Efforts to convert Iraq aid into loan appear to wane

White House officials and Senate Republican leaders are showing renewed strength in their efforts to defeat amendments that would convert Iraq reconstruction funds into a loan program.

The Senate is debating an $87 billion fiscal 2004 supplemental for Iraq and Afghanistan, of which $20.3 billion is devoted to Iraq reconstruction. Although key senators said they are still talking, sources said a possible bipartisan compromise loan amendment was losing steam over fundamental differences in the amendments proposed by Sens. Kay Bailey Hutchison, R-Texas, and Ben Nelson, D-Neb., and each side's insistence that theirs is the right approach.

Sources also said Hutchison might instead negotiate with the administration rather than the Democrats, but she would not comment. "There's just too much going on right now," Hutchison said as she was shuttling back and forth between the office of Majority Leader Bill Frist, R-Tenn., and the Senate floor. "We're working on trying to work things out," she added.

One possible compromise being floated would create a U.S.-administered trust fund to manage the $20.3 billion and distribute it either directly or as a loan based on each project's merits, a leadership aide said. That plan would give wavering senators political cover with angry constituents while preserving in large part the administration's plan.

Senate Appropriations Committee Chairman Ted Stevens, R-Alaska, who is said to have considered the idea, would not comment. Stevens has said he opposes loans.

Hutchison's amendment, cosponsored by Governmental Affairs Chairwoman Susan Collins, R-Maine, would create a World Bank-run trust fund to administer $10 billion of the reconstruction funds as a loan, aimed at securing matching international donations.

Nelson's amendment, backed by Sen. Evan Bayh, D-Ind., would set aside $10 billion as a loan, which could be converted to a grant if foreign creditors forgive 90 percent of Iraq's debt. In addition, $5 billion would be a grant, but if creditors did not forgive 90 percent of the debt, it would convert to a loan.

Nelson said he was still seeking a consensus through discussions with Hutchison and Republican cosponsors, including Collins and Sens. Saxby Chambliss of Georgia and Lindsey Graham of South Carolina among others. Said Collins, "We're trying to see if we can come up with a consensus amendment."

Frist, however, rejected any notion of a compromise. "It should be grants, not loans," he said. And administration and Senate aides indicated they had the votes to reject even a fig leaf proposal and would stand fast in support of grants.

"The bottom line is at the end of the day we're going to have a vote on loans versus grants," a Senate GOP aide said. "I think we have the votes," added a Frist spokesman.