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Funds to Rebuild Iraq Are Drifting Away From Target

State Department to Rethink U.S. Effort

By Jonathan Weisman and Robin Wright
Washington Post Staff Writers
Wednesday, October 6, 2004; Page A18

As little as 27 cents of every dollar spent on Iraq's reconstruction has actually filtered down to projects benefiting Iraqis, a statistic that is prompting the State Department to fundamentally rethink the Bush administration's troubled reconstruction effort.

Between soaring security costs, corruption and mismanagement, contractors' profits, and U.S. governmental costs, reconstruction funding is being drained away, leaving little left to improve the lives of Iraqis, according to an analysis by the nonpartisan Center for Strategic and International Studies. Senior administration officials and congressional experts on the reconstruction effort called the analysis credible. One senior U.S. official familiar with reconstruction suggested as little as a quarter of the funding is reaching its intended projects.

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The State Department will acknowledge the problem in a quarterly report to Congress today and say that the United States is trying to accelerate aid and redirect how it is spent, U.S. officials said yesterday. But the Bush administration is still not meeting the goal it set this summer to inject $300 million to $400 million monthly into Iraq's economy by Sept. 1, the officials said.

"We're moving funds faster, but not at the rate we set for ourselves," a senior U.S. official involved in Iraq policy said.

With little fanfare, Congress last week approved the Bush administration's request to reallocate $3.46 billion from long-term infrastructure projects to more pressing security and job-creation programs. The transfer marks a significant refocusing of the year-old, $18.4 billion effort to rebuild Iraq.

But administration officials, lawmakers and think tanks say major changes are needed not only in what the reconstruction money is spent on but also how it is spent. Too much money has been filtered through major American businesses such as Halliburton Co. and Bechtel Corp. on large-scale electricity, water and oil infrastructure projects, and not nearly enough has gone to smaller, more decentralized reconstruction efforts that could be handled by Iraqis, they say.

"When you're doing these large-scale programs, these design-and-build contracts and mega-program projects, you eat up a lot of money in administration and management costs," said a senior U.S. official familiar with the reconstruction effort. "What we've learned is that we have to use Iraqis, provide more employment, lower our costs and deliver a project that would be close enough to what they want, even if it's not perfect by American standards. We're moving in that direction -- finally."

Politically unpopular foreign aid programs have traditionally been sold to taxpayers as ultimately benefiting them because most of the money goes to U.S. companies, said Rep. Jim Kolbe (R-Ariz.), chairman of the Appropriations Committee's subcommittee on foreign operations, which is responsible for the reconstruction funding. Iraq has been no different.

"We have to have a complete change of mind-set," Kolbe said.

In a report released a week ago, Iraq Revenue Watch, a watchdog group funded by liberal philanthropist George Soros, analyzed contracts worth more than $5 million that have been funded with Iraqi oil revenue over the past year. Of the 39 contracts so far, U.S. and British firms have received 85 percent of the value, the group said. Iraqi firms have received 2 percent.

Of the $7.1 billion so far obligated to reconstruction projects, nearly a third will be spent on security, according to the CSIS. Roughly 6 percent will be taken as contractor profit, 10 percent finances U.S. government overhead, and more than a quarter will be lost to mismanagement, corruption, insurance costs and the soaring salaries of non-Iraqi workers.

Mounting violence has sent the cost of security skyrocketing. Routine supply convoys now need constant security surveillance. And increasing demand has more than doubled the salaries of security guards, said Doug Brooks, president of the International Peace Operations Association, a trade group representing private security contractors. A year ago, a U.S. security firm could hire a Nepalese Gurkha soldier for $1,000 a month. Now the cost is more than $2,000. Former U.S. Special Forces soldiers can command $700 a day to protect "high-value" targets.

"When you have risks this high, the profits are going to be high," Brooks said. "That's inevitable."

On top of that, bribery has become "just the reality of doing business," said Jim Mitchell, a spokesman for the inspector general of the Coalition Provisional Authority.

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