Minding Iraq's Business

The Bush administration has at last succeeded in getting a United Nations mandate for its effort to rebuild Iraq. But unless it addresses some financial details, it will have trouble persuading donors to share the financial burden of occupation and reconstruction.

The administration's breakthrough at the United Nations was to win support from Russian President Vladimir Putin. Once the Russians had defected to the U.S. side, the French and Germans realized they were isolated in their anti-Americanism and finally climbed on board.

But the financing of occupation remains murky. And unless the administration changes its policies, it stands open to the charge -- which can be heard in every souk and mosque around the world -- that the United States invaded Iraq only to control its oil.

The financial problems are detailed in a confidential report prepared this month by the Iraq Revenue Watch. I'd never heard of the group until somebody slipped me a draft copy of its study, but it turns out to be funded by billionaire George Soros and his Open Society Institute. Because Soros has been a critic of U.S. policy in Iraq, this is hardly a disinterested analysis, but it makes some telling points.

It's a complicated story, and even the most dedicated Iraq watchers may find it small potatoes. But for some Europeans, it documents what they see as a U.S. effort to control Iraqi finances -- and keep the goodies for America and its friends. Moreover, the issue is likely to be a bone of contention when the United States and major European countries gather next week in Madrid for an Iraq donors conference. So bear with a bit of technical explanation:

Iraq's oil revenue now goes into the Development Fund for Iraq, which was created last May by the U.N. Security Council to replace the old oil-for-food program. That fund is supposed to be audited by a body called the International Advisory and Monitoring Board, which would represent the United Nations, the World Bank, the International Monetary Fund and the Arab Fund for Economic and Social Development.

But thus far, U.S. occupation chief Paul Bremer has delayed establishing this watchdog group, apparently because he believes that its "special audit" powers are too far-reaching.

Rather than being under international oversight, Iraq's oil income and other assets have been controlled by an obscure body called the Program Review Board, which reports to Bremer's Coalition Provisional Authority. The 11-member board includes only one Iraqi.

The board is spending Iraq's money freely, mostly to support aspects of the occupation. The board's own documents show it approved about $1 billion in spending between Aug. 12 and Sept. 2, according to the Soros-backed study.

"To date, [Development Fund for Iraq] funds have been used to pay Iraqi public sector salaries, to compensate families for the loss of members by actions of Coalition Forces, and the day-to-day functioning of the Iraq Governing Council and Ministries," the study contends.

European countries have criticized what they say is a lack of transparency in the fund's activities. "The international community knows nothing about the fund's management," contended one unnamed "Security Council diplomat" who is quoted in the study. "We know that $1 billion went into it from the U.N. Oil-for-Food Program in May. Since then, that money has disappeared, and there are rumors that the current balance is zero."

The dispute about the fund may seem trivial, given the larger issues at stake in Iraq. But European countries are citing the transparency problem as a reason why they won't commit more money to Iraqi reconstruction. The Europeans have said they will initially pledge just $233 million, and they are insisting that this money be distributed by a trust that is separate from the U.S.-administered Development Fund for Iraq.

"Without change, U.S. authorities in Iraq are likely to find themselves increasingly isolated as international donors lose confidence in the CPA's effort to stabilize and rebuild Iraq," argues the Soros study.

Oversight of Iraq's oil revenue is addressed in a few sentences of fine print in the original U.S resolution on Iraqi reconstruction that was presented to the United Nations. But the issue deserves more attention than it has received. Without it, the transparency problem could undermine the U.N. resolution passed yesterday with such fanfare, and all the progress it promises.

The right answer, it seems to me, is not to give more power to Europeans, still less to an unwieldy board made up of grandees from the IMF and World Bank. Instead, the goal should be to give more financial power to Iraqis, as soon as is practical. It's their oil, their money and, ultimately, their responsibility to rebuild Iraq.

davidignatius@washpost.com