The decision comes one day before the Export-Import Bank's board is expected to approve a programme providing up to $500 million in financing to support US exports to Iraq.

The Export-Import Bank's so-called short-term export credit insurance programme with the newly created Trade Bank of Iraq could begin making loans as early as October, an Export-Import Bank official said.

"It is in the national interest for the Export-Import Bank to guarantee, insure or extend credit or participate in the extension of credit in support of United States exports to Iraq," Bush said in a memorandum, lifting long-standing restrictions on Export-Import Bank operations in the country.

Officials said the Export-Import Bank credit insurance programme for Iraq was intended to jump-start the post-war economy.

The programme would back credit to be offered by the Trade Bank of Iraq.

Together, the banks would try to stimulate sales of consumer goods, spare parts, raw materials, bulk agriculture commodities, fertilisers and capital equipment, as well as services.

In its initial stages, the credit arrangements would be aimed at financing purchases authorised by the Coalition Provisional Authority, which is in charge of running Iraq since this spring's ouster of President Saddam Hussein.

But officials said reconstituted Iraqi ministries would participate in the programme.

US officials are hoping that Iraq's private sector will grow and bank financing will be funneled away from government-run agencies.

Officials said the Export-Import Banks has yet to decide whether future Iraqi oil sales would be used as security for loans that will be run through the Iraq Trade Bank.

The terms for the loan guarantees would be 180 days for financing consumer goods, spare parts and raw materials and 360 days for bulk agricultural commodities, fertilizer and capital equipment.