[Mb-civic] James Baker's Double Life

Wed Oct 13 20:43:16 PDT 2004

James Baker's Double Life

By Naomi Klein, The Nation
 Posted on October 13, 2004, Printed on October 13, 2004
 http://www.alternet.org/story/20160/

When President Bush appointed former Secretary of State James Baker III as
his envoy on Iraq's debt on Dec. 5, 2003, he called Baker's job "a noble
mission." At the time, there was widespread concern about whether Baker's
extensive business dealings in the Middle East would compromise that
mission, which is to meet with heads of state and persuade them to forgive
the debts owed to them by Iraq. Of particular concern was his relationship
with merchant bank and defense contractor the Carlyle Group, where Baker is
senior counselor and an equity partner with an estimated $180 million stake.

 Until now, there has been no concrete evidence that Baker's loyalties are
split, or that his power as Special Presidential Envoy  an unpaid position
 has been used to benefit any of his corporate clients or employers. But
according to documents obtained by The Nation, that is precisely what has
happened. Carlyle has sought to secure an extraordinary $1 billion
investment from the Kuwaiti government, with Baker's influence as debt envoy
being used as a crucial lever.

 The secret deal involves a complex transaction to transfer ownership of as
much as $57 billion in unpaid Iraqi debts. The debts, now owed to the
government of Kuwait, would be assigned to a foundation created and
controlled by a consortium in which the key players are the Carlyle Group,
the Albright Group (headed by another former secretary of state, Madeleine
Albright) and several other well-connected firms. Under the deal, the
government of Kuwait would also give the consortium $2 billion up front to
invest in a private equity fund devised by the consortium, with half of it
going to Carlyle.

 The Nation has obtained a copy of the confidential sixty-five-page
"Proposal to Assist the Government of Kuwait in Protecting and Realizing
Claims Against Iraq," sent in January from the consortium to Kuwait's
foreign ministry, as well as letters back and forth between the two parties.
In a letter dated Aug. 6, 2004, the consortium informed Kuwait's foreign
ministry that the country's unpaid debts from Iraq "are in imminent
jeopardy." World opinion is turning in favor of debt forgiveness, another
letter warned, as evidenced by "President Bush's appointment ... of former
Secretary of State James Baker as his envoy to negotiate Iraqi debt relief."
The consortium's proposal spells out the threat: Not only is Kuwait unlikely
to see any of its $30 billion from Iraq in sovereign debt, but the $27
billion in war reparations that Iraq owes to Kuwait from Saddam Hussein's
1990 invasion "may well be a casualty of this U.S. [debt relief] effort."

 In the face of this threat, the consortium offers its services. Its roster
of former high-level U.S. and European politicians have "personal rapport
with the stakeholders in the anticipated negotiations" and are able to
"reach key decision-makers in the United Nations and in key capitals," the
proposal states. If Kuwait agrees to transfer the debts to the consortium's
foundation, the consortium will use these personal connections to persuade
world leaders that Iraq must "maximize" its debt payments to Kuwait, which
would be able to collect the money after ten to fifteen years. And the more
the consortium gets Iraq to pay during that period, the more Kuwait
collects, with the consortium taking a 5 percent commission or more.

 The goal of maximizing Iraq's debt payments directly contradicts the U.S.
foreign policy aim of drastically reducing Iraq's debt burden. According to
Kathleen Clark, a law professor at Washington University and a leading
expert on government ethics and regulations, this means that Baker is in a
"classic conflict of interest. Baker is on two sides of this transaction: He
is supposed to be representing the interests of the United States, but he is
also a senior counselor at Carlyle, and Carlyle wants to get paid to help
Kuwait recover its debts from Iraq." After examining the documents, Clark
called them "extraordinary." She said, "Carlyle and the other companies are
exploiting Baker's current position to try to land a deal with Kuwait that
would undermine the interests of the US government."

 The Nation also showed the documents to Jerome Levinson, an international
lawyer and expert on political and corporate corruption at American
University. He called it "one of the greatest cons of all time. The
consortium is saying to the Kuwaiti government, 'Through us, you have the
only chance to realize a substantial part of the debt. Why? Because of who
we are and who we know.' It's influence peddling of the crassest kind."

 In the confidential documents, the consortium appears acutely aware of the
sensitivity of Baker's position as Carlyle partner and debt envoy.
Immediately after listing the powerful players associated with Carlyle 
including former President George H.W. Bush, former British prime minister
John Major and Baker himself  the document states: "The extent to which
these individuals can play an instrumental role in fashioning strategies is
now more limited ... due to the recent appointment of Secretary Baker as the
President's envoy on international debt, and the need to avoid an apparent
conflict of interest." [Emphasis in original.] Yet it goes on to state that
this will soon change: "We believe that with Secretary Baker's retirement
from his temporary position [as debt envoy], that Carlyle and those leading
individuals associated with Carlyle will then once again be free to play a
more decisive role ..."

 Chris Ullman, vice president and spokesperson for Carlyle, said that
"neither the Carlyle Group nor James Baker wrote, edited or authorized this
proposal to the Kuwait government." But he acknowledged that Carlyle knew a
proposal was being made to the government of Kuwait and that Carlyle stood
to land a $1 billion investment. "We were aware of that. But we played no
role in procuring that investment."

 Asked if Carlyle was "willing to take the billion but not to try to get
it," Ullman answered, "Correct."

 Iraq is the most heavily indebted country in the world, owing roughly $200
billion in sovereign debts and reparations from Saddam's wars. If Iraq were
forced to pay even a quarter of these claims, its debt would still be more
than double its annual GDP, severely undermining its capacity to pay for
reconstruction or to address the humanitarian needs of its war-ravaged
citizens. "This debt endangers Iraq's long-term prospects for political
health and economic prosperity," President Bush said when he appointed Baker
last December.

 But critics expressed grave concern about whether Baker was an appropriate
choice for such a crucial job. For instance, one of Iraq's largest creditors
is the government of Saudi Arabia. The Carlyle Group does extensive business
with the Saudi royal family, as does Baker's law firm, Baker Botts (which is
currently defending them in a $1 trillion lawsuit filed by the families of
Sept. 11 victims). The New York Times determined that the potential
conflicts of interest were so great that on Dec. 12 it published an
editorial calling on Baker to resign his posts at the Carlyle Group and
Baker Botts to preserve the integrity of the envoy position.

 "Mr. Baker is far too tangled in a matrix of lucrative private business
relationships that leave him looking like a potentially interested party in
any debt-restructuring formula," stated the editorial. It concluded that it
wasn't enough for Baker to "forgo earnings from clients with obvious
connections to Iraqi debts.... To perform honorably in his new public job,
Mr. Baker must give up these two private ones."

 The White House brushed off calls for Baker to choose between representing
the President and representing Carlyle investors. "I don't read those
editorials," President Bush said when asked by a reporter about the Times
piece. Bush assured reporters that "Jim Baker is a man of high integrity....
We're fortunate he decided to take time out of what is an active life ... to
step forward and serve America." Carlyle was equally adamant: Chris Ullman
assured a Knight-Ridder reporter that Baker's post "will have no impact on
Carlyle whatsoever."

 In fact, several months earlier, on July 16, 2003, Carlyle had attended a
high-level London meeting with Kuwaiti officials about the deal. According
to the document, the Kuwaitis asked Carlyle and the other consortium members
to "prepare a detailed financial proposal for the protection and
monetization" of reparation debts from Iraq. But at the time Baker was
appointed envoy, the consortium had not yet submitted its proposed plans to
the Kuwait. That means that the Carlyle Group could have pulled out of the
consortium, citing the potential conflicts of interest. Instead, Carlyle
stayed on and the consortium proceeded to use Baker's powerful new position
to aggressively pitch a deal that positioned the consortium as the Kuwaiti
government's chief lobbyist on Iraq's debts and that gave Carlyle a clear
stake in the fate of Iraq's debts.

 However, several changes were made in the way the consortium presented
itself. The documents state that, "Prior to [Baker's] appointment [former
U.S. Secretary of Defense Frank] Carlucci had played a convening and guiding
role on behalf of Carlyle." But after the appointment, according to
Carlyle's Chris Ullman, the firm's role was scaled back. "When James Baker
was named special envoy...Carlyle explicitly restricted its role to only
investing assets on behalf of Kuwait." Shahameen Sheikh, chairman and CEO of
International Strategy Group, a company created by the consortium to manage
this deal, said that Carlyle told her that "they are not a lobbying firm."
Days before Baker's appointment, the consortium reached out to another
high-profile Washington firm, the Albright Group, which eventually signed on
as the leading political strategists and lobbyists for the consortium.

 Moreover, Ullman said that Carlyle put "controls in place" that would
insure that Baker "would play no role in nor benefit from" the proposed $1
billion investment  an amount that would constitute nearly 10 percent of
Carlyle's total equity investments.

 But it's not clear that Carlyle has been straightforward about its dealings
so far. The day before Baker's appointment was announced, John Harris,
managing director and chief financial officer of Carlyle, submitted a signed
statement to White House Counsel Alberto Gonzales. "Carlyle does not have
any investment in Iraqi public or private debt," he wrote. He didn't mention
that Carlyle had for months been in negotiations with Kuwait to help secure
its unpaid war debts from Iraq. Asked if the White House had been informed
of the Carlyle Group's dealings with Kuwait at any point, Ullman replied,
"I'll get back to you on that." He did not.

 According to Kathleen Clark, the consortium's activities may be in
violation of both criminal and regulatory statutes that prohibit government
officials from participating in government business in which they have a
financial interest  including matters that affect an outside company that
employs the official. Clark notes, "even if Baker is somehow being screened
from profiting from this deal, Carlyle is using Baker's government position
to benefit themselves." She says it's time for Carlyle and the White House
to come clean. "There's a tremendous need for transparency here." The White
House and James Baker's office did not respond to repeated requests for
comment.

 Baker occupies a complicated place in the consortium's January proposal 
he is both problem and solution, stick and carrot. In the documents, Baker's
name comes up repeatedly, usually in tones of high alarm. "Mr. Baker's new
role and the likely emergence of what will be understood as a new round of
global negotiations over Iraqi debt  casts all of these issues in a new
light and gives them a new, perhaps even intense, sense of urgency," states
a letter signed by Madeleine Albright; David Huebner, chairman of the
Coudert Brothers law firm (another consortium member); and Shahameen Sheikh.

 But after establishing Baker's envoy job as the embodiment of the threat
that Kuwait will lose its reparations payments, the proposal goes on at
length about the powerful individuals connected to the consortium who will
"have the ability to gain access to the highest levels of the United States
Government and other Security Council governments for a hearing of Kuwait's
views." According to Levinson, "What they are proposing is to completely
undercut Baker's mission  and they are using their connection with Baker to
do it."

 On Jan. 21, 2004, James Baker's dual lives converged. That morning Baker
flew to Kuwait as George Bush's debt envoy. He met with Kuwait's prime
minister, its foreign minister and several other top officials with the
stated goal of asking them to forgive Iraq's debts in the name of regional
peace and prosperity.

 Baker's colleagues in the consortium chose that very same day to
hand-deliver their proposal to Foreign Minister Mohammad Sabah Al-Salem
Al-Sabah  the same man Baker was meeting. The proposal "takes into account
the new dynamics that have developed in the region," states the cover
letter, signed by Albright, Huebner and Sheikh  dynamics that include
"Secretary Baker's negotiations" on debt relief. If Kuwait accepts the
consortium's offer, they explain, "we will distinguish Kuwait's claims 
legally and morally  from the sovereign debt for which the United States is
now seeking forgiveness."

 Was it a coincidence that the consortium submitted its proposal on the same
day Baker was in Kuwait? And which James Baker were Kuwait's leaders
supposed to take more seriously  the presidential envoy calling for debt
forgiveness or the businessman named in the proposal as a potential ally in
their quest for debt payment?

 Ahamed al-Fahad, undersecretary to the prime minister of Kuwait, told The
Nation, "I have seen it [the proposal] and I am fully aware of the
situation." But when asked about Baker's dual role in Kuwait, he said, "It's
hard to comment on that issue, especially now. I hope you fully understand."

 Shahameen Sheikh, the consortium head who made the delivery, says the
timing was a coincidence. "It had nothing to do with Mr. Baker's visit.... I
was in the region so I thought I would stop over on the way to Europe and
deliver the proposal."

 We do know this: After meeting with Baker on Jan. 21, Kuwait's foreign
minister told reporters that Baker had shown "understanding of Kuwait's
position on war reparations," confirming that the subject did come up. He
also said that, while sovereign debt might be forgiven, reparations would
not, because "there is an international decision from the UN."

 Three days later, when Baker was back in Washington giving a speech, he
made this distinction for the first time. "My job is to deal with Iraqi debt
to sovereign creditors, not with war reparations," he said. He also echoed
the exact line of the Kuwaiti government: that reparations are outside his
purview because they are "under the jurisdiction of the United Nations
Security Council and subject to resolutions it has passed."

 This was a curious statement: Why would such a large portion of Iraq's
debts be off the table? It also seemed to contradict other things Baker said
in the same speech. He said that "any reduction [in Iraq's debt] must be
substantial, or a vast majority of the total debt." That is impossible
without addressing reparations, which by some measures account for more than
half of Iraq's foreign debts. The Center for Strategic and International
Studies, the center-right think tank hosting Baker's speech, has said it is
"unwise" to make any debt relief plan "that does not include reparations."

 Baker's statement on reparations also placed him at odds with several other
members of the Bush Administration, including former chief envoy to Iraq
Paul Bremer. "I think there needs to be a very serious look at this whole
reparations issue," Bremer said in September 2003. He compared the Iraq
situation to that of Germany after World War I, when the 1921 Reparations
Commission forced the Weimar Republic to pay $33 billion. The massive
reparations "contributed directly to the morass of unrest, instability and
despair which led to Adolf Hitler's election," Bremer warned.

 Yet Iraq continues to make regular reparations payments for Saddam's 1990
invasion of Kuwait. In the eighteen months since the U.S. invasion, Iraq has
paid out a staggering $1.8 billion in reparations  substantially more than
the battered country's 2004 health and education budgets combined, and more
than the United States has so far managed to spend in Iraq on
reconstruction.

 Most of the payments have gone to Kuwait, a country that is about to post
its sixth consecutive budget surplus, where citizens have an average
purchasing power of $19,000 a year. Iraqis, by contrast, are living on an
average of just over $2 a day, with most of the population dependent on food
rations for basic nutrition. Yet reparations payments continue, with Iraq
scheduled to make another $200 million payout in late October.

 This arrangement dates back to the end of first Gulf War. As a condition of
the cease-fire, Saddam Hussein agreed to pay for all losses incurred as a
result of his invasion and seven-month occupation of Kuwait. Payments
started flowing 1994 and sped up in 1996, with the start of the UN's
oil-for-food program. According to UN Security Council Resolution 986, which
created the program, Iraq could begin to export oil as long as the revenue
was spent on food and medicine imports, and as long as 30 percent of Iraq's
oil revenues went to the United Nations Compensation Commission (UNCC), the
Geneva-based quasi-tribunal in charge of Gulf War reparations.

 Some of the claims that have been awarded by the UNCC are huge: the cost of
cleaning up Kuwait's and Saudi Arabia's coastlines from oil spills and
fires, or the Kuwait Petroleum Corporation's controversial award for $15.9
billion in lost oil revenues. So far, the UNCC has paid out $18.6 billion in
war reparations and has awarded an additional $30 billion that has not been
paid because of Iraq's shortage of funds. There are still $98 billion worth
of claims before the UNCC that have yet to be assessed, so these numbers
could rise steeply. That's why there are no accurate estimates of how much
Iraq owes in war reparations  the figure ranges from $50 billion to $130
billion.

 But the fate of these debts is now highly uncertain. On May 22, 2003  two
months after the United States invaded Iraq  the Security Council decided
to cut the percentage of Iraqi oil revenues going to war reparations to 5
percent. This past May, an Iraqi delegation went to the UN to ask for the
percentage to be reduced even further, to accommodate Iraq's own
reconstruction needs. There is growing sympathy for this position. Justin
Alexander of the debt relief group Jubilee Iraq says that many of the claims
before the UNCC are inflated and that "even for genuine claims, this is
Saddam's responsibility, not the Iraqi people's, who themselves suffered far
more than anyone."

 This is where the Carlyle/Albright consortium comes in. The premise of its
proposal is that Iraq's unpaid debts to Kuwait are not just a financial
problem but a political and public relations problem as well. Global public
opinion is no longer what it was when Kuwait was promised full reparations.
Now the world is focused on reconstructing Iraq and forgiving its debts. If
Kuwait is going to get its reparations awards, the cover letter argues, it
will need to recast them not as a burden on Iraq but "as a key element in
working toward regional stability and reconciliation."

 Several parties involved in the consortium emphasized that the proposal
concerned only reparations debts. Albright Group spokesperson Jamie Smith
said, "We were asked to join a proposal to secure justice for victims of
Saddam's invasion of Kuwait and ensure that compensation to Kuwaiti victims
 which was endorsed by the US government and the United Nations  be used
to promote reconciliation, environmental improvements and investment in
Kuwait, Iraq and the region."

 In fact, the proposal does not restrict itself to reparations debt. The
consortium also asks the government of Kuwait to give the consortium control
over $30 billion in defaulted sovereign debts to be used as political
leverage to secure reparations claims. Furthermore, most experts on debt
restructuring agree that Iraq's debts must be looked at as a whole: There is
little point forgiving Iraq's sovereign debts if the country is still going
to be saddled with an unmanageable reparations burden. This understanding is
reflected in the documents, which repeatedly state that Kuwait's reparations
payments are endangered by the moves to forgive Iraq's debts.

 To avert this threat to Kuwait, the consortium proposes a three-pronged
strategy of aggressive backroom lobbying, clever public relations and
creative investing and financing. "Any solution for payment of the Unpaid
Awards ... must be politically sellable as reinforcing stability and growth
in the Gulf and in Iraq. This Proposal provides the strategy, the
architecture, and the talent to achieve this goal," the document states.

 Lobbying: Since the UNCC exists entirely at the discretion of the Security
Council, which can vote to reduce, suspend or eliminate reparations at any
time, the part of the proposal dealing with power-brokering is
straightforward: It suggests a full-on lobbying offensive directed at
Security Council members, using Albright's connections, but also other
"eminent" people associated with the consortium like former U.S. Senator
Gary Hart and former U.S. ambassador to the UN Jeane Kirkpatrick. "We will
first seek to preserve the five percent of the revenues from Iraqi oil
allocated as funding for payment of the UNCC awards," the proposal says. To
achieve this, the consortium will make "discreet contacts at top levels in
key capitals of Security Council member states and with influential
representatives," and "interventions with United Nations senior staff to
shape presentations to the Security Council." The proposal further notes
that "Germany and Romania may be pivotal, and The Albright Group has very
close ties to each."

 Public Relations: The consortium also has a detailed plan to address the
perception that reparations are "diverting resources from rebuilding Iraq to
a more wealthy neighbor." First, Kuwait must assign its unpaid debts from
Iraq to a private foundation controlled by the consortium. The foundation
will manage an investment fund that will invest a portion of reparations
payments from Iraq to Kuwait back into Iraq. As examples of the types of
investments the foundation would make, Albright, Huebner and Sheikh suggest
in their letter that the reparations funds could be used to buy Iraq's
state-owned companies. "In the near future, 40 state-owned Iraqi enterprises
in a range of sectors will be available for leasing and management
contracts," they write. By demonstrating that Kuwait is investing part of
its reparations proceeds back into Iraq's economy, the consortium-run
foundation "establishes a humanitarian rationale for the United States and
other counties to continue their support" for the reparations. The
consortium appears to see privatization  a highly controversial proposal in
Iraq  as part of a humanitarian mission.

 The proposal also suggests more direct public relations strategies. It
calls for Kuwait to dedicate $1 billion of the reparations awards it has
already been paid by the UNCC to a Kuwait Environmental Restoration Fund,
which the consortium would create. The purpose of this fund would be to
remind the world of "the gravity of the environmental legacy facing Kuwait"
and to "position Kuwait as the region's environmental leader." The fund
would be headed by Carol Browner, former head of the U.S. Environmental
Protection Agency and a principal in the Albright Group.

 Investment/Financing: The proposal predicts that on their own, lobbying and
public relations will not be sufficient to secure the amounts that the
Kuwaiti government hopes to receive in reparations. For the consortium to
"maximize the value of Kuwait's compensation," Kuwait will have to part with
even more of the reparations payments it has received. In addition to the $1
billion for the environmental fund, the proposal calls for another $2
billion of Kuwaiti money to be invested in a Middle East Private Equity
Fund. Of that $2 billion, "$1 billion would be invested, by way of special
agreement, in The Carlyle Group equity funds" for a period of at least
twelve to fifteen years. At the end of that period Kuwait will get the
return on these investments, as well as whatever the consortium has been
able to negotiate in reparations payments.

 For the consortium, it is an excellent deal: Its members get to manage a $2
billion investment portfolio, collecting healthy management fees as well as
a percentage of interest. They also will be paid a "retainer" and 5 percent
of any debts the consortium gets repaid, and "a negotiated percentage of the
value returned to Kuwait exceeding" the pre-arranged amount.

 Other consortium members sharing in these benefits include Fidelity
Investments; BNP Paribas, a European bank embroiled in the oil-for-food
scandal; Gaffney, Cline & Associates, an energy company specializing in oil
and gas privatization; Nexgen Financial Solutions, a financial engineering
firm partly owned by the government of France; and Emerging Markets
Partnership, an AIG affiliate headed by a former senior vice president of
the World Bank, Moeen Qureshi.

 In addition to the financial windfall, the arrangement would give this
group of private companies tremendous power. Whoever holds Iraq's debt has
the ability to influence policy in Iraq at a moment of extreme political
uncertainty. Yet for the government of Kuwait the proposed deal is fraught
with risk. It's true that the fate of its Iraqi reparations looks grim. The
consortium estimated that if Kuwait tried to sell those debts on the market,
its $27 billion would be worth only $1.5 billion. But the consortium is
asking Kuwait to risk $3 billion of reparations money it has already
received in the hope that it can be used to leverage some of the rest.
However, as Jerome Levinson points out, "There are absolutely no guarantees
of even that."

 It is clear that the consortium is extremely eager to seal a deal with
Kuwait. Consortium CEO Shahameen Sheikh writes of making five trips to
Kuwait in four months; Albright met with Kuwait's foreign minister about the
issue on April 2, 2004; and the Albright Group's Carol Browner is reported
to have "personally delivered a copy" of the proposal to his hotel when he
was in Washington. Yet Kuwait appears reluctant: It took four months to
reply to the proposal and then it would only say, in a letter dated Aug. 10,
that the proposal "will be taken into deep consideration and is currently
being studied by the appropriate authorities." According to Ahamed al-Fahad,
"The issue is now in the hands of the under secretary of foreign affairs,"
who was unavailable for comment. But Salem Abdullah al Jaber al-Sabah,
Kuwait's ambassador to the United States, said, "As far as my information is
concerned, my government is not considering such proposals."

 Even if the deal falls through, the fact that the Carlyle Group and the
Albright Group have been engaged in these negotiations may already have
damaged debt relief efforts, hurting both Iraqi and U.S. interests. Levinson
points out that the Bush Administration has made commitments that Iraq's oil
revenues will be spent on reconstruction. Yet the failure to deal with the
reparations issue means that "part of those resources instead are being
diverted to Kuwait. Who pays for this? It's the people of Iraq who continue
to make reparations payments, and it's U.S. taxpayers, who are asked to foot
the bill for reconstruction, because Iraq's money is going to debt
payments."

 Levinson says this is all the more remarkable because of who is involved.
"Here you have two former secretaries of state seemingly proposing to use
their contacts and inside information to undercut the official U.S.
government policy." Washington University's Kathleen Clark says the proposal
"lays bare how former high-level government employees use their access in
order to reap financial benefits that appear to be enormous."

 A case can certainly be made that James Baker and Madeleine Albright have
had more direct influence over Iraq's debts and reparations payments than
any politicians outside Iraq, with the possible exception of the forty-first
and forty-third presidents of the United States.

 As secretary of state, Baker played a role in running up Iraq's foreign
debts in the first place, personally intervening in 1989 to secure a $1
billion US loan to Saddam Hussein in export credits. He was also a key
architect of the first Gulf War, as well as of the cease-fire that required
Saddam to pay such sweeping reparations. In his 1995 memoirs, "The Politics
of Diplomacy," Baker wrote that after seeing the oil-well fires in Kuwait he
cabled President George H.W. Bush and said, "Iraq should pay for it." Now,
through the consortium, Carlyle could end up controlling $1 billion of those
payments.

 The role of the Albright Group raises similar questions. As secretary of
state and ambassador to the UN, Madeleine Albright participated personally
in drafting UN Resolution 986, which created the oil-for-food program,
diverting 30 percent of Iraq's revenue from oil sales to war reparations.
"It's a great day for the United States because we were the authors of
Resolution 986," she said on The NewsHour With Jim Lehrer on May 20, 1996.
Now, as a private citizen, Albright is a leading member of a consortium that
is exploiting her connections to try to profit from the very reparations she
helped secure. Albright also enforced the brutal sanctions campaign against
Iraq, one of the effects of which was the hobbling of Iraq's state
companies. Now, she is part of a plan to use Iraq's reparations payments to
buy the very firms that her sanctions program helped to debilitate.

 But it is Baker's envoy post that raises the most serious questions for the
White House, especially because a Special Presidential Envoy is the
President's personal representative, meeting with heads of state in the
President's stead and reporting back directly to the President. If a
president's envoy has a conflict of interest, it reflects directly on the
highest office. Clark says, "There is absolutely a conflict of interest.
Baker is aligned with two parties  the US government and Carlyle  that are
not aligned with each other."

 As envoy, Baker's job is to do his best to clear away Iraq's debts,
lessening the burden on Iraqis and on US taxpayers. Yet as a businessman, he
is an equity partner in a company that is part of a deal that would achieve
the opposite result. If Baker the envoy succeeds, Baker's business partners
stand to fail  and vice versa.

 Have these conflicts influenced Baker's performance as envoy? Has he pushed
as hard as he could have for debt forgiveness? We know that Iraq's steep war
reparations to Kuwait have largely escaped public scrutiny  if Baker has
steered the Bush administration away from the reparations issue, for whom
was he working at the time? The White House? Or Carlyle? Clark says
questions like these are precisely why conflict-of-interest regulations
exist. "We have reason to doubt that Baker is doing everything he could be
doing on behalf of the United States because he has an interest in another
side of the transaction."

 This issue is all the more pressing because the file that President Bush
handed to Baker is in disarray  ten months on, there is significantly less
goodwill toward forgiving Iraq's debt than when Baker arrived. When
President Bush appointed him, he praised Baker's "vast economic, political
and diplomatic experience." And at first, Baker seemed to be making fast
progress: After top-level meetings, France, Russia and Germany appeared open
to canceling a large proportion of debt owed to them by Iraq, and Saudi
Arabia and Kuwait seemed ready to follow.

 But now, the negotiations are not only stalled, they seem to be going
backwards. Kuwait, for its part, has hardened its position. "Debts remain
debts," Foreign Minister Mohammad Sabah Al-Salem Al-Sabah said recently. And
it has intensified its demands for Gulf War reparations, joining with Saudi
Arabia, Iran, Jordan and Syria to claim an additional $82 billion from Iraq
in environmental damages.

 And the Europeans? At a Senate Foreign Relations Committee hearing on Sept.
15, Sen. Joseph Biden Jr. asked Ronald Schlicher, deputy assistant secretary
of state for Iraq, about the status of the international negotiations.

 "Has a single nation in the G8 ... formally said or requested of their
parliaments to forgive Iraqi debt?" Biden asked.

 "Not yet. No sir," Schlicher replied.

 Not only has Baker failed to deliver any firm commitments for debt
forgiveness, at the annual meeting of the International Monetary Fund on
Oct. 2, it emerged that France had done an end run around Washington and was
pushing a debt-relief deal of its own. French Finance Minister Nicolas
Sarkozy announced that he had lined up Russia, Germany and Italy behind a
plan to cancel only 50 percent of Iraq's debts  a far cry for the 90-95
percent cancellation Washington had been demanding. Yet Baker was nowhere to
be found.

 Busy negotiating the rules of the presidential debates, Baker has been MIA
on the debt issue. Since he returned from his trip to the Middle East in
January, the President's envoy has issued only two public statements on
Iraq's debt, and he has been completely silent on the topic for the past six
months  despite having publicly committed to getting the debt issue sewn up
by the end of the year.

 While this is bad news for Iraqis and for U.S. taxpayers, it could be good
news for Carlyle. A swift resolution to Iraq's debt crisis works against its
financial interest: The longer the negotiations drag on, the more time the
Consortium has to convince the reluctant Kuwaiti government to sign on the
dotted line. But if Iraq's debt is successfully wiped out, any proposed deal
is off the table.

 Baker's position as envoy has certainly been useful to his colleagues in
the consortium. Whether Baker has helped solve Iraq's debt crisis is far
less clear.