Wednesday, January 30, 2008

Increased Iraqi oil revenues stemming from high prices and improved security are piling up in the Federal Reserve Bank of New York rather than being spent on needed reconstruction projects, a Washington Times study of Iraq’s spending and revenue figures has shown.

U.S. officials and outside analysts blame the collapse of the country’s political and physical infrastructure for Baghdad’s failure to spend the money on projects considered vital to restoring stability in the country.

Out of $10 billion budgeted for capital projects in 2007, only 4.4 percent had been spent by August, according to official Iraqi figures reported this month by the U.S. Government Accountability Office (GAO). The report cited unofficial figures saying about 24 percent had been spent.

Meanwhile, some $6 billion to $7 billion from last year’s budget is “being rolled over” and invested in U.S. treasuries, said Yahia Said, director of Iraq Revenue Watch, part of the private watchdog group Revenue Watch Institute.

“The government is broken,” said Mr. Said, speaking by telephone from Baghdad. “The country’s midlevel bureaucracy has either fled the country or been purged in de-Ba’athification, [and] a lot of ministers are politically appointed and not professional.”



The result is that orders go out from the ministers in Baghdad, but there is no structure or staff at the middle level to carry out the instructions.

“It’s like they lost the manual for driving the government,” said Mr. Said, who is working to put that blueprint back together. “They lost the landing instructions for landing the airplane.”

A quarterly report to be released today by Stuart W. Bowen Jr., the U.S. special inspector general for Iraq reconstruction, says rising production and high prices could produce a revenue windfall for Iraq this year, according to the Associated Press.

Production levels finally are approaching prewar levels of 2.5 million barrels a day and might reach 2.8 million barrels a day by the end of the year, Iraqi Deputy Prime Minister Barham Salih told The Washington Times on the sidelines of the World Economic Forum in Davos, Switzerland.

Acknowledging the need to reform the bureaucracy, Mr. Salih said, “Some of us think we can do a lot better [on production] if we do adequate or proper management restructuring.”

Oil prices, meanwhile, are expected to average $85 a barrel this year, well above the $57 estimated in the Iraqi budget.

However, the GAO expressed frustration in a report this month at its inability to get a handle on how these revenues are being spent.

“We cannot determine the extent to which Iraq has spent [budgeted capital] funds due to conflicting expenditure data,” the report said.

It said the Bush administration, citing unofficial Iraqi data, reported in September that Iraq”s central government ministries had spent 24 percent of their 2007 capital projects budget as of July 15.

“However, this report is not consistent with Iraq”s official expenditure reports, which show that the central ministries had spent only 4.4 percent of their investment budget as of August 2007,” it said.

U.S. and foreign officials told the GAO that weaknesses in Iraqi procurement, budgeting, and accounting procedures had stymied the completion of projects.

“For example, according to the State Department, Iraq”s Contracting Committee requires about a dozen signatures to approve projects exceeding $10 million, which slows the process,” the GAO wrote.

Capital projects expenditure this year is expected to reach only $4.3 billion, less than half of the $10 billion spent in 2007, according to a GAO analysis of Iraqi government data provided by the U.S. Treasury.

Provincial governments, which had little or no control of their finances under Saddam Hussein, are struggling to spend the money they have under new budget systems, said Joseph Saloom, an adviser to David Satterfield, the senior adviser to Secretary of State Condoleezza Rice and coordinator for Iraq.

That budget system includes strict bidding rules and a process of committee approvals designed to prevent corruption, Mr. Saloom said.

But if a province needs a piece of specialized oil equipment, “often there are not three suppliers” who bid, so the process is cut short and the project cannot go forward, he said.

According to Mr. Said, the situation is slightly better on the local government level, partly because of U.S. forces who supply protection, logistics, resources and emergency funds.

“There is more [improvement] on the gras-roots level on the back of the surge,” he said.

Reconstruction also has been hobbled by delays in getting the central government up and running. Although elections were held in January 2006, the government was not formed until May of that year.

Within that government, said Mr. Saloom, “most of the people had never been ministers before, they had never managed large budgets.”

John Zarocostas contributed to this report from Davos, Switzerland.

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