Iraq not putting oil money to work

Baghdad fails to spend the billions set aside for nation's reconstruction

December 11, 2006|By James Glanz | James Glanz,New York Times News Service

BAGHDAD, Iraq -- Iraq is failing to spend billions of dollars in oil revenue that has been set aside to rebuild its damaged roads, schools and power stations, and to repair refineries and pipelines.

Iraqi ministries are spending as little as 15 percent of the 2006 capital budgets they received for the rebuilding, with some of the weakest spending taking place at the Oil Ministry, which relies on damaged and frequently sabotaged pipelines and pumping stations to move the oil that provides nearly all of the country's revenue. In essence, the money is available, despite extensive sabotage, the oil money is flowing, but the Iraqi system has not been able to put it to work.

The country is facing this national failure to spend even as American financial support dwindles and Iraq prepares to ask the international community to help pay for a sweeping new phase of reconstruction. Among the reasons for the problems, including the large turnover in government personnel, is a strange new one: Bureaucrats are so fearful and confused by anticorruption measures put in place by the U.S. and Iraqi governments that they are afraid to sign off on contracts.

After the expenditure of about $22 billion in American taxpayer dollars on reconstruction, the increase of the Iraqi capital budget was seen by many as a sign that oil revenue could finally begin paying for the rebuilding, four years after Bush administration predictions that Iraq could afford the program on its own.

Iraq's overall capital budget in 2006 was 9 trillion Iraqi dinars, or about $6 billion, said Abdulbasit Turki Saeed, president of the Iraqi Board of Supreme Audit and a member of the Iraqi Cabinet's economic committee. But Saeed said that across the entire government, only about 20 percent of the capital budget had been spent, according to the committee's recent figures. A senior Western official agreed with that estimate.

"It's slow. It's disappointing," said the Western official, who spoke on condition of anonymity because he was not authorized to discuss the subject publicly. "In general, they have had trouble getting projects started."

The problem was briefly acknowledged in the report last week by the bipartisan Iraq Study Group, which gave similar figures for capital expenditures and said that "many ministries can do little more than pay salaries."

In interviews, alarmed Western and Iraqi officials sought to put the best face on the problem, saying they thought that the pace of spending had picked up in the past two to three months as the Iraqi government had begun taking steps to improve its performance.

Those officials said that in a nation with reconstruction needs around every corner, the puzzling phenomenon of unspent money is partly explained by the rapid turnover in government, security woes, endemic corruption and a lack of technocrats skilled at jobs such as writing contracts and managing complex projects. In short, nearly all the ills that have undermined the American rebuilding program seem to be plaguing the Iraqi one.

Hussain al-Shahristani, the Iraqi oil minister, said he thought that he could substantially raise his total expenditures against this year's budget if he could resolve bottlenecks such as Finance Ministry delays in authorizing payments.

"It's the bureaucracy," al-Shahristani said. "Particularly, financial people take too long to change their old habits."

But some American and Iraqi officials here are also saying that stringent measures that they had favored to slow the rampant corruption might be especially daunting for bureaucrats who have little experience with Western-style regulations and oversight. The officials say that Iraqis who have seen their colleagues arrested and jailed in anticorruption sweeps are reluctant to put their own name on a contract.

"As it's applied right now, this new thing scares the hell out of everybody," a Western official here said.

The colliding priorities of oversight and spending have left U.S. and Iraqi officials in a quandary as they work behind the scenes on the so-called Compact With Iraq, the centerpiece of the American Embassy's effort to create economic and political milestones that this nation promises to meet in exchange for pledges of foreign investment and support.

Anticorruption officials themselves are facing a loss of support, with the most serious impact felt by Rathi al-Rathi, the head of Iraq's Commission on Public Integrity, who has been privately accused by Western and Iraqi officials of zealotry, political bias and other failings.

Iraq's total budget is about $32 billion in 2006 and is projected to be more than $40 billion in 2007, said Bayan Jabr, the Iraqi finance minister, in an interview. Most of the budget, which comes almost entirely from oil revenue, is consumed in operating expenses, including roughly $8 billion for ministry salaries and pensions and $6 billion for Iraq's socialist-style food and fuel subsidies.

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