Iraqis have money, lack spending know-how

BAGHDAD -- Iraq's government has an unusual money problem as much of the world grapples with a credit crunch -- it can't spend its oil riches fast enough.

The U.S. is trying to change that by training Iraqi bureaucrats struggling to emerge from a centralized system in which nearly all decisions -- from where to build a water treatment plant to which workers would do the job -- came from the top.

Money also was scarce for more than a decade after the U.N. Security Council imposed sanctions to punish Saddam Hussein's regime for the 1990 invasion of Kuwait.

"Our efforts are devoted to helping the Iraqis spend their own money," said Marc Wall, the U.S. Embassy's coordinator for economic transition in Iraq. "We've zeroed in on it in the last year or two."

The issue came to the fore this summer when the U.S. General Accounting Office predicted Iraq could finish the year with as much as a $79 billion cumulative surplus because of oil revenue and unspent funds from previous budgets.

The August report drew outrage in Congress, where lawmakers asked why the Iraqis haven't spent more of their own money on reconstruction efforts while U.S. taxpayers shell out some $12 billion a month for Iraq -- most for military operations.

U.S. and Iraqi officials dispute the GAO figures, arguing they are inflated and do not reflect Iraqi accounting procedures. They also say Iraqi spending on reconstruction is expected to increase by 50 percent from 2007 to 2008.

But most agree that major obstacles still include inexperienced bureaucrats, too few Iraqi contractors and a cumbersome approval procedure aimed at curbing corruption.

The U.S. Agency for International Development's Tatweer project is designed to train Iraqi civil servants in basic decision-making skills to help them allocate funds and effectively deliver government services such as electricity, water and security.

The $339 million program -- paid for by American taxpayers -- began in July 2006 and is scheduled to finish in January 2011.

Instructors include Iraqis, Jordanians, Lebanese and Egyptians, native Arabic speakers who were mostly educated in the United States or other countries. Each earns about $1,500-$1,700 a month.

One recent class of bureaucrats from various Iraqi ministries -- six men and six women sitting around an oval table -- listened attentively as the instructor told them how to diagram a decision tree.

The analysis and problem-solving tool is aimed at determining possible sequences of events and their consequences to choose the best investment.

But one student raised her hand to ask how, exactly, that would work in Iraq.

"We have instability and insecurity. You have to consider the black market," said Shetha Nasser, a 46-year-old engineer at the Water Resources Ministry.

Nasser's concerns reflect the myriad problems facing Iraqis as they try to overcome decades of isolation from war, sanctions and centralization.

The postwar Iraqi government inherited an old-fashioned, paper-based system. Violence also has taken its toll, with insurgents frequently targeting government employees.

Wearing a black skirt and sequined headscarf, Nasser said she has worked with feasibility studies for nine years but never really knew how to do them.

"We didn't have clear guidelines or methods ... because of the gap between Iraq and the international community," she said.

Instead, the orders generally came from above and needed only to be implemented. Prices also were fixed under Saddam, aiding cost estimates.

"It was easier before the war. It was more stable," she said. "The decision tree actually probably applies more in Iraq now because there are so many different variables here."

Sattar Hussein, a 42-year-old instructor for Tatweer -- which means development in Arabic -- said the key is training Iraqis in how to choose the best projects.

"They have the money, but they don't understand how to invest the money to help the people," the Fallujah native said during a class break for coffee and cookies. "The idea is to prepare these people for the future because they will be the decision-makers."

The Finance Ministry has been preparing to present a $79 billion budget for 2009, with $19.2 billion of that for reconstruction. That would be a record sum after this year's $70 billion budget, including $10.1 billion for reconstruction.

Those figures could be whittled down because of falling oil prices, which have plunged from a summertime high of $150 a barrel to less than $70 this week. Next year's spending plan was based on oil prices remaining above $80.

Wall, the U.S. Embassy's economics transition chief, said the Iraqis could feel the hit but predicted their surplus will protect them.

"There is a cushion, but it's not going to be as large as many expected," he said Wednesday during an interview in his office, a former kitchen in Saddam's Republican Palace.

Critics say it's time for the U.S. to force the Iraqi government to step up its own spending.

"If you look at the capacity of the Iraqi government, I think basically it's really the question of will, not capacity," said Lawrence J. Korb, a military analyst at the liberal Center for American Progress. "Right now they can sit back ... and not make the hard choices. We do it for them."

Korb said the government has ignored a pool of experienced bureaucrats because they had belonged to Saddam's ousted Baath Party.

He also noted Iraqis spend heavily on operating expenses such as government salaries instead of reconstruction.

"The percentage going to current operating expenses is going up every year as opposed to making the people's lives better in the future," he said.