Saddam Hussein lost the Persian Gulf war, but in the process he proved that there is such a thing as a free lunch. Saddam stopped paying his commodity credit bill to the United States when Iraq invaded Kuwait on Aug. 2 - a credit that should never have been extended in the months leading up to the invasion.
The bottom line is, Iraq got the U.S. agricultural exports it ordered and America didn't get its money. The outstanding bill at the Agriculture Department (USDA) is $2 billion.Allan Mendelowitz, the GAO investigator who looked into the credit given Iraq, says it was simply a bad loan. The USDA did a risk analysis, rated Iraq as a "high risk" market in 1989, and then continued to extend credit.
The Commodity Credit Corp. is a federally insured loan program to help foreign countries buy U.S. farm products. A country places an order, a bank lends them the money to pay for what they buy. The federal government guarantees the loan will be paid if the foreign nation defaults.
The USDA assesses the credit risk of the countries, and another federal board, the National Advisory Council, decides whether the credit policy is in sync with U.S. foreign policy.
During the Iran-Iraq War, the United States wanted to help Iraq. Iraq needed food but was short on cash, so the credit program for Iraq was born in 1983. Iraq became the 10th largest buyer of U.S. farm products - including buying 20 percent of American-grown rice in 1988 - using taxpayers' money.
As Saddam's poor human rights record got longer, including the gassing of his own people, the State Department continued to insist that the United States had more to gain by maintaining a friendly relationship with Iraq.
In September 1989, the USDA extended $30 million in additional farm loans to Iraq, but an internal USDA memo warned against issuing a press release about it. The fear was that if the USDA made a big deal about Iraq's credit, someone in Congress might come down hard on the whole guarantee program.
By the beginning of 1990, the bills were piling up. The general sales manager at the USDA, F. Paul Dickerson, wrote a memo to his boss acknowledging that the bills were high, but adding that to cut off Iraq then would be taken as "unwarranted and an affront to their dignity," and that might prompt Iraq to stop paying anything.
The USDA believed the best way to guarantee payment of the old loans was to continue giving Iraq new ones. When the USDA submitted a $1 billion credit proposal for Iraq to the National Advisory Council in 1990, the NAC finally got nervous. The NAC said Iraq should get only $400 million in credit. Iraq held out for $500 million.
By February 1990, that money was gone and Iraq asked for $573 million more. This time the Commodity Credit Corp. said "no," ending more than seven years of giving Iraq what it wanted.
The GAO has since told Congress that the credit program was mismanaged, and now the GAO is investigating the possibility that Iraq put some of the money into nuclear arms development.