US officials defend Iraq's oil-fed budget surplus

Original Link: http://www.bnd.com/283/story/423141.html

By ROBERT H. REID Associated Press Writer

BAGHDAD --Iraq is paying for more of its own reconstruction but is still struggling to spend its multibillion-dollar surplus as it copes with a flood of oil revenue and a cumbersome approval process meant to curb corruption, U.S. officials said Wednesday.

Iraq could finish the year with as much as a $79 billion cumulative budget surplus as oil revenues add to leftover income the Iraqis still haven't spent on national rebuilding, according to a report by the Government Accountability Office made public Tuesday.

Many Iraqis - who lack adequate electricity, clean water and jobs - find it unfathomable their country is awash in oil dollars. Last year, it spent less than a third of the $12 billion budgeted for major projects such as electricity, housing and water.

In Washington, senators renewed calls for Baghdad to pay more for its own reconstruction, which has been heavily supported by hard-pressed American taxpayers.

"I think it's absurd that we're paying for the reconstruction in a country when right at the beginning of the war the Bush administration assured the American people that Iraq's reconstruction would be paid for by Iraq and through its oil revenues," Democratic Sen. Carl Levin said Wednesday on MSNBC.

Levin, who requested the GAO report along with Republican Sen. John Warner, said in a statement Tuesday that it was "inexcusable for U.S. taxpayers to continue to foot the bill for projects the Iraqis are fully capable of funding themselves."

But U.S. officials who work with the Iraqis on reconstruction said the Baghdad government has been increasing its capital spending by 30 percent to 35 percent each year since 2006 - although they added that both governments want to see the pace increased.

The Iraqi government is drafting plans for Iraqi-funded projects to include 1,000 new primary health care centers over the next 10 years, new airports and a major renovation project for downtown Baghdad, the American officials said.

They spoke on condition of anonymity because they did not want to comment on Iraqi government performance.

The officials said the United States has not begun any new reconstruction projects in Iraq since 2004 and that ongoing work is funded by money approved by Congress four years ago.

In the report, the GAO said Iraq had an estimated budget surplus of about $29 billion from 2005 to 2007 and could have an additional surplus of up to $50 billion this year.

Nearly $10 billion of the estimated surplus is held by the Development Fund for Iraq at the Federal Reserve Bank of New York, according to the report. That fund was established by U.S.-led coalition authorities shortly after the 2003 overthrow of Saddam Hussein to hold Iraqi oil revenues and other state assets.

Every month, the government-owned State Oil Marketing Organization offers to sell Iraqi oil at an announced price. Oil companies interested in buying then request shipments. Preference is given to major international companies and those that have previously done business with Iraq.

Revenues are then deposited in the Development Fund account, which the Iraqi government has controlled since 2004. The Central Bank of Iraq is free to draw from the account, but the government decides how to spend the money. Other revenues are held by the Central Bank and Iraqi commercial banks.

The expected surplus is likely to be lower than $79 billion because parliament Wednesday approved legislation for a $21 billion supplemental budget for 2008.

Nevertheless, the GAO report faulted the government for holding back on spending plans.

"First ... (the) relative shortage of trained budgetary, procurement and other staff with the necessary technical skills is a factor limiting the Iraqi government's ability to plan and execute its capital spending," the GAO said, adding that a second problem is the government's weak accounting systems.

"Third ... violence and sectarian strife remain major obstacles to developing Iraqi government capacity," it said.

The report also estimated that this year Iraq could generate $67 billion to $79 billion in oil sales. Other U.S. officials previously had said they expected the oil windfall to be about $70 billion.

"This substantial increase in revenues offers the Iraqi government the potential to better finance its own security and economic needs," the GAO said.

But the U.S. officials said the influx of oil money had been difficult to manage, not only for Iraq but for other oil-producing countries.

Other problems cited by the officials included a cumbersome approval process - put in place to curb corruption - lack of expertise in the ministries and a shortage of Iraqi contractors capable of taking on major development projects.

Since 2005, the United States has funded a number of efforts to teach civilian and security ministries how to effectively execute their budgets.

The efforts included programs to advise and help Iraqi government employees develop the skills to plan programs and to effectively deliver government services such as electricity, water and security.