Iraq

Senate: Make half a loan, half a grant

The vote against the president's plan comes after the House supports making the aid a gift.

WASHINGTON - The Senate defied President Bush on Thursday and voted to convert half his $20.3-billion Iraqi rebuilding plan into a loan, dealing the White House an embarrassing foreign policy setback.

Despite an administration lobbying campaign that in recent days involved Bush himself, Vice President Dick Cheney and other top officials, the Republican-run chamber voted 51-47 for a bipartisan proposal making $10-billion of the aid a loan.

The administration argued that loans would worsen Iraq's foreign debt, slow its recovery and hand a propaganda victory to America's enemies. But the vote underscored that with presidential and congressional elections 13 months away, many lawmakers were more worried about vast new spending for foreign aid at a time of record federal deficits at home.

"It's very hard for me to go home and explain that we have to give $20-billion to a country sitting on $1-trillion worth of oil," said one loan supporter, Sen. Lindsey Graham, R-S.C.

The vote came as the House and Senate edged toward approval of similar $87-billion measures to finance American military operations in Iraq and Afghanistan, as well as the reconstruction of both countries. Most of both bills is about $66-billion for U.S. military operations in Iraq and Afghanistan, funds over which there was little controversy.

About two hours before the Senate roll call, the GOP-led House voted 226-200 to kill a similar loan proposal introduced by Democrats. The two chambers will have to negotiate compromise language before a final bill is sent to Bush for his signature, which congressional leaders hope to do before next week's conference of donor nations in Madrid.

The Senate drive to make $10-billion of the Iraqi aid a loan was sponsored by five Republicans and three Democrats. The money would be transformed into a grant if other countries agreed to forgive at least 90 percent of the debt they were owed by Iraq, usually estimated at between $90-billion and $127-billion.

The loan proposal was the most dramatic change lawmakers have made in the mammoth spending package that the president proposed on Sept. 7.

Its approval by the Senate marked the first congressional vote in opposition to Bush's policies in Iraq. It was also the latest of several setbacks that Congress has dealt him in recent months on issues including concentration of media ownership, new rules on overtime pay, and travel to Cuba.

While the Senate bill provided the full $20.3-billion for rebuilding that Bush sought, the House measure chopped it down to $18.6-billion. It did so by erasing politically fragile proposals: funds for buying $50,000 garbage trucks, creating Iraqi ZIP codes and restoring the country's marshlands.

The administration and its supporters wanted the rebuilding assistance to be entirely grants financed by U.S. taxpayers. They warned that loans would nurture Arab suspicions about the United States' true motivation in Iraq.

"The battle for the hearts and minds of the Iraqi people is not over by a long shot," said Sen. John McCain, R-Ariz. He said the amendment "will send a clear signal that the United States is really, really there for the oil."

Cheney called senators during the day hoping to block the loan plan, congressional aides said. And two senators - Arlen Specter, R-Pa., and Kay Bailey Hutchison, R-Texas, who had initially said they supported loans - switched Thursday and said they had been persuaded to oppose them.

The White House budget office released a statement saying the administration strongly opposed loans.

But the letter omitted any mention of a veto threat, which the office sometimes includes to send a strong message of opposition.

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