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Analysis: Iraq a target for U.S. spending

By BEN LANDO, UPI Energy Editor   |   March 7, 2008 at 5:12 PM   |   Comments

WASHINGTON, March 7 (UPI) -- The head of the Senate Armed Services Committee wants U.S. auditors to investigate the Iraqi government's spending on reconstruction as both U.S. and Iraqi funds in the rebuilding effort came under fire on Capitol Hill this week.

"How much has Iraq and the United States, respectively, spent annually during that time period on training, equipping and supporting Iraqi security forces, and on Iraq reconstruction, governance, and economic development?" Committee Chairman Carl Levin, D-Mich., and member John Warner, R-Va., wrote Friday to the U.S. Government Accountability Office. "We believe that it has been overwhelmingly U.S. taxpayer money that has funded Iraq reconstruction over the last five years, despite Iraq earning billions of dollars in oil revenue over that time period that have ended up in non-Iraqi banks."

The Pentagon's head of U.S. Central Command and the State Department's Iraq coordinator were grilled by members of Congress this week who took the decidedly "blame Iraq" tone -- not wholly unwarranted, some say -- in expressing frustration with progress in the country five years after the invasion.

"It's totally unacceptable to me that we are spending tens of billions of dollars on rebuilding Iraq," Levin said, "while they are putting tens of billions of dollars, in banks around the world, from oil revenues."

Adm. William Fallon assured Levin Iraq is putting up more of its funds than the United States this year for reconstruction. He attributed the problems of allocating and spending the funds to "extraordinary actions" by Iraqi officials to make sure they aren't accused of corruption. "The Iraqi leaders at every level appear to be highly sensitive to the image of corruption, not that there isn't that going on, but to the perception that they might somehow misuse these funds, the national funds."

The reconstruction is to repair damage caused by the 2003 invasion and resulting war, as well as rebuilding Iraq from harm caused by Saddam Hussein. The funds not in Iraq are in the United States.

Iraq's oil sales brought in $41 billion in 2007 and through March 5, 2008, $10.1 billion, according to the State Department's Iraq Weekly Status Report, buoyed by increased oil production and rising prices.

Pursuant to a 2003 U.N. Security Council resolution, all of Iraq's revenues are deposited into the Development Fund for Iraq and kept watch by the International Advisory and Monitoring Board.

"DFI is the only source from which the Ministry of Finance can finance the matters of the state," a State Department official told United Press International. "Whether it's operating expenditures or capital expenditures, that's all that they can use to pay for the budget."

Aside from funds deposited in the Central Bank of Iraq to cover the budget, all of Iraq's revenues, seized assets and the leftover from the former Oil-for-Food program are in the DFI, held at the Federal Reserve Bank of New York.

"They are invested in U.S. treasuries," said Yahia Said, director for Middle East and North Africa for the Revenue Watch Institute. "They are lent back to the U.S. government at a very good interest rate. So the United States is not necessarily losing on that."

The State Department official said about $12 billion -- and more depending on any given day's deposit -- is in "an account into which they put revenues and out of which they draw for expenditures."

Another account contains $27 billion in currency reserves, the Financial Times reported last month, which protects the value of the Iraqi dinar and are "not available for financing matters of the state," the department official said.

"It's difficult to measure how much Iraq needs in terms of hard currency reserves and how much of it is excess cash it could have spent itself," Said said. "Iraq indeed is failing to spend its own money and one could rationally question why should the U.S. spend its own money on Iraq reconstruction? However, the U.S. has not allocated any significant resources for Iraq reconstruction lately and the trend is declining. Of course, even if Iraq could have its own money to spend, the U.S. may argue that it can spend its own resources in a much better targeted, more efficient way, to serve the purposes of the U.S. troops in Iraq and the U.S.'s own purposes as is always the case with foreign aid."

"Their capacity to spend is improving and they are working on it," he added.

A January 2008 report by the GAO said data from the U.S. State and Treasury departments and the Iraqi Ministry of Finance conflicted, and was unable to fully assess Iraq's progress in spending its capital budget. The GAO was asked to look at capital spending capacity after a dismal showing in 2006. Iraq only spent a portion of its $10 billion capital budget in 2007, with final numbers to be released, but has a more than $13 billion budget for this year.

"I can't accept the answer that they're not capable of administering their own revenues," Levin told Fallon.

Rep. Dana Rohrabacher, R-Calif., ranking member on the House Foreign Affairs Committee's Subcommittee on International Organizations, Human Rights and Oversight, asked Secretary of State Condoleezza Rice's senior adviser, David Satterfield, if future U.S.-Iraq agreements would require Iraq "help pay for the massive expense that we've had in saving them from Saddam Hussein." Satterfield's office told UPI the United States isn't looking to be reimbursed by Iraq but expects "Iraq to assume an ever greater share of its own current security and other budgetary needs."

(It was Rohrabacher who in a July 2007 hearing said "a certain amount of oil revenue in the future" should refund the U.S. war effort and U.S. companies should get a leg up in future oil deals.)

Levin, at the hearing this week, suggested Iraq "transfer those resources to us, we'll administer them the way we administer our own funds for their reconstruction. I mean, we're putting a lot more money into reconstruction up till now than they have," which prompted a correction from Fallon: "That's changed. They are putting more in."

U.S.-controlled reconstruction spending, be it American or Iraqi funds -- and it was both -- since the invasion isn't the best example.

"It's a bit harsh to say that the Iraqi people are taking the taxation of Americans," Abdul-Hadi al-Hasani, Iraqi parliamentarian and deputy chief of the energy committee, told UPI. "In the mind of many Iraqi people, the Multi-National Forces hasn't done as good as they could to improve services, infrastructure and security. They tried their best but the people believe they could do better."

The Los Angeles Times' Iraq reconstruction reporter, T. Christian Miller, documented a lack of accountability, an excess of corrupt contracting and project priorities disconnected from Iraq: a large, state-of-the-art power plant, for example, which was broken after requiring Iraqi workers who weren't thoroughly trained, upkeep funding that wasn't supplied, natural gas that wasn't available, and an electricity grid heavily in demand but not yet capable of handling such a load.

"In almost every way the rebuilding has fallen short," he wrote in the 2006 book, "Blood Money: Wasted Billions, Lost Lives and Corporate Greed in Iraq." "Month after month Iraqis have frequently expressed amazement at the lack of progress. How could a country that put a man on the moon not manage to make the toilets flush in a slum in downtown Baghdad?"

"It's a decidedly mixed picture," said the Revenue Watch Institute's Said. "In many cases it has been spent inefficiently and with a lack of accountability. But in some cases it has been very central to maintain Iraqi infrastructure and life support."

Said pointed specifically to the Commander's Emergency Response Program, "money given to military commanders on the ground to carry out quick community reconstruction and cleanup projects, build local alliances," and deliver food and fuel, among other needs. CERP received $2.66 billion in American and Iraqi dollars from August 2004 through January 2008, according to the Special Inspector General for Iraq Reconstruction's recent report to Congress.

The U.S. military "is the scaffolding holding all the life support operations in Iraq. … Mostly money's well spent," he said. "It becomes a little murkier when it comes to bigger projects."

"Initially, Congress provided reconstruction funding for big projects, bricks and mortars," the State Department official said, referring to $2.48 billion allocated in April 2003 and $18.4 billion in November 2003. All of this has been allocated and the projects are coming to a close. The official said the department's "funding is targeted to help them spend their own money … to unlock the bigger amounts of money they have but haven't been able to do."

Like an oil pipeline, the State Department official said, you might want to export more crude, but "there's only so much throughput you can put through so quickly."

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(UPI Correspondent Siobhan Devine contributed to this report.)

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(e-mail: blando@upi.com)

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