The following is a transcribed excerpt from 'Fox News Sunday,' June 6, 2004.

CHRIS WALLACE, FOX NEWS: Joining us live now from Houston, Texas, is James A. Baker III, who served in the Reagan administration as secretary of the treasury and White House chief of staff.

And, Mr. Secretary, welcome. Thanks for joining us today.


WALLACE: I'm sure, like all of us who spent time with Ronald Reagan, you have had a flood of memories since you learned of his passing yesterday afternoon. Are there one or two of them that you think help explain who he really was?

BAKER: Well, maybe a couple, Chris. I think people don't realize the extent and degree to which Ronald Reagan had a strong faith and belief in God. It was a private faith but a very strong one.

I'll never forget, in the campaign in 1980, when then-Governor Reagan and Ambassador Bush were the Republican ticket running against President Jimmy Carter, and it was about 10 days to two weeks before Election Day. There had been no debates between the candidates. Finally — primarily I think because President Carter was in the lead most of the time; didn't want to debate the challenger. But finally they agreed to a debate.

And I never will forget being in the green room with Governor Reagan about five or 10 minutes before the debate was to begin, and we were going over some points, and Governor Reagan looked at me and he said, "Jim," he said, "would you excuse me for a moment, please? I'd like to have a word with the man upstairs." And he had that word with the man upstairs, and it must've been a darn good word...


... because he went out there and did a great job in that debate, which really was the turning point in the election.

The other thing I remember was — and there are many, many others, but one in particular, an example of his unerring humor and his ability to put people at ease. You know, he was an extraordinarily strong leader, but he had an uncommon gift of unbounded optimism and humor.

And we'd only been in the White House for about two weeks when his 70th birthday rolled around, February the 6th, 1981.

BAKER: And we decided we were going to give him a surprise birthday party. It was going to be in my office, the chief of staff's office, that historic office for the chief of staff down there in the West Wing. It's a big, big office, but it's, you know, maybe a half- a-block walk from the Oval Office.

President Reagan had only been there two weeks. He hadn't been down to the chief of staff's office. So everybody got in my office, and I went down, I said, "Mr. President, we have an event that's going to take place down there in another room in the West Wing, and I'll escort you. Just a few people. You just say a few words of greeting, then you come back."

Well, we opened the door to my office, and there the entire White House staff was singing "Happy Birthday" to the president, and he looked around. It was a surprise to him. And he smiled, and he said, "It's wonderful to see all of you here."

He looked at me, and he said — the first time he'd ever been in that office — he looked at me, and he said, "Why, Jim," he said, "this is a big office."


He said, "But it isn't round."


WALLACE: Or even oval.


On a more serious note, Mr. Secretary, where do you think Ronald Reagan ranks as a president? How important do you think he was?

BAKER: Oh, I think he was an extraordinarily important president. He was, as I say, a strong leader who held certain principles very, very viscerally, a certain big-ticket item, big- ticket principles. He never departed from those, and because he stuck to his principles and was true to those principles, he was able to change the world.

If you think back to the shape that this country was in in 1980, 1981, with double-digit inflation, double-digit interest rates, we went through a recession there the first year of his presidency, and then we had seven years of — seven, six-and-a-half years of sustained, noninflationary growth. Our economy grew tremendously. We created 20 million new jobs, and, in addition to that, laid the basis for winning the Cold War.

So, we had peace, and we had prosperity, and President Reagan really changed the nation.

WALLACE: You know, for all the great victories, it's only fair to say that there were also some low points, as there are for any president...

BAKER: True.

WALLACE: ... and one of those clearly was his decision to sell arms to the Iranians, to try to free the American hostages from Lebanon.

How do you explain his decision to break with his very strongly held principle that you don't negotiate with terrorists?

BAKER: Well, I'm not sure how strongly President Reagan, the individual, held that principle. He was a very, very compassionate person.

There were instances even, Chris, involving hostages domestically. Someone would want to get the attention of the president of the United States, they'd take a U.S. citizen hostage here in our country, and the president was so concerned about the welfare of those hostages that he really wondered whether or not it might be OK to do a little bit of talking to them, because he felt he could get them out.

And I think that's exactly what happened in the Iran-Contra affair. You know, in his heart and mind, he honestly did not believe that he was trading arms for hostages. He finally came out and said just that.

WALLACE: You know, we look back at Ronald Reagan now, a quarter of a century later, and we know the happy ending to the story. But when you went into the office in 1981, you didn't know whether his plan to reshape the government, his plan to confront the Soviets was going to work. Did he ever waver? Did he ever have doubts?

BAKER: I don't think he ever wavered. Whether he had doubts that were not expressed to others, I can't judge. But he never wavered. He said, we're going to see this through.

And there were some mighty dark days, in '81 and early '82, when the recession hung on a little longer than we thought it would, and they were blaming it on his policies, when in fact it was something that he had inherited.

But he — it's like I said earlier — he stuck to these core principles, stayed with them, and was able to change this country and indeed change the world.

WALLACE: We've got about a minute left in this segment. Mr. Secretary, Ronald Reagan loved stories, loved jokes so much. Can you leave us with one last Ronald Reagan story or joke?

BAKER: Well, I don't know whether I can do it in a minute or not, but I'll try.

The only time that I know that Ronald Reagan had a veto overridden by the Congress was on South Africa policy, where we were pursuing a policy of constructive engagement. The Congress put sanctions on, the president vetoed them, Congress overrode him.

We went in about two weeks later and said, "Mr. President, you really need to start seeing some of the more moderate black leaders of South Africa, so we can take South African policy back from the Congress." He said, "OK, well, who you got in mind?" He wasn't particularly happy. We said, Bishop Tutu. So he said, all right, reluctantly.

We brought Bishop Tutu in. They're sitting in the wing chairs in the Oval Office there. The press comes in, asks the president a question. He said, "I'm not going to answer questions. This is a photo opportunity." They turned to Bishop Tutu, who thoroughly trashed the president and his policy right there in his presence.

Well, the next day, the first event, the press come charging in, and they're saying, "Mr. President, Mr. President, what about your meeting with Bishop Tutu?" They smelled blood in the water. "What about Bishop Tutu? What about your meeting with Tutu?" And the president's sitting there like this. He looks down at his hands. And he says, "Tutu? So-so."


And he totally disarmed them, totally — and it was — that was an example of the way he had the ability to disarm his critics. There are many people in Washington who didn't like his policies, but they couldn't dislike the man himself.

WALLACE: We hated it, as a member of the White House press corps for six years with Ronald Reagan, we hated it when he did that, because, you know, there went the question, there went your...


WALLACE: Mr. Secretary, thank you...

BAKER: There went the whole line of inquiry.

WALLACE: Exactly, exactly.

Thank you so much for sharing your thoughts with us today, and I'm sure we'll see you this week in Washington.