Iraq?s ?Sovereign? Government to Have Little Control Over Oil Money

22 June 2004 | NewStandard News

by Chris Shumway

A last minute spending spree by the US-led Coalition Provisional Authority (CPA) and language in the UN Security Council resolution setting the conditions for Iraqi sovereignty appear likely to limit the interim government’s ability to exercise meaningful control over the country’s oil revenues.

According to documents posted on its own web site, the CPA?s little-known Program Review Board (PRB) has quietly committed billions of dollars in Iraq’s oil revenues to new contracts that critics say will enrich US and British corporations while limiting the amount of revenue Iraq’s new interim government will have at its disposal when it assumes authority from the CPA on June 30.

Of the PRB?s 12 voting members, all of whom were appointed by and report directly to CPA administrator Paul Bremer, only two represent Iraqi government ministries. The other voting members include one representative each from the Australian and British governments; a member of the Council for International Cooperation; a representative from USAID; and six representatives from various CPA divisions.

A spreadsheet posted on the CPA?s web site indicates that the Development Fund for Iraq (DFI) — a fund established by the UN in May 2003 to collect Iraq’s oil revenues, as well as assets seized from Saddam Hussein?s regime and money transferred from the Oil for Food Program — had a total cash inflow, as of June 18, 2004, of over $20 billion, with almost $9 billion available for spending.

Initially, the DFI was to be used by Iraq’s government ministries to fund the country’s 2004 domestic budget, while the $18.4 billion appropriated to the CPA by the US Congress was to be spent largely on reconstruction projects.

But the CPA has been slow to disperse that money, which is subject to some measure of public oversight, awarding only $3.2 billion in contracts for actual construction projects, according to the New York Times. As a result, the DFI, overseen by Bremer?s handpicked review board, has recently become the preferred resource for coalition officials looking to quickly finance pet projects.

And the PRB has been quite generous in doling out the money.

Minutes from the PRB?s May 15 meeting — the last meeting for which minutes are posted on the CPA?s web site — show that the board approved nearly $2 billion in spending for 10 separate projects. Among the expenditures are $180 million to resolve property issues resulting from the “expropriation of land and other real property” by Saddam Hussein?s regime; $315 million for rebuilding electricity infrastructure; $460 million for reconstruction of Iraq’s oil infrastructure; and $500 million for Iraqi security forces — this is in addition to another $500 million in security spending approved by the PRB in April, and $3.2 billion approved by Congress for security purposes in 2004.

A report by Iraq Revenue Watch, an organization funded by global financier George Soros?s Open Society Institute, compares the PRB?s last minute spending approvals to a “fire sale,” arguing that the expenditures “will have serious consequences for the ability of the interim government and the subsequent elected government — to choose how to spend their money.”

The report specifically criticizes the PRB for rushing to approve “hastily conceived projects on the eve of its [June 30] completion deadline.”

“Why are such large amounts of discretionary cash being committed to programs prior to establishing mechanisms for implementing them?” the report asks. “And why are these spending obligations being introduced at the last minute rather than allowing the in-coming government to make such decisions?”

Minutes from the May 15 meeting indicate that, on several occasions, coalition officials requesting money were unable to answer questions from board members as to the specific purpose of proposed programs, or the effectiveness of earlier projects approved by the PRB or funded by other sources. Nonetheless, board members approved all requests for funding, with only minor amendments, according to the minutes.

Once enacted, the review board?s spending commitments cannot be broken, even if Iraq’s interim government decides the funds could be better spent elsewhere. UN resolution 1546, which was drafted by the US and Britain and passed unanimously by the Security Council on June 8, states that the new government must honor all contracts awarded by the CPA.

The resolution also declares that the International Advisory and Monitoring Board (IAMB), a mostly non-Iraqi body established by the UN, the International Monetary Fund and the World Bank, will continue its “activities monitoring” and auditing the DFI until a permanent constitution is drafted and a constitutionally elected government is in place. According to the UN?s timetable, such events aren?t expected to occur until December 31, 2005.

Given these limitations on the Iraqi government’s ability to control oil revenues, the biggest potential source of funding for infrastructure rebuilding in the near term will likely be the money allocated by the US Congress, according to Michael Schwartz, a sociology professor who has analyzed the structure of Iraq’s new government and written extensively on the dynamics of popular protest and insurgency movements. While much of the $18 billion has yet to be awarded, US officials maintain complete discretion over the distribution of the money, giving Washington a potentially decisive voice in future Iraqi affairs despite official rhetoric to the contrary.

Writing for the weblog, Schwartz contends that the US will “almost fully control the resources necessary to rebuild and maintain [Iraq’s] infrastructure and the economy, potentially for years to come.”

“At some point, oil revenues may be sufficiently disencumbered to provide the economic basis for an independent Iraqi government, but before that occurs, the financial leverage of the U.S. will be overwhelming,” Schwartz writes.

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