House Urges Negotiators to Give In on Iraq Loans

Loan conditions on financial aid to rebuild Iraq won't be in the legislative package Congress is working to complete, the White House predicted Wednesday.

"I don't think that that provision will be in the final language," White House spokesman Scott McClellan told reporters as President Bush flew from Singapore to Bali on one of the last legs of his Asian trip. "It's very clear that it sends the wrong message."

House members on Capitol Hill put a twist Tuesday on a decision to send negotiators to conference with Senate members about differing packages on Bush's $87 billion request for military and reconstruction aid to Iraq (search) and Afghanistan (search).

The 277-139 vote instructed House conferees to "go along with" a Senate provision making $10 billion of $18.6 billion in aid a loan that would have to be repaid by the Iraqi people unless foreign creditors forgave 90 percent of Iraq's debt to them. The measure also asks for them to negotiate for improved medical benefits for veterans and military reservists.

The language, however, is non-binding, meaning the members of the House negotiating team do not have to heed the instruction, and could come back with a bill that strikes the loan provision from the final version needing approval by both chambers. 

Adding to the pressure on the issue is a letter from White House Budget Director Josh Bolten (search) to the chairman of the House Appropriations Committee, in which he wrote President Bush wants all or nothing.

"The administration strongly opposes the Senate provision that would convert a portion of this assistance to a loan mechanism. If this provision is not removed, the president's senior advisers would recommend that he veto the bill," Bolten wrote.

On Wednesday, McClellan said the loan provision makes it harder for Iraq to get on its feet.

GOP leaders in both chambers have said they will drop the loan provision from the final bill, and Bush's veto threat will make it easier to convince members to support a bill without language on loans.

"I've made it very, very clear I have no intention" of including a loan in the final bill, said Rep. Bill Young (search), R-Fla., chairman of the House Appropriations Committee and chief author of the House bill.

Senate Majority Leader Bill Frist, R-Tenn., would not speculate about the brewing battle over whether to turn the money into a grant or loan.

"I believe the president will continue to make the case that the best thing for the Iraqi people is that this be in grants, not loans. We'll probably know by the end of next week what that outcome will be," Frist said.

In the House vote tally on Tuesday, 84 Republicans, 192 Democrats and an independent supported the instructions for the negotiators. Two Democrats and 137 Republicans voted no.

Young said that he encouraged GOP members to vote as they wanted because they are under a lot of pressure to improve benefits for U.S. troops and veterans.

"I made it very clear members should vote as they felt," Young said.

Democrats, however, saw the vote as vindication to their claims that the federal deficit is already too high and the administration has not paid enough attention to domestic issues.

"Let's be frank about it. The reason it got a lot of votes was it was simply too hot for the Republican leadership to handle," said Rep. David Obey (search) of Wisconsin, top Democrat on the House Appropriations panel, who added that lawmakers resented Bush's strident tone in a meeting last week with senators in which he said he would not negotiate over Iraqi loans.

Iraq's future economic viability hinges on the health of its oil sector. In the northern city of Beiji (search) on Tuesday, three oil pipelines fell victim to sabotage, according to Iraqi police. Huge fires raged most of the day.

Defense officials would not speculate about how much of a setback the sabotage was. By all accounts, Iraqi oil production is up significantly in recent weeks. All of Iraq's domestic oil consumption needs are being met, and the focus is now on exporting oil and generating revenue.

Toward that end, the Bush administration is looking to generate billions of dollars for Iraqi reconstruction at an international donors' conference in Madrid, Spain, later this week.

Defense Secretary Donald H. Rumsfeld said Tuesday that he doesn't have expectations, but he is hopeful.

"I have hope that people will recognize how important what is happening in that country is; how difficult it is ... and that they'll recognize, particularly the countries in the region, that the opportunity to significantly improve that region of the world is an enormous one. And these opportunities don't come along every day," he said.

Fox News' Bret Baier and The Associated Press contributed to this report.