U.S. Reconstruction Coming To An End

Since the invasion of Iraq in 2003 the United States has promised the country $52.8 billion in reconstruction funds. That was the largest rebuilding effort in American history. Now this program is expected to end by 2014.

Of the $52.8 billion made available to Iraq, $43.57 billion of it has actually been obligated to specific projects, and $39.54 billion has been spent. The Obama administration has asked for $800 million for the 2010-2011 Fiscal Year. There is also $1 billion in supplemental funding for 2010 and $1.5 billion in 2012. The reconstruction effort is already winding down as only $58 million of the $1 billion in 2010 money has been obligated as of September 2009, and only $300,000 has been spent. That’s largely the result of the beginning of the withdrawal of U.S. forces. With less troops out in the field and the planned drawdown of the Provincial Reconstruction Teams, there are fewer opportunities for new projects to be planned. The Special Inspector General for Iraq Reconstruction (SIGIR) estimates that by 2012-2014 all of the money currently in the pipeline for Iraq will run out. After that the U.S. will continue to provide aid, but not in the large amounts that it has in the past.

The largest chunk of reconstruction funds ended up going to security. In total, $24.52 billion was allocated for various security endeavors, with $20.72 billion actually being spent. Creating a new Iraqi Army is considered the one success of the U.S. effort. There are 245,000 Iraqi soldiers, and over 400,000 police. They now have control of all of Iraq’s 18 provinces, are in the lead of the country’s counterinsurgency program, and the Army is considered competent enough to handle internal security. The police are more open to political and local influences, thousands have not been trained, and are still considered a work in progress. Both forces remain almost completely dependent upon the U.S. for logistics and procurement however, and Iraq is not capable of protecting itself from outside threats.

In comparison, $21.2 billion was spent on the economy and government. $12.36 billion was allocated for infrastructure, $7.28 billion for governance, and $1.56 billion for the economy. Of that, $18.83 billion has actually been spent. The sectors that got the most money were electricity, $5.16 billion, water and sanitation $2.74 billion, government capacity $2.50 billion, oil and gas $2.06 billion, and developing democracy and civil society $2.03 billion.

There is still over $11.6 billion in on-going projects. Baghdad has the most with $2.92 billion, followed by $543.46 million in Basra, $362.23 million in Tamim, and $1.11 billion across the country. In terms of sectors, there is $5.07 billion in electricity projects, $3.08 billion in water and sanitation, $1.77 billion in oil and gas, $1.27 billion in transportation and communication, and $467.97 million in governance and infrastructure.

Reconstructing Iraq’s infrastructure and government has run into many problems. While things like electricity production is at an all time high, it is still not meeting demand. There are also millions of dollars worth of projects that are either not operating at capacity or have been abandoned because Iraqis cannot staff, supply, or afford them. Most importantly, just over half of the money got diverted to security rather than developing the country. 

Overall, the SIGIR believes that the U.S. failed in this endeavor because of a lack of pre-war planning and coordination, bad contracting practices, and building projects that Americans wanted, not Iraqis. Another major problem was that the lack of security derailed many projects, and led to huge cost overruns. That’s seen in the fact that as the reconstruction effort winds down, more money was spent on the Iraqi military and police than the economy or government. There are some successes like the Iraqi Army, but many continuing problems like the lack of adequate services. The U.S. invasion ended the dictatorial rule of Saddam, but the $52.8 billion reconstruction effort is leaving behind a rather typical, dysfunctional Third World country.

Status of Major U.S. Reconstruction Funds

Area	Sector	Allocated	Obligated	Expended
Security	Equipment	$7.29 bil	6.82 bil	6.03 bil
	Training	$6.11 bil	$5.68 bil	$5.45 bil
	Infrastructure	$5.81 bil	$5.55 bil	$4.84 bil
	Sustainment	$2.55 bil	$2.41 bil	$2.17 bil
	Rule of Law	$1.50 bil	$1.48 bil	$1.27 bil
	Related Activities	$1.27 bil	$1.15 bil	$0.97 bil
	Subtotal	$24.52 bil	$23.09 bil	$20.72 bil
Infrastructure	Electricity	$5.16 bil	$4.99 bil	$4.86 bil
	Water and Sanitation	$2.74 bil	$2.63 bil	$2.47 bil
	Oil and Gas	$2.06 bil	$1.92 bil	$1.91 bil
	General Infrastructure	$1.25 bil	$1.24 bil	$1.24 bil
	Transportation and Communication	$1.15 bil	$1.09 bil	$0.99 bil
	Subtotal	$12.35 bil	$11.88 bil	$11.47 bil
Governance	Capacity Development	$2.50 bil	$2.29 bil	$1.91 bil
	Democracy and Civil Society	$2.03 bil	$2.04 bil	$1.66 bil
	Public Services	$1.93 bil	$1.91 bil	$1.73 bil
	Humanitarian Relief	$0.82 bil	$0.82 bil	$0.75 bil
	Subtotal	$7.28 bil	$7.06 bil	$6.04 bil
Economy	Economic Governance	$0.82 bil	$0.80 bil	$0.74 bil
	Private Sector Development	$0.74 bil	$0.74 bil	$0.57 bil
	Subtotal	$1.56 bil	$1.54 bil	$1.32 bil
TOTAL		$45.72 bil	$43.57 bil	$39.54 bil

Remaining Infrastructure Projects by Province

Province	Electricity	Water and Sanitation	Oil and Gas	Transporta- tion and Commun- ication	General Infra- structure	Total
Baghdad	$1,504.22 mil	$755.31 mil	$40.6 mil	$282.17 mil	$341.68 mil	$2,923.97 mil
Basra	$543.46 mil	$238.32 mil	$558.55 mil	%171.8 mil	$8.39 mil	$1,520.52 mil
Tamim	$362.23 mil	$42.87 mil	$187.39 mil	$21.09 mil	$8.47 mil	$622.05 mil
Dhi Qar	$106.67 mil	$399.69 mil	$0.43 mil	$21.42 mil	$13.06 mil	$541.26 mil
Salahaddin	$311.19 mil	$59.51 mil	$71.52 mil	$65.75 mil	$7.37 mil	$515.36 mil
Anbar	$251.58 mil	$188.88 mil	-	$70.15 mil	$3.92 mil	$514.53 mil
Ninewa	$118.74 mil	$126.87 mil	$0.08 mil	$66.06 mil	$6.97 mil	$318.72 mil
Iirbil	$102.54 mil	$201.67 mil	$0.08 mil	$5.07 mil	$2.46 mil	$311.82 mil
Diyala	$80.66 mil	$143.47 mil	$2.89 mil	$23.79 mil	$6.24 mil	$257.05 mil
Muthanna	$15.02 mil	$189.79 mil	$0.07 mil	$19.12 mil	$3.87 mil	$227.87 mil
Babil	$121.65 mil	$47.63 mil	-	$36.01 mil	$3.49 mil	$208.78 mil
Najaf	$72.79 mil	$60.84 mil	-	$14.26 mil	$4.43 mil	$152.31 mil
Qadisiya	$86.78 mil	$30.46 mil	-	$21.75 mil	$2.65 mil	$141.63 mil
Maysan	$76.31 mil	$20.26 mil	$0.06 mil	$14.06 mil	$6.32 mil	$117.01 mil
Wasit	$45.38 mil	$30.21 mil	-	$19.18 mil	$10.23 mil	$105.01 mil
Karbala	$46.99 mil	$39.0 mil	-	$4.88 mil	$1.58 mil	$92.45 mil
Dohuk	$61.4 mil	$8l.34 mil	-	$0.93 mil	$7.63 mil	$78.3 mil
Sulaymaniya	$49.03 mil	$15.28 mil	-	$2.98 mil	$1.06 mil	$68.35 mil
Nationwide & Regional	$1,115.1 mil	$487.18 mil	$916.14 mil	$418.14 mil	$28.16 mil	$2,964.71 mil
TOTAL	$5,071.73 mil	$3,085.58 mil	$1,777.81 mil	$1,278.6 mil	$467.97 mil	$11,681.69 mil

 

SOURCES

Cordesman, Anthony, “Assessing the Readiness of the Iraqi Security Forces,” Center for Strategic and International Studies, 8/12/09

Special Inspector General for Iraq Reconstruction, “Hard Lessons,” 1/22/09

- “Quarterly Report to the United States Congress,” 10/30/09

More On Wasted Reconstruction Projects In Iraq

It’s been reported here many times before that one of the greatest signs of failure of the United States’ effort to rebuild Iraq was the number of large reconstruction projects that the Iraqis have not been able to maintain after they were handed over to them. The November 21, 2009 New York Times provided a few more examples:

• $270 million water treatment plant in Nasiriya, Dhi Qar. Works only at limited capacity because the equipment is too sophisticated for its Iraqi workers.

• $4 million maternity hospital Hilla, Babil. Doesn’t have staff or enough supplies. Iraqis were never trained on equipment that U.S. installed.

• $98 million wastewater treatment plant Fallujah, Anbar. Serves only 1/3 of homes it’s supposed to because government doesn’t deliver enough fuel for it to operate at full capacity.

• Ibn Sina Hospita, Baghdad. Was the largest American military medical facility in Iraq with $7.9 billion worth of equipment. Iraqi Ministry of Health didn’t have staff or supplies to maintain it so it was shut down.

• $165 million Basra Children’s Hospital. Has been under going construction for last four years and is $115 million over budget. Iraq hopes it will open sometime in mid-2010, but doesn’t have enough staff for it.

Based upon reports by the Congressional Research Service, the Special Inspector General for Iraq Reconstruction, and Government Accountability Office the major cause of these problems were that the Americans never asked the Iraqis what they wanted or could handle, didn’t provide enough training, the poor management skills of the Iraqis, a lack of funds from Baghdad, middle class flight due to the sectarian war that robbed the country of many of its professionals, and poor maintenance standards after years of wars and sanctions.

SOURCES

Special Inspector General for Iraq Reconstruction, “Hard Lessons,” 1/22/09

Williams, Timothy, “U.S. Fears Iraqis Will Not Keep Up Rebuilt Projects,” New York Times, 11/21/09

Iraq’s Budget Problems Will Continue Into Next Year

Iraq’s cabinet has passed a new preliminary 2010 budget. It stands at $67.29 billion, an $8.4 billion increase from 2009. Like previous budgets, the overwhelming majority of the spending will go towards operational costs. Of the $67 billion, 73%, $49.17 billion will be for salaries, pensions, etc. That leaves only $17.83 billion for the capital budget that goes towards development and infrastructure. That’s nowhere near what the country needs.

Just like the 2009 budget, it will also have a deficit. Iraq is currently running a $19 billion deficit, and the new budget is expected to be $15 billion short. The cabinet said that it will sell bonds and get loans from the International Monetary Fund (IMF) and World Bank to come up with the difference. That’s unlikely. This year, the Central Bank has only authorized the sale of $3 billion in bonds, and that went to paying for electrical projects with General Electric and Siemens. Baghdad however, is currently negotiating with the IMF for a $5.5 billion loan that will go to the budget. An official from the Central Bank said that he doubted whether the government could meet the IMF’s conditions. Already, Prime Minister Nouri al-Maliki said that he would not go along with cuts in government spending that the international group might ask for if it involved salaries.

The deficit is caused by several factors. For one there’s the expectations for Iraq’s oil industry, which provides almost all of the government’s revenue. The 2010 budget is based upon 2.15 million barrels of oil exports per day and a $60 price. The 2009 budget called for 2 million barrels at $50. It took months for Iraqi crude to reach $50, and Iraq has only achieved 2 million barrels for two months so far in 2009. While Iraq has recently signed some new oil deals, they are not expected to boost production for at least a year.

Another major factor is that the previous provincial and national governments signed dozens and dozens of development deals when the country was flowing in money. This has led almost every province to report a deficit this year.

Iraq has the resources to be a rich country. Years of wars and sanctions however, have left the country with little means to develop its oil industry, and the other sectors in the economy have declined. That makes Iraq increasingly dependent upon petroleum that is in turn, based upon the global economy. Until the rest of the world recovers from the current recession, it’s unlikely that Iraq will make enough to cover it’s basic costs, let alone have the money to invest in its infrastructure and diversify. That means Iraq will continue to run deficits, and will have to incur a new debt in the meantime.

SOURCES

Agence France Presse, “Iraq made ‘good progress’ in IMF loan talks: IMF,” 10/6/09

Dow Jones Newswire, “UPDATE: Iraq Cabinet OKs $67.29B 2010 Budget, To Issue Bonds,” 10/13/09

Reuters, “Iraq PM Says Cannot Cut Public Pay To Suit IMF,” 10/7/09
- “Q+A-Iraq’s oil contracts, scale and obstacles,” 10/16/09

Salaheddin, Sinan, “Iraq Cabinet approves $67 billion budget for 2010,” Associated Press, 10/14/09

Zawya, “Iraq Central Bank Opposes Issuing Treasury Bills To Finance Projects,” 9/27/09

U.S. Forces Restricted To Rural Areas and Reconstruction

After the June 30, 2009 deadline to withdraw from Iraq’s cities, Prime Minister Nouri al-Maliki set stringent restrictions upon the movement of U.S. troops. This caught U.S. commanders by surprise as they expected to largely continue on with their patrols, training missions, supply convoys, etc. as they had before. Instead, Maliki ended all joint patrols, refused to pass on requests by Iraqi commanders for aid from Americans, and basically restricted most U.S. troops to their bases. Re-supply trips were only allowed at night, U.S. advisers already with Iraqi forces, and checks on reconstruction projects were largely the only operations allowed by the government. In Baghdad, there are only a few hundred U.S. soldiers out in the city as a result. The fact that the government failed to properly inform the public and Iraqi forces about these rules also led to a number of confrontations as well. For example, Iraqis would call the authorities every time they saw U.S. forces without an Iraqi escort, and Iraqi police and soldiers would not allow American troops through checkpoints.

Two and a half months since the June pullback, and U.S. troops find themselves concentrating on Iraq’s rural areas and reconstruction projects. Maliki’s restrictions on joint patrols in major cities are still in places with the exception of Mosul. Out in the countryside however, the rules are not as strict and U.S. troops have been going out with their Iraqi counterparts. Americans are also allowed to check on reconstruction projects with Iraqi approval, which gives them another way to get out of their bases.

The reason that Baghdad has placed such tight limits on the U.S. is because of Maliki’s 2010 re-election campaign. One of the issues that he is running on is the claim that he got the U.S. to leave Iraq. The Prime Minister is also pushing for the referendum on Status of Forces Agreement to coincide with the January voting. If Iraqis vote it down, U.S. combat troops will have to leave Iraq by January 2011, instead of the planned for December 31, 2011 date. Maliki’s plans have been complicated by the recent increase in deaths, but so far he seems willing to accept these casualties because asking for U.S. aid would be seen as a major reversal for him. This gamble may not pay off as the August 19, 2009 Baghdad bombings have brought into doubt his whole approach to security.

SOURCES

Alsumaria, “Iraq Commander: No need for US troops,” 7/21/09

Gatehouse, Gabriel, “US troops back on patrol in Iraq,” BBC, 7/28/09

Knights, Michael and Ali, Ahmed, “Putting Iraq’s Security Agreement to the Vote: Risks and Opportunities,” Washington Institute for Near East Policy,” 8/24/09

Lawrence, Quil, “To Many Iraqis, U.S. Troops Have Not Faded Away,” Morning Edition, NPR, 7/13/09

Londono, Ernesto, “U.S. Troops in Iraq Find Little Leeway,” Washington Post, 7/20/09

Londono, Ernesto and DeYoung, Karen, “Iraq Restricts U.S. Forces,” Washington Post, 7/18/09

Nordland, Rod, “Iraqis Take the Lead, With U.S. Trailing Closely,” New York Times, 8/9/09

Shabad, Rebecca, “Iraq City Security: ‘Uneven,’” Newsweek, 6/30/09

Sly, Liz, “In Iraq, U.S. troops learn to cope with rejection,” Los Angeles Times, 9/7/09

Tharp, Mike, “Iraqis have told U.S. military no patrols permitted in Baghdad,” McClatchy Newspapers, 7/14/09

Too Many Costs and Corruption To Develop Iraqi Economy

While on a trip to Ninewa province, Planning Minister Ali Baban said that the government had too many costs and too much corruption to develop the economy. The Minister noted that of the $58.6 billion in the 2009 budget, 80% went to operational costs such as salaries, pensions, and the food ration system, leaving only 20% for investment in infrastructure and development. He said that wasn’t near enough to finance the amount of projects Iraq needed. Another major problem he mentioned was the rampant corruption in the government. This was just seen at the beginning of September 2009 when the Deputy Transport Minister was arrested for trying to extort money from a foreign security firm. The official wanted a bribe to ensure that the company would get its contract renewed, and was caught trying to take $100,000 from them. A government official also told the Azzaman paper in June that $4 billion was unaccounted for in the budget.

Together, the problems of corruption and rising government costs are starving Iraq of the money needed to rebuild after years of wars, sanctions, and occupation. The Planning Minister called on the Iraqi private sector and foreign investors to help, but that’s not likely to happen soon. Iraq’s business sector is very small, and investment is just beginning. The instability and lack of an investment law has kept many foreign firms away as well, although some are slowly entering Iraq. Services and business are likely to suffer as a result, leading to more dependence upon the government and petroleum to keep the Iraqi economy going.

SOURCES

Abdulzair, Kareem, “$4 billion unaccounted for in this year’s Iraqi budget,” Azzaman, 6/25/09

Aswat al-Iraq, “Minister says govt. unable to cover projects, eyes private sector,” 9/3/09

Levinson, Charles, “Leaders have vision of burgeoning Baghdad,” USA Today, 9/9/08
- “Safer Iraq draws foreign investors,” USA Today, 9/9/08

Reuters, “Iraq deputy transport minister arrested for graft,” 9/3/09

Special Inspector General for Iraq Reconstruction, “Quarterly Report and Semiannual Report to the United States Congress,” 7/30/09

Iraq's Provinces Still Having Budget Problems

Iraq's eighteen provinces are still struggling with their finances this year. In 2008 when the price of Iraqi crude was soaring, Iraq's budget increased with it. Iraq's governorates signed dozens of new development projects as a result. Few of those were finished however, so the bills rolled over into the new fiscal year. That coincided with a collapse in world oil prices with the recession. That means the new provincial councils elected in January 2009 are now faced with the outstanding obligations of their predecessors, leaving little to no funds for their own plans.

In 2008 Iraq's parliament passed a $49.9 billion budget. Later in the year a supplemental budget was added to that for a total of $72.2 billion. That was a post-war high, and almost equal to the 2007 $41 billion and 2006 $34 billion budgets combined. Flush with money, Iraq's provincial councils went out and signed a large number of reconstruction contracts. 2008 was an election year with balloting due at the beginning of 2009, so many politicians wanted to show that they were doing something to get re-elected. At the end of the year, the world economy collapsed and so did the price of petroleum. As a result Iraq's 2009 budget was reduced to $58.6 billion even though parliament knew that amount would cause a deficit. Again, campaign politics probably played a role in that decision.

All of Iraq's eighteen provinces had their budgets cut this year. In 2008, the governorates got a total of $5,861.3 million for their capital budgets that goes towards infrastructure and investment. For 2009 they are scheduled to receive $4,113.1 million, a $1,748.2 million decrease.

Capital Budgets By Province

Provinces	2007/% Spent	2008/% Spent	2009
Anbar	$107 mil/3.7%	$183.33 mil/69%	$112.4 mil
Babil	$127 mil/49%	$200.67 mil/58%	$134 mil
Baghdad	$560 mil/31%	$883.3 mil/12%	$551.1 mil
Basra	$195 mil/21%	$306.67 mil/37%	$201 mil
Dhi Qar	$138 mil/40%	$216.67 mil/38%	$142.6 mil
Diyala	$100 mil/N/A	$168 mil/18%	$103.7 mil
Karbala	$71 mil/41%	$113.33 mil/33%	$77.8 mil
Kurdistan	$1,560 mil/95%	$2,528 mil/N/A	$1,952 mil
Maysan	$76 mil/51%	$120 mil/79%	$80 mil
Muthanna	$52 mil/19%	$83.33 mil/36%	$56.2 mil
Najaf	$588 mil/64%	$143.33 mil/95%	$92.9 mil
Ninewa	$226 mil/26%	$356.67 mil/7%	$235.6 mil
Qadisiyah	$64 mil/39%	$133.33 mil/25%	$86.4 mil
Salahaddin	$93 mil/34%	$146.67 mil/49%	$97.2 mil
Tamim	$91 mil/34%	$143.33 mil/54%	$99.4 mil
Wasit	$83 mil/41%	$134.67 mil/50%	$90.8 mil
TOTAL	$4,131 mil	$5,861.3 mil	$4,113.1 mil

Note: The Special Inspector General for Iraq Reconstruction (SIGIR) gave several different numbers for the 2008 capital budgets for the provinces and the amount spent. The latest figures provided by the SIGIR from a January 30, 2009 report were the ones used.

Not only that, but the incoming provincial councils found that their predecessors' spending left them with nothing. In Dhi Qar for example, 600 projects had to be put on hold because there was no money for them. Sometimes these deals were very questionable. The head of the reconstruction committee in Qadisiyah recently reported that the previous council issued $43 million in frivolous contracts tied up with tribal politics, corruption, and political favors. As reported before, many members of the former provincial governments are being charged with corruption since the January election.

Even without those problems, Iraq's provinces have had a very hard time spending all of their money. Last year, Najaf did the best spending 95% of its $143.33 million capital budget, while Ninewa, one of the most violent areas of the country, only spent 7% of its $356.67 million capital budget. Those numbers only tell part of the story however, as provinces that expended a lot like Maysan did not spend it well. For 2008 they spent 79% of their capital budget, but that only completed 41 of 241 projects. Some of the causes of these difficulties are lack of capacity, lack of trained staff, inexperience, and corruption. With many brand new politicians taking office it's likely that these issues will continue.

SOUCES

Aswat al-Iraq, "41 out of 241 projects implemented in Missan," 12/30/08

- "Diwaniya previous Council proscribed $43 million," 8/26/09

- "ID75bn in supplementary budget for Thi-Qar," 7/26/09

Department of Defense, "Measuring Stability and Security in Iraq," June 2009

Special Inspector General for Iraq Reconstruction, "Quarterly and Semiannual Report to the United States Congress," 7/30/08

- "Quarterly Report and Semiannual Report to the United States Congress," 1/30/09

- "Quarterly Report and Semiannual Report to the United States Congress," 7/30/09