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Bush to veto U.S. defense bill after Iraq objects

CRAWFORD, Texas (Reuters) - President George W. Bush intends to veto defense legislation after Iraq objected to a provision that could freeze its assets in the United States if Americans sue the country, the White House said on Friday.

U.S. President George W. Bush speaks at his ranch in Crawford, Texas December 27, 2007. Bush intends to veto defense authorization legislation over a provision that would "imperil Iraqi assets held in the United States," the White House said on Friday. REUTERS/Larry Downing

Iraqi officials raised their concerns with U.S. Ambassador Ryan Crocker about 10 days ago and when administration officials took a closer look at the provision they agreed that it could pose “grave financial risk” for Iraq, tying up assets needed for reconstruction, the White House said.

Iraq also discussed with the United States the possibility of pulling its assets, about $20 billion to $30 billion, out of U.S. institutions if the defense policy bill became law, a senior administration official said on condition of anonymity.

“The new democratic government of Iraq, during this crucial period of reconstruction, cannot afford to have its funds entangled in such lawsuits in the United States,” White House spokesman Scott Stanzel said.

The Bush administration is concerned that the bill would re-open lawsuits filed against Iraq under Saddam Hussein, some going back to the first Gulf War, and tie up the assets of the post-Saddam government.

Congressional Democratic leaders House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid said the administration should have raised its objections earlier.

“It is unfortunate that the president will not sign this critical legislation,” they said in a statement. “Instead, we understand that the president is bowing to the demands of the Iraqi government, which is threatening to withdraw billions of dollars invested in U.S. banks if this bill is signed.”

The White House said it became more acutely aware of the potential consequences for Iraq and its relations with the United States after Baghdad raised its concerns.

Sen. Frank Lautenberg, a New Jersey Democrat who sponsored the provision, said it was aimed at allowing American victims of terrorism to take countries responsible to court, such as Iran for the 1983 bombing of the Marine barracks in Beirut.

Bush’s veto, expected by Dec. 31, would not interrupt funding for the Pentagon and Iraq war since separate legislation provides more than $500 billion for the year.

The White House was consulting congressional leadership over the need to modify the bill, Stanzel said.

The broad defense policy bill also authorizes a pay raise for U.S. troops, expands the size of the Army and sets conditions on the Bush administration’s plan to build a missile defense system in Europe.

The bill lays out a road map of military priorities, and directs weapons acquisition programs.