Carlyle Covers Up

[Guest guest]

http://www.thenation.com/doc.mhtml%3Fi=20041115 & s=klein

 

 

The Nation

 

lookout by Naomi Klein

 

Carlyle Covers Up

 

[from the November 15, 2004 issue]

 

Less than twenty-four hours after The Nation disclosed that former

Secretary of State James Baker and the Carlyle Group were involved in

a secret deal to profit from Iraq's debt to Kuwait, NBC was reporting

that the deal was " dead. " At The Nation, we started to get calls

congratulating us on costing the Carlyle Group $1 billion, the sum the

company would have received in an investment from the government of

Kuwait in exchange for helping to extract $27 billion of unpaid debts

from Iraq.

 

We were flattered (sort of), until we realized that Carlyle had just

pulled off a major public relations coup. When the story broke, the

notoriously secretive merchant bank needed to find a way to avoid a

full-blown political scandal. It chose a bold tactic: In the face of

overwhelming evidence of a glaring conflict of interest between

Baker's stake in Carlyle and his post as George W. Bush's special

envoy on Iraq's debt, Carlyle simply denied everything. The company

issued a statement saying that it does not want to be involved in the

Kuwait deal " in any way, shape or form and will not invest any money

raised by the Consortium's efforts " and, furthermore, that " Carlyle

was never a member of the Consortium. " A spokesperson told the

Financial Times that Carlyle had pulled out as soon as James Baker was

appointed debt envoy, because his new political post made Carlyle's

involvement " unsuitable. " Mysteriously, there was no paper trail--just

Carlyle's word that it had informed its business partners " orally. "

 

You have to hand it to them: It was gutsy. In the leaked business

proposal from the consortium to the Kuwaiti government--submitted

almost two months after Baker's appointment--the Carlyle Group is

named no fewer than forty-seven times; it is listed first among the

companies involved in the consortium; and its partner James Baker is

mentioned by name at least eleven times. In interviews, other

consortium members, including Madeleine Albright's consulting firm,

the Albright Group, confirmed that Carlyle was still involved, as did

the office of the Prime Minister of Kuwait. Shahameen Sheikh, the

consortium's CEO, told me that when Baker was named envoy in December,

Carlyle was " very clear with us that they wanted to restrict their

role to fund managers, " but she said the firm was very much still a

part of the deal.

 

That was exactly what Carlyle spokesman Christopher Ullman had told

me. He also admitted that Carlyle would land a $1 billion investment

if the proposal was accepted. After I reported these facts, Ullman

even called to thank me for quoting him accurately.

 

So when I heard about Carlyle's about-face, I called Ullman to see

what was up. I felt like I was talking to one of the brainwashed

characters in The Manchurian Candidate, the Jonathan Demme remake

about a Carlyle-esque company that conspires to put a mind-controlled

candidate in the Oval Office. " We learned today that we did not even

join the consortium, " Ullman told me, drone-like. " When I spoke to you

yesterday, I did not know that. "

 

Amazingly, it worked. The story--which made front-page news around the

world--vanished almost as soon as it had appeared in the press at

home. The New York Times has not printed a word about Baker's

conflict, despite the fact that when Baker was first appointed envoy,

it published an editorial calling on him to resign from Carlyle in

order to " perform honorably in his new public job. " The Kerry campaign

has been equally silent, apparently for fear that any criticism would

boomerang onto the Democrats because of Albright. This was Carlyle's

stroke of genius: When Baker was appointed, the consortium recruited

Albright to front the deal; when they got caught, Carlyle denied all

involvement in this " unsuitable " activity and left a prominent

Democrat holding the bag.

 

As the story disappeared under Carlyle's spell, it was as if the

entire US media had been implanted with Manchurian memory chips. Here

was hard evidence that the Carlyle Group--the " ex-Presidents' club, "

run so much like a secret society that Charles Lewis of the Center for

Public Integrity once described researching the firm as " shadowboxing

with a ghost " --had participated in a scheme to use Baker to undermine

US policy, possibly in violation of multiple conflict-of-interest

regulations, including criminal statutes. Yet Carlyle was slipping out

of reach once again.

 

Crucially, the central question remains unanswered by the White House:

Have James Baker's business interests compromised his performance as

debt envoy? That question does not go away simply because $1 billion

will stay in the coffers of a wealthy oil emirate rather than in a

Carlyle equity fund. The week after losing the deal, Carlyle handed a

record-breaking $6.6 billion payout to investors. " It's the best 18

months we ever had, " boasted Carlyle chief investment officer Bill

Conway to the Financial Times. " We made money and we made it fast. "

 

In Iraq, the last eighteen months have been markedly worse, and the

stakes for Baker's job performance there are considerably higher. This

was underlined on October 13, when Iraq's health ministry issued a

harrowing report on its post-invasion health crisis, including

outbreaks of typhoid and tuberculosis and soaring child and mother

mortality rates. A week after the report came out, Iraq paid out

another $195 million for war reparation debts, mostly to Kuwait.

Meanwhile, the State Department announced that $3.5 billion for water,

sanitation and electricity projects was being shifted to security in

Iraq, claiming that, according to Deputy Secretary of State Richard

Armitage, debt relief is on the way.

 

Is it? In fact, Iraq is being plunged deeper into debt, with $836

million in new loans and grants now flowing from the IMF and the World

Bank. Meanwhile, Baker has not managed to get a single country to

commit to eradicating Iraq's debts. Iraq's creditors know that while

Baker was asking them to show forgiveness, his company was offering

Kuwait a special side deal to push Iraq to pay up. It's not the kind

of news that tends to generate generosity and good will. And the

timing couldn't be worse: The Paris Club is about to meet to hash out

a final deal on Iraq's debt.

 

But that doesn't happen until November 12. And if 2000 is any

indication, by then Baker could be on to bigger deals. Look out for

him in swing states, if another election needs stealing.