Handling of US Community Loans to Iraq, Other Nations Questioned

TAKING stock of billions of dollars in United States government farm export loans, some now giveaways, federal agencies and members of Congress are scrutinizing how the Department of Agriculture (USDA) determines a country's eligibility for export credits. At issue is whether commodity credits are realistically awarded on a commercial basis, with repayment expected or whether the commodities are increasingly doled out on a political basis, with US foreign policy concerns overriding economic considerations.

Strategically important countries such as Iraq, Mexico, and South Korea are the biggest recipients of USDA assistance. Sixty percent of the $11.2 billion extended as of May 1990 in the department's export credit program will not be repaid, according to the General Accounting Office (GAO).

While the Bush administration and Congress debate $1.5 billion in new grain credits to the Soviet Union, critics charge that the USDA is ignoring hard lessons learned from its most notorious loss - $2 billion in outstanding Commodity Credit Corporation (CCC) loans to Iraq.

State Department efforts to strengthen US-Iraqi relations - by satisfying Baghdad's thirst for foreign technology and financial transfers to pay for it - overwhelmed any concerns about eventual repayment. The USDA supplied Iraq with $5.5 billion in commodity credits from 1983 to 1990, despite repeated warnings from the US Export-Import Bank (Eximbank). Assessments by Eximbank of Iraq's financial and political risk stressed Baghdad's unwillingness and inability to repay debts and its reliance on foreign sources to finance its military machine. The USDA received each of Eximbank's seven country reports on Iraq issued from 1986 to 1989, and USDA officials regularly attended Eximbank board meetings. Because of US business-community pressure, backed by the State Department, the board was forced to meet with unusual frequency to review Iraq, says a senior US Treasury official, ``because they ... saw Exim as in the way of better ties with the Iraqis.''

The CCC now is working with Exim to learn the way its assesses country risk. The process is ongoing, says Chris Goldthwait, associate administrator of the USDA's Foreign Agricultural Service.

The CCC's allocations are partially based on a country's agricultural needs and market potential for US foodstuffs. But Iraq's needs became unclear, a USDA official says privately. ``Through 1987, our Foreign Agricultural Service prepared country reports, detailing Iraq's imports and exports,'' says the official. The reports showed Iraq's volume of purchases from other country suppliers and how much Baghdad was stockpiling.

``Our reports were very popular and highly visible; anybody had access to them,'' the USDA official says. ``By 1988, the front office [had] banned, ... eliminated, our country reports. The USDA kept this information from the public. ``This was done precisely at the time that Iraq was stocking up on commodities.''

It was also in 1988 when Iraq was rapidly building up its military apparatus. Cash-strapped, Iraq was desperate for loans and had no intention of paying the debt, the Exim reports show. Questions remain as to whether Iraq was more interested in using CCC credits for military technology than for wheat and rice imports. US government guarantees ``were very important to Iraq,'' says House Banking Committee chairman Henry Gonzalez (D) of Texas. They ``freed up foreign exchange, which was used to purchase t he technology and military goods from various countries around the globe.''

Iraq's access to credits other than for agriculture was so poor, and its defense expenses so high - $5 billion a year - that it resorted to the Atlanta-based branch of Italy's largest commercial bank, Banca Nazionale del Lavoro (BNL), for more than $2 billion in unauthorized loans. Federal investigators are probing a possible relationship between BNL and the CCC program. The CCC guaranteed a portion of the BNL loans.

``After we are assured that there was no connection between the military buildup and the agricultural credits, disturbing documents came to light, and no one at the [Agriculture] Department seems willing to get to the bottom of the matter,'' says Sen. Patrick Leahy (D) of Vermont, chairman of the Senate Agriculture, Nutrition, and Forestry Committee.

An April 1991 GAO report questions whether the CCC is commercially viable. In November 1990 the Food Agriculture, Conservation, and Trade Act of [November] 1990 prohibited programs from being used for foreign policy purposes. By December 1990, the first credit guarantees were authorized for the Soviets by the USDA. The GAO report says that, during 1990, major international banks downgraded Moscow's credit rating. The ``deterioration rapidly over the past year was the second greatest one-year decline f or a country in the past decade.''

Senator Leahy says, ``I'm very concerned about turning agricultural exports under CCC into foreign aid. We just want to know if we're going to get repaid; we want to know if we're going to be left holding the bag, like we are now with Iraq.''