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Bipartisan plan emerges for giving aid to Iraq through loans

WASHINGTON—Over Bush administration objections, many Democrats and Republicans in Congress want to ease the sticker shock of post-war operations in Iraq by requiring that Iraq repay up to $20 billion in proposed reconstruction aid.

Providing the aid as loans rather than as direct grants is expected to ease its passage through the Senate this week, despite lawmakers' persistent questions about specific items in the president's request. The House is expected to act by mid-October.

Among the most controversial items are:

_ $9 million to modernize Iraq's postal system with bar-code technology and ZIP codes;

_ $19 million to set up a wireless Internet network;

_ $100 million to build 3,528 housing units in seven communities, complete with schools, clinics, places of worship and markets;

_ Forty garbage trucks at $50,000 each.

The administration's plan also calls for a $100 million witness protection program and $400 million for two new 4,000-bed maximum security prisons.

Those items are all within the $20 billion package, which is part of an $87 billion emergency spending proposal that would cover both military and reconstruction costs in Iraq and Afghanistan. The loan plan emerged Monday as the leading bipartisan solution to overcome misgivings many Democrats and conservative Republicans have about the cost of the package.

L. Paul Bremer, the U.S. administrator in Iraq, objected forcefully last week to any plan that would increase Iraq's foreign debt, which he estimated at more than $200 billion. But a senior administration official said Monday that turning U.S. aid into a loan package now appears inevitable.

"It is a terrible idea whose time has come," said the official, who spoke on condition of anonymity because that view contradicts official White House policy.

However, giving Iraq aid in the form of loans rather than grants would raise significant questions about how the United States would be repaid and could cause an enormous diplomatic headache for the administration. It was unclear from the proposals floating on Capitol Hill whether the United States would demand repayment ahead of Iraq's other debt holders —including France, Germany, Russia and Saudi Arabia—and whether Washington would attempt to secure the loans with Iraqi oil revenues.

A top Republican Senate aide said 13 or 14 Republican senators appear ready to support a loan instead of a direct grant. In the House, fiscal conservatives, worried about the growing federal budget deficit, are pushing a similar plan.

"A lot of Americans are scratching their heads, going, `Is this a loan or is it a gift? What's the deal?' " said Rep. Zach Wamp, a Tennessee Republican and member of the House Appropriations Committee.

Advocates of the loan idea point out that Iraq has the second largest oil reserves in the world, which, under administration projections, will be generating $20 billion in annual revenue within two years. What's more, they say, much of the U.S. reconstruction money will pay for needs that preceded the war, such as telecommunications, electricity, schools and hospitals.

"American taxpayers should not be required to pay for rebuilding Iraq's infrastructure, especially when the American `shock and awe' military campaign deliberately avoided damaging Iraq's infrastructure," said Sen. Byron Dorgan, D-N.D, an appropriations committee member who intends to offer a loan amendment to the bill.

Sen. Ted Stevens of Alaska, the Republican chairman of the Senate Appropriations Committee, said Monday that he would work to kill a loan proposal but conceded: "It's going to be a tough fight."

Critics of a loan argue that adding to Iraq's debt would overburden its fragile economy. In addition, U.S. officials may ask countries to forgive some of Iraq's debts during an upcoming donors' conference in Madrid, a request that would be undermined if the United States pushed itself in line as yet another lender demanding repayment.

Supporters of a direct grant said any loan secured with Iraqi oil revenue would reinforce perceptions abroad that the United States waged war in Iraq to gain access to more oil.

"Every despot, every extremist, every opponent all over the world will say, `See, the United States was only there for one reason, and that's the oil,' " said Sen. John McCain, R-Ariz. "That's what they'll say, and there will be some legitimacy to it."

A plan to pay for the overall package by rolling back tax cuts for wealthy Americans does not appear to have enough votes to pass. Still, several Democrats plan to push for reversing some of the tax cuts, in the name of fighting budget deficits, by arguing that this would affect only the wealthiest 1 percent of the population.

In addition, several lawmakers plan to challenge some of the specific expenditures in Iraq proposed by the administration. Many Democrats contrast the president's request for aid to Iraq with domestic needs in the United States, and even some Republicans have begun to question some of the expenses.

"We serve the administration well when we ask these tough questions," said Wamp. "We do a disservice if we rubber-stamp the request."

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(c) 2003, Knight Ridder/Tribune Information Services.

ARCHIVE GRAPHICS on KRT Direct (from KRT Graphics, 202-383-6064):

20030908 USIRAQ spending

Iraq

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