Wednesday, August 6, 2008

Post No. 33: Are You Curious About What's Been Going on with the Iraqi Oil?

Article of Interest of Interest from the August 6, 2008 Edition of the New York Times

August 6, 2008

As Iraq Surplus Rises, Little Goes Into Rebuilding


Soaring oil prices will leave the Iraqi government with a cumulative budget surplus of as much as $79 billion by year’s end, according to an American federal oversight agency. But Iraq has spent only a minute fraction of that on reconstruction costs, which are now largely borne by the United States.

The unspent windfall, which covers surpluses from oil sales since 2005, appears likely to reinforce growing debate about the approximately $48 billion in American taxpayer money devoted to rebuilding Iraq since the American-led invasion.

In one comparison, the United States has spent $23.2 billion in the critical areas of security, oil, electricity and water since the 2003 invasion, the report said. But from 2005 through April 2008, Iraq has spent just $3.9 billion on similar services.

Over all, the report from the Government Accountability Office estimates, Iraqi oil revenue from 2005 through the end of this year will amount to at least $156 billion. And in an odd financial twist, a large amount of the surplus money is sitting in an American bank in New York — nearly $10 billion at the end of 2007, with more expected this year, when the accountability office estimates a skyrocketing surplus.

The report was requested by two senior senators, Carl Levin, Democrat of Michigan, and John W. Warner, Republican of Virginia, and on Tuesday they were quick to express strong dissatisfaction over the contrast between American spending on reconstruction and the weak record of spending by Iraq itself.

“The Iraqi government now has tens of billions of dollars at its disposal to fund large-scale reconstruction projects,” Mr. Levin, who is chairman of the Senate Armed Services Committee, said in a joint statement with Mr. Warner. “It is inexcusable for U.S. taxpayers to continue to foot the bill for projects the Iraqis are fully capable of funding themselves. We should not be paying for Iraqi projects, while Iraqi oil revenues continue to pile up in the bank.”

From the beginning of the conflict, American officials assured taxpayers and the world that Iraq would use oil money to pay for reconstruction. But that has not happened. Several senior Iraqi officials were either traveling on Tuesday or declined to comment, saying they were not familiar with the report.

Sinan al-Shabibi, governor of the Central Bank of Iraq, which the report said was holding $5.7 billion of the surplus at the end of 2007, said that while he could not speak for the government, problems with spending money often had to do with continuing security problems and a shortage of expertise in Iraqi ministries.

“Yes, there are problems, but that does not mean those problems are going to continue,” Mr. Shabibi said. “In all developing countries you put objectives, and sometimes you don’t reach them.”

“But,” he said, referring to the government, “they are determined to spend this money on development. They see it as a priority.”

Senators Levin and Warner pointed out that in 2007, for example, Iraq actually spent only 28 percent of its $12 billion reconstruction budget, according to the accountability office. But even that number could overstate the success rate in most of Iraq, because $2 billion of the spending took place in the relatively peaceful confines of the northern Kurdish region.

And in another troubling sign, the report said that from 2005 to 2007, Iraq devoted only 1 percent of the operating expenses in its budget to maintaining reconstruction projects that had been built with either American or Iraqi money. That finding raised fresh questions over whether the huge investment in some of those projects would have any long-term impact.

Like so many statistical measures from Iraq, the ones in the new report are likely to be used to support opposite positions on how much the United States should continue spending and how long it should stay in the country, said Ryan Alexander, president of Taxpayers for Common Sense in Washington.

The figures could be used to argue that because the Iraqi ministries still do not have the capacity to spend their own money, further assistance from the United States is called for, Ms. Alexander said. Or the huge oil revenues could be seen as proof that Iraq has the resources to solve its own problems if it would only use the money.

But one finding that is sure to raise questions all around is the enormous pileup of cash in the Federal Reserve Bank of New York, as well as several Iraqi banks, Ms. Alexander said. The money in New York is a legacy of a system set up to handle Iraqi oil revenues when the country had no capacity to do so on its own.

The purpose of the money was to rebuild Iraq, not draw interest in a bank, Ms. Alexander said. “I don’t know what function that serves right now. In my mind it raises another set of questions which is, ‘Who’s minding the store?’ ” she said.

“There may have been people who said this is going to be harder than you think, this is going to take a long time, but nobody said what we should do is collect a lot of money and let it sit there,” Ms. Alexander said.

The deposit at the Federal Reserve Bank is so large that the United States has been obliged to make $435.6 million in interest payments to Iraq through the end of last year, according to the new report.

The overall estimates of Iraqi surpluses will come down somewhat if the Iraqi Parliament passes stalled legislation that includes a $22 billion supplemental budget for 2008. As of Tuesday, that bill had not been passed, since it is mired in wider negotiations over provincial elections.

Some of the Iraqi spending figures cited in the report were also a matter of dispute in the past, with the Iraqi government and American officials in Baghdad claiming that Iraq had consistently spent more money than the accountability office had given it credit for.

But the office said evidence for higher spending was based mainly on so-called special reports prepared by the Iraqi Finance Ministry — reports that use vague budgetary terms and unclear source material and contain columns and rows that do not add up properly.

Joseph A. Christoff, director of the international affairs and trade team at the accountability office, said it was fair to say that a shortage of qualified officials in Iraq had diminished the capacity of central ministries to write contracts and carry out rebuilding.

But he said it was also true that with so much American assistance available, the Iraqi government may not have felt much urgency to increase that capacity and spend its own money.

“I think some people would contend that because we have continued to make a sizable investment, there hasn’t been a proper incentive until now for the Iraqi government to make its own investment,” Mr. Christoff said.

Reached late on Tuesday in Baghdad, the Iraqi planning minister, Ali Baban, defended his country’s commitment to spending Iraqi money on reconstruction, saying that the government was pushing as hard as it could to complete projects.

“I admit that there is some delay in spending the money on the projects in the provinces and in the ministries,” Mr. Baban said. “We have problems in this issue because there are lots of obstacles we face, because of the situation that we’re going through. We’re trying to deal with that, we’re trying to improve things, but you know the situation in Iraq.”

James Glanz reported from New York, and Campbell Robertson from Baghdad.

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