Bank loans to Clinton lead to 'cronyism' row

PRESIDENT Bill Clinton was embroiled in a new financial controversy yesterday, with the disclosure that he took out between dollars 200,000 ( pounds 127,000) and dollars 400,000 of unsecured personal loans from an obscure local bank to help promote his legislative programme when governor of Arkansas - loans that were repaid with donations from big business and special interest groups.

The loans were made between 1983 and 1988 by the Bank of Cherry Valley, owned by Maurice Smith, a friend and close aide of Mr Clinton. They were repaid by contributions to special parallel accounts at the same bank, from donors including Tyson Foods, the giant Wal-Mart stores group, and various Arkansas banks and state-regulated utilities.

Undeclared at the time, the dealings have only been brought to light by press investigation of Mr Clinton's finances while he was an investor in the controversial Whitewater land development in the 1980s. The loans complied with the letter of the law, qualifying neither as personal income nor campaign contributions, which would have had to be disclosed. They appear to have been spent mainly on media advertising for Mr Clinton's legislative plans covering education reform and various other initiatives for the state.

White House officials yesterday denied the loans were a form of slush fund, or for the personal use of Mr Clinton, whose salary was then just dollars 35,000 a year. But critics have seized on them as further proof of cronyism and dependence on special interests. 'This was really just money to support his efforts to stay in office,' said one.

The new raking over of the President's gubernatorial days in Arkansas could hardly have come at a worse moment. Last week's trip to Europe has done little to revive his sagging popularity. On 26 July, the House is due to start its televised hearings on Whitewater, guaranteeing vast publicity, if not necessarily enlightenment.

In early August a federal judge in Little Rock will pronounce on the crucial issue of presidential immunity in the Paula Jones harassment affair. If immunity is denied, as Ms Jones' lawyers demanded yesterday, the case could go ahead this autumn, amid saturation coverage beside which Whitewater pales.