U.S. has spent 2% of aid package for Iraq

BAGHDAD, Iraq – The U.S. government has spent 2 percent of an $18.4 billion aid package Congress approved last year after the Bush administration called for a quick infusion of cash into Iraq to finance reconstruction, according to figures released Friday by the White House.

The U.S.-led occupation authorities were much quicker to channel Iraq’s own money, expending or earmarking nearly all of $20 billion in a special development fund fed by the country’s oil sales, a congressional investigator said.

Only $366 million of the $18.4 billion U.S. aid package had been spent as of June 22, the White House budget office told Congress in a report that offers the first detailed accounting of the massive reconstruction package.

So far, according to the report, nothing from the package has been spent on construction, health care, sanitation and water projects. More money has been spent on administration than all projects related to education, human rights, democracy and governance.

Of $3.2 billion earmarked for security and law enforcement, a key U.S. goal in Iraq, only $194 million has been spent. Another central objective of the aid program was to reduce the 30 percent unemployment rate, but money has been spent to hire only about 15,000 Iraqis despite U.S. promises that 250,000 jobs would be created by now, U.S. officials familiar with the aid program said.

U.S. officials involved in the reconstruction blame security concerns and bureaucratic infighting among the Pentagon, the State Department and the White House for delays in the allocation of funds. By the time the Pentagon’s contracting office in Baghdad began awarding contracts, the risk of kidnapping and other attacks aimed at foreign workers was so dire that many projects never began. Several Western firms that won contacts have summarily withdrawn their employees from Iraq.

Fewer than 140 of the 2,300 reconstruction projects that were to be funded with the U.S. aid package are under way, the officials said.

Officials with the contracting office contend the amount of money actually spent does not reflect the full scope of work being performed. A more accurate figure, they said, is the amount of money allocated for reconstruction work. Just over $5.2 billion had been allocated as of June 22, according to the White House budget report.

“The money that is disbursed is typically not disbursed until the work is completed, so it doesn’t give the best picture of what’s going on,” said John Proctor, a spokesman for the contracting office. “Some of our projects take months, or even years, to complete.”

Proctor said actual spending had increased to $400 million since the figures were provided to the White House on June 22.

Spending patterns have been different with the Iraqi money. The Coalition Provisional Authority, the now-dissolved U.S.-led occupation administration, spent or locked in for future programs more than $19 billion from the $20 billion Development Fund for Iraq, which was established by the U.N. Security Council to manage Iraq’s oil revenue, said Joseph A. Christoff, director of international affairs and trade at the General Accounting Office, the watchdog arm of Congress.

Christoff said in a telephone interview on Saturday that all but $900 million of the fund had been spent or allocated by the time the United States transferred political authority to an interim Iraqi government last Monday.

Some Iraqi officials have criticized the contrasting spending practices. The occupation authorities “came here and spent a lot of our money but very little of theirs,” said a senior Iraqi official who spoke on condition of anonymity on the ground that criticism could affect his relationship with the new U.S. Embassy here.

The official did not contest the CPA’s decision to use the development fund money to pay the expenses of running Iraq’s government during the occupation, but he condemned spending on what he called “less essential projects that should have been left up to the Iraqis to decide.”

“They wanted to do things their way before they left,” the official said.

The CPA appears to have earmarked more than $6 billion of the Iraqi funds over the past two months alone as it prepared to hand over political authority – and control over the development fund – to the interim Iraqi government. As of May 6, the CPA had earmarked only $13 billion from the fund, according to a GAO report released this week.

Allocations and disbursements from the development fund were made by the 12-member Program Review Board, a committee of Americans representing the CPA, Iraqis from the U.S.-appointed government and officials from Britain and Australia. Most of the voting members were non-Iraqis.

“It was a CPA-run thing,” the senior Iraqi official said. “There was lots of talk about taking input from the Iraqis but, in the end, they made all the decisions.”

At a meeting May 15, the board allocated $2 billion, according to minutes of the session posted on the CPA’s Web site. Among the commitments were $500 million for Iraqi security forces, $315 million for electricity repairs, $460 million to rehabilitate the oil industry and $180 million to fund a property-claims commission.

It was not clear what specific projects would be funded in the security, electricity and oil sectors. The CPA had already earmarked $3.2 billion for security, $5.5 billion for electricity and $1.7 billion for the oil industry from the $18.4 billion aid package, although little of that money has been spent.

The development fund, at least until May 6, was used largely to bankroll day-to-day Iraqi government operations. More than $7.5 billion was withdrawn to pay for operational expenses – principally employee salaries – at ministries and government agencies.

From July 2003 to May 2004, the CPA allocated about $4.8 billion from the development fund for relief and reconstruction projects and services. But like the U.S.-funded aid package, the CPA had trouble actually spending money to address those needs, only disbursing about $1.8 billion of the $4.8 billion.

Of the $972 million allocated for repairs to electric-power infrastructure before May 6, only $157 million was disbursed, according to the GAO report. Of the $842 million allocated to address increased security needs, only $2 million was spent, the GAO said.

One of the principal beneficiaries of the development fund money was Halliburton Co., which was paid hundreds of millions of dollars to truck gasoline and other fuels into Iraq – a country with the world’s second-largest oil reserves – because of problems with Iraq’s refineries.

According to the GAO report, $1.1 billion of the $1.9 billion allocated for fuel imports was disbursed. Although it is not clear how much went to Halliburton, a firm formerly chaired by Vice President Cheney, U.S. officials familiar with spending patterns said a majority of those funds went to Halliburton and other non-Iraqi firms.

The Defense Department has been investigating a Halliburton subsidiary for allegedly overcharging for imported fuels.

Two former CPA officials involved in contracting issues said the CPA spent money from the development fund faster because it was not governed by the same rules requiring competitive bidding as the money from Congress was. The CPA has not identified how many noncompetitive contracts were awarded. U.S. officials have said Halliburton was among the firms to receive no-bid contracts from the Program Review Board.

Although the Security Council created a monitoring board comprised of representatives from the United Nations, the World Bank, the International Monetary Fund and the Arab Fund for Economic and Social Development to oversee the CPA’s spending, its efforts to audit the process were stymied by the CPA, according to other officials who spoke on condition of anonymity.

The monitoring board has not received many documents it has sought from the CPA pertaining to uncompetitive contracts.

“Transactions worth billions of dollars in Iraqi funds have not been independently reviewed,” the GAO wrote in its report.