqi oficials. Our  
information about the investigation indicates that the  
prosecutor does not now intend to indict Iraqi officials.  
        On foreign policy grounds, we support a program of up  
to one billion, released in tranches, with periodic  
compliance reviews. 
        Given the allegations, we believe safeguards should  
be buil[t] in to ensure the alleged problems do not recur. 
        The Iraqi Foreign Minister, with whom I talked, has  
now pledged Iraq's cooperation with the investigation. 
        My legal adviser, Abe SOFAER, is prepared to work  
with USDA's lawyers to secure Iraqi cooperation in  
developing adequate safeguards for the Iraq CCC program. 
        With afeguards, I hope we can get this important  
program back on track quickly. 
  
---------------- 
  
FUNCTION AND COMPOSITION OF THE NATIONAL ADVISORY COUNCIL 
        The National Advisory Council (NAC) was established  
by statutopry authority to advise the President on general  
policy directives for the International Monetary Fund, the  
multilateral development banks, the Export-Import Bank and  
other agencies that participate in making foreign loans or  
engage in foreign financial, exchange or monetary  
transactions, it is composed of the Secretary of the  
Treasury, who is chairman of the Council; the Assistant to  
the President for Economic Affairs, who is Deputy  
Chairman; the Secretary of State; the US Trade  
Reopresentative; the Secretary of Commerce; the Chairman  
of the Board of Governors of the Federal RTeserve  
System;the Chairman of the International Devlelopment  
Cooperative Agency; and the President of the Export-Import  
Bank. ByExecutive Order, the President has delegated to  
the Secretary of the Treasury most of the functions and  
responsibilities conferred on him in the setting up of the  
NAC.  
        In practice, the NAC meets weekly at the working  
level and generally makes its recommendations on the basis  
of a majority vote of the seven members routinely in  
attendance (Treasury, State, the Fed, AID, SUTR, Commerce  
and EXIM). In cases in which the NAC cannot or prefers not  
to make a decision, or on the strong request of one of its  
members, consideration may be moved up to the polity level  
through the convening of an NAC Alternates' Meeting. 
  
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TALKING POINTS FOR CALLS TO TREASURY AND OMB 
        The CCC program is crucially important to our  
bilateral relationship with Iraq. State strongly supports  
action by the Alternates' meeting to approve the new  
program proposed by USDA. 
        We realize that Iraq has had problems paying iits  
debts recently. However, the Iraqi economy survived the  
war in surprisingly good shape, and Iraq sits atop immense  
oil reserves. Its record on repayment of CCC-guaranteed  
loans is spotless. 
        Obviously, we should not go forward with the program  
if we have substantial evidence of a pattern of serious  
violations of US law by high-ranking Iraqi officials.  
However, the most recent available information about the  
BNL investigation indicates that the prosecutor does not  
now intend to indict Iraqi officials. 
        On foreign policy grounds, we support a program of up  
to one billion, released in tranches, with periodic  
compliance review. These safeguards should protect us if  
problems are uncovered in the future and help assure Iraqi  
cooperation in the investigation. 
        Given the allegations, we belive safeguards should be  
built in to ensure the alleged problems do not recur. 
        The Iraqi Foreign Minister has promised the Secretary  
Iraqi cooperation with the BNL investigation. 
        With safeguards in pace, we can get this important  
program back on track. 
        I urge that the NAC Alternates Meeting be convened as  
soon as possible to approve the full program of CCC credit  
guarantees, with safeguards, proposed by USDA for Iraq. 
  
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NATIONAL ADVISORY COUNCIL DEPUTIES MEETING NOVEMBER EIGHT,  
1989 
        Treasury representative opened the meeting by stating  
that there were two issues that should be addressed with  
respect to the proposed extension of new CCC guarantees to  
Iraq in FY 1990: (1) the question of Iraqi  
creditworthiness and (2) the implications of the Banca  
Nazionale del Lavoro (BNL) investigation and the  
uncertainties it created fo the proposed program for Iraq.  
He stated that the proposed FY 1990 program should be  
evaluated, first, on the basis of agencies' judgement that  
the 1990 program was a responsible action from a  
programmatic standpoint, and, second, from the standpoint  
of having to defend the program to a hostile Congressional  
committee or the media if a worst case scenario --  
involving criminal conduct in connection with the program  
on the part of banks, exporters, or the Iraqis -- came  
about. He indicated that this possible worst case scenario  
should be weighed against the agricultural, trade, and  
foreign policy considerations involved in a decision on  
whether to proceed with the program. He then referred he  
meeting participants to two background papers prepared by  
Agriculture which outlined (1) the status of the BNL  
investigation and (2) a country risk analysis of Iraq, and  
asked Agriculture for his comments. 
        Agriculture representative noted that the BNL  
investigation had, thus far, resulted only in allegations  
of violations and that the Department of Agriculture  
representative had advised the Department in writing that  
there was not an evidentiary basis for withholding  
approval of a new CCC transaction with Iraq. Furthermore,  
he said, many of these alleged violations were internal  
BNL bank matters not associated with the management of the  
GSM program for Iraq. He added that while eventually it  
might be proven that certain BNL bank officers had been  
engaged in violations of the banking laws, such possible  
violations would not necessarily implicate Iraqi officials  
or others directly connected with the CCC program. These  
possibilities had to be weighed against the value of one  
billion dollars in export sales -- to a country, he noted,  
that accounted for twenty percent of all US rice exports  
and was the tenth largest US agricultural export market.  
He said that in his view the benefits of approving the  
program far exceeded the risks. 
  
[NDT: It is interesting to observe how this program --  
apart from the weapons-purchasing side of it -- porovided  
a de facto subsidy for US agricultural sales. At a time  
when the US is risking the livelihoods of farmers and the  
food independence of peoples all over the globe with its  
insistence on subsidy-free agriculture. This policy  
proposal has met with firm resistance by French farmers,  
as well as the Japanese. Would it have been a good idea to  
have Iraq sign some kind of a mortgage in return for such  
large amounts of financing, to guarantee against default?  
The French did this with their weapons and armaments  
sales, entering into contracts of which partial payment  
was made in crude oil at a reduced price. This also had a  
drawback, because the French then became extremely  
dependent on low-cost oil, and provided far too many  
advantages to Iraq, in an attempt to keep their "energy  
policy" on track. Perhaps these policies go off track not  
only because they require a great deal of secrecy, but  
because they are not properly defined and become multi- 
purpose grab-bags which can be argued from far too many  
points of advantage?] 
  
        The Department of Agriculture contined by noting that  
Iraq normally entered the market at that time of the year.  
He added that the United States was already five weeks  
late in its export credit negotiations with Iraq, and,  
accoprdingly, there was a risk of our losing the market  
for our exports. 
        As to a worst case scenario, Agriculture  
representative said that his position would be that, based  
on all available evidence, the decision to go ahead with  
the GSM program was appropriate and correct. He stated  
that in this country innocence is assumed until proven  
otherwise and it was therefore improper to penalize [a  
serial killer head of State] the Iraqis for unproven  
allegations. Noting that the one billion dollar program  
was to be offered in two tranches, he suggested that if  
wrongdoing on the Iraqi's part were proven, the unused  
portion of the first tranche could be withdrawn and the  
second tranch not released. He summarized by noting that  
[Iraq?] had to make immediate buying decisions, and that  
third parties were willing to fill these agricultural  
needs at the expense of US exporters. He concluded that  
there was a strong need to move ahead expeditiously with a  
FY 1990 GSM program for Iraq. 
        Department of State representative stated that his  
comments reflected the views of State, who believed that  
the GSM program in Iraq wwas crucial to the US bilateral  
relationship with Iraq. He noted that in "National  
Security Decision Twenty Sic" the President had called for  
improvement of the US relationship with Iraq, and  
bilateral trade expansion offered a good means to achieve  
that end. He noted that Iraq was key to the achievement of  
our objectives in the Middle East, the Fulf, and Lebanon.  
To abruptly terminate the GSM program in Iraq would, he  
said, clearly run counter to the President's intention and  
wouldm, furthermore, cause a deterioration in our  
relationship with the Iraqis. Any such deterioration, he  
contended, would create difficulties in ongoing  
discussions on other issues, e.g., the Middle East peace  
process, human rights, and proliferation of missile and  
chemical weaponry. He noted that Treasury had called to  
express its support for an ongoing GSM program in Iraq. He  
also noted that the Iraqi Foreign Minister had given  
assurances that Iraq would cooperate fully with the  
investigation. Fnally, he stated that, despite possible  
future revelations, overwhelming foreign policy  
considerations led him to urge support of the proposal,  
based oninformation available at that time. 
        OMB representative said that, while he was aware that  
OMB was not a voting member of the NAC, is agency's  
mandate to oversee the management of Government programs  
had led him to request an inter-agency review of the GSM- 
Iraqi program. He applauded Agri for bringing a potential  
problem to the attention of OMB, stated that he was  
satisfied that the allegations had been taken seriously,  
and indicated that he did not want to express an opinion  
on the issue. Noting that the decision on approval of the  
program would involve a balancing of risks, he expressed  
confidence that the eventual outcome would be prudent and  
correct. 
        Department of Commerce representative, noting Iraq's  
large external debt and questions surrounding its  
creditworthiness voiced an uneasiness with the proposed  
program. However, noting the foreign policy concerns of  
State and the large export market that iraq represented,  
he said that Commerce did not want to obstruct the  
proposal. In response to a question from Treasury, he said  
that his agency was not opposed to the program but felt  
that tranching and and other safeguards were necessary. 
        Eximbank representative said tht he viewed the NAC as  
a forum for consideration of political, not country  
creditworthiness, issues. He noted Eximbank had supported  
the CCC on its Iraq proposal in the past and would do so  
at thismeeting. He also noted that Eximbank was currently  
open in Iraq with a short-term two hundred million dollar  
revolving line of credit. The Iraqis, he said, were  
currently delinquent byu twelve million dllars as of  
September thirty,  1989, an Eximbank, therefore, would be  
reluctant to expand its exposure from the short-term  
facility. 
        AID/IDCA representative stated that since AID/IDCA  
was not active in Iraq, his agency had no position on the  
current proposal. 
  
[It was recently revealed that AID will need five years to  
PREPARE ITS RECORDS SIMPLY FOR AUDITING.] 
  
        Federal Research Representative stated that, despite  
assurances on several points gained from the Agriculture  
Department papers, there was still more about the BNL  
affairs that had yet to be brought to light. He said that  
he was reassured, however, that the investigation had not  
yet revealed culpability on the part of the Iraqis.  
Nevertheless, he cautioned, it would be unrealistic to  
think that the entire BNL affair would be settled before  
the second tranche was released sometime in 1922. 
        Furthermore, Federal Reserve said, the BNL affairs  
notwithstanding, there was still the question of credit  
risk with respect th Iraq. While he stated that he  
understood the need tomake a sale to a customer, it was  
just as important that the customer pay. He cautioned that  
extending twenty percent of the CCC's guaranmtee authority  
for a fiscal year to one country was not desirable in  
terms of risk management -- especially when that country  
was engaged in unilateral debt reschedulings. Finally,  
noting the foreign policy considerations brought forward  
by State, Federal Reserve said that he, too, did not want  
to be obstructionist, but had reservations about a one  
billion dollar program 
        US Trade Representative stated that, while this  
transaction was risky from both the creditworthiness and  
domestic and international political angles, he thought it  
was reasonable to proceed, given the safeguards discussed. 
        Treasury representative, in summarizing the sense of  
the meeting, indicated that absent compelling agricultural  
export and foreign policy interests this proposed  
program[] probably would not go forward. He stated further  
that the Committee's deliberations had been valuable  
insofar as they facilitated: (1) acknowledgement of the  
risks of proceeding with the proposed program for Iraq in  
the face of uncertainties as to the potential for future  
revelations of wrongdoind; (2) clarification of the point  
that resolution of the issue required a balancing of  
foreign policy and agricultural export interests; and (3)  
establishment of a record that showed that the risks  
involved in the transaction had been recognized and that  
the strong advice of the State and Agriculture had been  
that we sould proceed. Thus, in the worst scenario, it  
could be shown that the NAC agencies had taken prudent  
steps to protect the integrity of the program. He then  
offered a number of suggestions as to actions that might  
be taken. 
        Agriculture representative responded that he agreed  
that building a record was appropriate and supported the  
suggestions that Treasury had made. Agriculture indicated  
that it should be recognized that the problems with BNL  
had been uncovered and disclosed to OMB because of them.  
NSC strongly seconded Agriculture point. 
        Treasury observed that the Middle East peace process  
was at a vital point and proceeding quickly with the  
proposed program would be helpful in that context. He  
added that he approved of the approach Treasury had  
suggested. 
        Based on the foregoing discussion, including the  
points suggested by Treasury that were subsequently  
accepted and reduced to writing (see attached), the NAC  
Deputies agreed that Agriculture should go forward with a  
FY 1990 GSM program for Iraq in up to two tranches of  
export credit guarantees, with each tranche not to exceed  
five hundred million dollars. 
  
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SUMMARY OF AGREED POINTS IN NAC DEPUTIES MEETING ON  
PROPOSED CCC PROGRAM FOR IRAQ, NOVEMBER EIGHT, 1989. 
  
1. The Agriculture Department will designate senior  
officials to monitor the Iraq program through appropriate  
channels. 
2. The Agriculture Depertment will sus[pend its program  
under specified conditions and will ensure the full  
cooperation of the government of Iraq in uncovering and  
dealing with any wrongdoing in connection with the program 
3. The Agriculture Deoartment has viewed the existing GSM  
procedures and is installing additional safeguards or  
controls needed to tighten the monitoring and enforcement  
of its guarantee programs and to rainse the probability  
that irregularities will be detected at an early stage. 
4. The State Department and Agriculture willsend, for the  
record, letters to the Secretary of the Treasury, in his  
capacity as chairman of the NAC, outlining the  
agricultural, trade and foreign policy reasons which make  
it important to proceed with the CCC program for Iraq. 
5. Prior to commitment of a second tranche under the Iraq  
program, the Agriculture department will submit a written  
report to the NAC detailing: 
        (a) the nature and operation of the safeguards and  
controls established in connection with the Iraq program  
in particular: 
        (b) the stpes taken to tighten the monitoring and  
enforcement of its export credit guarantee programs; and 
        (c) developments in the investigations of the BNL  
scandal 
        Any significant developments with respect to the BNL  
investigations that may have ramifications for the Iraq  
program will be reported to the NAC as soon as they become  
known. 
  
-------------- 
  
DEPARTMENT OF STATE 
Washington DC, June twelve nineteen eighty four 
  
NEA Subject: Eximbank Financing for Iraqi Export  
Pipelines. 
  
Attached is a background paper, oprepared at the request  
of the Vice-President's staff, on the status of the  
proposed Iraqi oil export pipelines and suggested talking  
points for possible use by the Vice President in calling  
Eximbank Board Chairman William Draper concerning Exim  
financing. 
  
CHARLES HILL 
Executive Secretary 
  
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BACKGROUND PAPER: STATUS OF IRAQI EXPORT PIPELINES 
        Iraq has agreement in principle with both Jordan and  
Saudi Arabia to build separate oil export pipelines and  
has asked US firms to take the lead in both projects. Both  
are moving forward slowly, however, because of delays in  
arranging financing as well as some apparent indecision on  
the part of the Iraqi and Saudi Governments. 
        BECHTEL has detailed financial and technical  
discussions with an Iraq-Jordanian Joing Commission on the  
One billion one million barrel per day line to Aqaba.  
Recently, the Commission asked Bechtel to revise its  
proposal and maximise US official and private  
participation and present the new version by June twenty  
five. In keeping with this request, Bechtel has now  
applied to Eximbank for a preliminary commitment of  
financing for up to six hundred and seventy million  
dollars in US goods and services and has urged Exim to act  
on this request at its June nineteen Board meeting  
(Eximbank would cover eighty five percent of the amount,  
or up to about five hundred million dollars.) Bechtel is  
seeking financing for most of the remainder from  
Eximbank's Franch and British counterparts. 
        The Iraqi=Jordanian effort to macimize US  
participation is in part due to concerns over possible  
Israeli interference with the planning, construction and  
operation of the line, which would terminate within a few  
miles of the Israeli port of Eilat. We have advised the  
Israelis of our interest in seeing this line operate and  
they ahve raised no military or political objections, but  
have noted the need for adequate environmental safeguards. 
        Iraq has also publicly and privately described this  
project as a major test of US intentions toward it.   
Jordan enthusiastically supports this project which would  
provide additional employment and continuing revenues. 
        Inthe case of the promosed link to the Saudi East- 
West pipeline, Brown and Root has a contract with iraq to  
design and manage this eight hundred million doll;ar, five  
hundred thousand barrel a day project. The company has  
prepared an application for Exim financing of its thirty  
five milion service contract but has delayed submitting it  
while it attempts to meet an Exim request for external,  
i.e., Saudi, guarantees. Construction of this line  
presents a number of potential problems to the Saudis and  
their commitment to is appears lukewarm at best; while  
they have not obstructed preliminary work, they have also  
not facilitated it, and there has been no sign of Saudi  
governemtn willingness to provide financing. 
        Eximbank support is likely to be a crucial component,  
particularly for the Aqaba line. Exim's polich to date has  
been to disapprove medium and long term financing for US  
goods and services for Iraq in the absence of external  
security arrangements because of doubts regading repayment  
prospects. Followking recent discussions with Exim  
Chairman Draper and his staff, however, Bechtel believes  
they are favorably disposed towards the project and  
Bechtel's application, which would include only about  
fifty million dollars in Iraqi risk with the remainder  
backed by a Jordanian government guarantee. (All of Brown  
& Root;s request would be for Iraqi risk.) The Aqaba  
project would be one of the largest single commitments  
ever made by the Bank and would far exceed its current  
exposure in Jordan. 
        While expressions of interest and support made to  
Eximbank at this time would necessarily focus on Bechtel's  
application regarding the line to Aqaba, we do not regard  
the two projects as mutually exclusive. Both would be  
beneficial/ 
        Given the importance of these projects to our overall  
policies in the revion, Deputy Secretary Dam is calling Mr  
Draper to reiterate our foreign policy interests. (The  
Secretary has not been involved because of his previous  
association with Bechtel.) We understand that National  
Security Advisor McFarlane may also call Draper. A call by  
the Vice President would be particularly useful in  
dconfirming the Administration's support for these  
projects. (Suggested talking points for such a call are  
attached.) 
  
TALKING POINTS: EXIM FINANCING FOR IRAQ PIPELINES 
        the war between Iraq and Iran directly affects our  
vital interests in the Middle East and particularly in the  
Persian Gulf. 
        Our objective is to bring the war to a negotiated end  
in which neither belligerent is dominant and the  
sovereighty of both is preserved. We believe that victory  
by either d=side would have a serious destabilizing effect  
on the region. 
        At the present time, Iran is the intransigent party,  
unwilling o negotiate in part because it believes it can  
win in a war of attrition. We must therefore seek means to  
bolster Iraq's ability and resolve to withstand Iranian  
attacks as well as to convince Iran that continuing  
hostilities are useless. 
        One such means would be the early intitiation of  
construction and rapid completion and operation of  
additional export pipelines for iraq's large oil reserves. 
        Eximbank could play a crucial role in our efforts in  
the region. Early and favorable action on applications for  
Exim financing for these pipeline projects would be clear  
and very welcome evidence of Us commitment to these  
objectives. 
        US suppliers of services and equipment would benefit  
and with the completion of these pipelines, we woule be  
less dependent on oil shipped through the Persian Gulf. 
        Finally, operation of a pipeline to Aqaba could  
contribute to stability in the region by promoting at  
least tacit cooperation in the region. 
  
******************************************************************
******************************************************************
******************************************************************

  
DEPARTMENT OF STATE 
Washington, DC, March sixteen nineteen eighty three 
  
To: The Secretary 
From: EB -- Richard McCormack 
Subject: US Credit Possibilities for Iraq. 
  
ISSUE FOR DECISION 
        Whether to approve the attached cable (Tab A)  
outlining the limited possibilities for US financial  
support for exports to Iraq. 
  
ESSENTIAL FACTORS 
        In your February fourteen meeting with Iraqi Minister  
of State Hammadi you undertood to provide Iraq information  
on official US financing possibilities in supporr of US  
exports to Iraq. 
        Iraq's financial position has gradually worsened  
since the beginning of the wa in 1980 and is likely to  
grow more serious over the next six months. With reduced,  
although still stubstantial, aid from the Gulf, Iraq faces  
a current account short-fall of as much as ten billion  
dollars this year. This situation undoubtedly motivated  
Hammadi to mention to you that the US should consider  
providing credits, loans and technical cooperation to  
support US exports to Iraq, which have approached one  
billion dollars in each of the past two years. 
  
ANALYSIS OF OPTIONS 
        There are two possibilities for US official credit  
for Iraq: (a) Eximbank programs; (b) CCC blended credits  
of guarantees for agricultural exports. Wecondarily, the  
US attitude in the IMP could affact Iraq's ability to  
obtain access to IMP resources. Finally, although  
commercial bank financing is beyond USG control, we could  
take some minor steps in support of Iraq's prospects in  
private credit markets. 
  
A. Eximbank Programs 
        Eximbank is discouraging the few inquiries from US  
exporters regarding Iraq because of the war's effect on  
iraq's economy. This decision was based upon the Export- 
Import Bank Act requrement that there be "a reasonable  
assurance of repayment". Other official credit agencies  
have informed Exim of payment and contract problems' 
        Equally problematic is section 520 of the Foreign  
Assitance Appropriations Act of 1979 which prohibits  
Eximbank funding to any government which harbors  
terrorists. L has concluded that if an Iraqi government  
entity were involved in an Eximbank transaction, then the  
question of whether Iraq was harboring terrorists would  
have to be decided. However, an area of ambiguity exists  
with respect to the issuance of FICA insurance for the  
benefit of a US exporter or US bank where the importer is  
a private foreign national. 
        Section 520 language originated in a 1977 amendment  
proposed by Senator Heinz. With the Eximbank Act up for  
renewal this year, a section 520 case, on the heels of a  
Chaffee Amendment determination for Argentina, could  
galvanize Congressional support to circumscribe the  
Administration's flexibility to ensure that Exim loans are  
consistent with our foreign policy. Because Heinz will be  
a key Senator on the Eximbank renewal we would hope to  
afoid a section 520 case. Given legislative requirements  
and Congressional sensitivity, we have asked Eximbank to  
refer any applications involving Iraq to State before  
taking action. 
  
B. CCC Blended Credit Program 
        Based in part on the opinion of the AId General  
Counsel's office, L has concluded that there are no FAA or  
other pertinent statutes which specifically bar a CCC  
program for Iraq. In December, USDA approved two hundred  
and ten million dollars in CCC credit guarantees for Iraqi  
imports of US agricultural exports. State successfully  
opposed a proposal to raise tha quantity of wheat in the  
package (and increase the toital packate to two hundred  
and fifty million), citing the need to avoid further  
angering Canada, a non-subsidizing exporter of wheat.  
Canada has complained that our blended credit package with  
Iraq has affected their non-subsidized cash wheat market  
there. Although Agriculture has received Iraqi assurances  
that they will purchase the minimum amounts of Canadian  
wheat required under the long term agreement with the GOC,  
the Canadians have told us that the Iraqis have not signed  
any new contracts for wheat deliveries for this year and  
that old contracts also have not been picked up. We can  
expect further protest from Ottowa. 
  
C. US Vote in the IMF 
        IMF assistance may be appropriate for Iraq's current  
balance of payment problems. We could give no blanket  
commitment to support Iraqi applications, since our  
decisions are made onthe viability of individual loans.  
Furthermore, legislation requiring that we "work in  
opposition" to any extension of IMF financial or technical  
assistance to any country that harbors terrorists would be  
an additional constraint. For these reasons and because we  
would not want Iraq to tell the IMF the US in any way  
suggested it approach the Fund, we have not included this  
subject in the cable. 
  
D. Commercial Financing 
        The Iraqis probably doubt disclaimers that the USG  
cannot swing loans for Iraq through friends in the private  
sector. We might remind the Iraqis that the private sector  
takes into account the state of political relations in  
making its credit determinations. We could offer to  
arrange consultations between iraqi government financial  
officials and US governement and private international  
financial experts. 
  
RECOMMENDATION 
        That you approve the attached cable which instructs  
US Interest Section Chief Eagleton to inform the Iraqis  
what we have done on CCC credits to Iraq and reiterates  
that the US private sector is invluenced by the overall  
state of our relations. 
  
-------------- 
  
Transcription of Rep. Gonzalez statement by requesting  
file 720 from the addressee below. 

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