Bremer's Opening Statement

House Committee on Oversight and Government Reform Hearing, Feb. 6, 2007

BREMER: Thank you, Mr. Chairman, for this opportunity to meet with the committee. I appear on my behalf, but also on behalf of the thousands of men and women who served with the CPA. They were all volunteers who left their families and risked their lives to work in Iraq under difficult and dangerous conditions.

I also want to pay tribute to the courage of the men women in our armed forces, more than 3,000 of whom -- as we've heard this morning -- have given their lives in Iraq.

We Americans and the Iraqi people are in their debt.

Mr. Chairman, let me say at the outset that I understand and share the frustration Americans and members of this committee feel about the violence we see every day in Iraq. It has certainly proven to be a much more difficult task than we anticipated.

Let me begin by noting that the subject of today's hearing is the CPA's use and accounting for funds which belong to the Iraqi people, held in the so-called Development Fund of Iraq or DFI.

These are not appropriated American funds available for use in the United States. They were Iraqi funds.

And despite the chaotic situation we found in the ground in Iraq, Mr. Chairman, I believe the CPA discharged its responsibilities to manage these Iraqi funds on behalf of the Iraqi people.

Now I acknowledge that I made mistakes and that, with the benefit of hindsight, I would have made some decisions differently. But, on the whole, I think that we made great progress under some of the most difficult conditions imaginable, including putting Iraq on the path to democracy.

And as you consider the actions of the CPA, I respectfully request that you keep this in mind. I'm proud of what we achieved, and I hope that, after today's hearing, members will understand what we faced and what we accomplished.

It is difficult, Mr. Chairman, to give a full picture of the desperate situation in Iraq in May of 2003. The country was in chaos -- socially, politically and economically. The deep crisis had been brought about not by war, not by sanctions, but by decades-long corruption and incompetence of the Saddam regime.

Among many shocking data, for example, from the 1990s Saddam Hussein cut health care spending by 90 percent -- 9-0 percent. No new hospitals had been built for 20 years. Half of the country's public health clinics were closed.

Even before the war, unemployment was running at 50 percent. Iraq's primitive banking system was shut down. The banks had no system for electronic transfer of funds.

This was a cash-based economy.

At the end of 2002, inflation was running at 115,000 percent.

In mid-2003, two reports -- one by the GAO and the other by President Clinton's former deputy of defense, Dr. John Hamre -- each compared the CPA's task to those faced by the Allies at the end of the Second World War.

The special inspector general for Iraq added, quote, "There is no known precedent for an effort to manage the reconstruction of a nation on such a vast scale in the midst of danger and violence."

To deal with this crisis, Mr. Chairman, the CPA had the services of over 3,000 volunteers from 25 countries.

Contrary to some reports, this was a remarkable and experienced group of men and women, as I show in an attachment to my full statement. It was an honor to serve with them.

Our top priority was to get the economy moving again. The reconstruction job proved to be harder than anticipated because, as some members have pointed out, prewar planning had not anticipated the difficulty of the tasks we faced.

The first step was to get money into the hands of the Iraqi people as quickly as possible.

Under Saddam Hussein, the Iraqi government had been by far the country's largest employer, providing about four out of five of all jobs. But for several months, since before the war, millions of Iraqi families had not received money owed them for civil service, salaries or pensions.

We used the Iraqi funds that are the subject of today's hearing to pay the Iraqis quickly. This was exceptionally difficult -- first because Iraqi ministries lacked good payroll records. Ideally, we would have liked to put those records straight before paying the salaries and pensions.

BREMER: But as often in Iraq, the ideal collided with the harsh realities on the ground. We simply could not delay paying salaries and pensions. Delay would have been demoralizing and unfair to the millions of Iraqi families, and it might well have exacerbated danger to the American soldiers on the ground.

Using the Iraqi funds to pay the Iraqi families was further complicated by the lack of an effective banking system. As I mentioned, the banks were closed and in any event were unable to transfer funds electronically. So we had to pay Iraqis in cash wherever in Iraq they lived.

We also immediately put these Iraqi funds to work on large public works programs to create jobs. And we continued to pay the Iraqis who had been employed in the state-owned enterprises even after those enterprises were closed down.

Due to a shortage of Iraqi currency, many of these expenses were paid in American dollars drawn from the Iraqi fund account.

Let me turn to the question of the CPA's management of these Iraqi government funds.

My colleagues and I, Mr. Chairman, fully understood and accepted our responsibility for the temporary stewardship of these Iraqi monies. We took seriously our charge to operate in an open and transparent fashion, and to use these Iraqi funds in the best interests of the Iraqi people.

We always strived to meet those objectives, and where we may have fallen short I accept responsibility.

I understand the committee's concern about the manner in which contracts were awarded using Iraqi funds. But it's important to remember that, although as administrator I accept full responsibility for the missions assigned to the CPA, I did not have authority over the awarding of contracts. This rested with the Department of the Army.

Let's be clear about what we're talking about here today before we start.

Some press stories and some of the statements by the members imply that the special inspector general's January 2005 report found that the CPA wasted or stole Iraqi funds.

Yet when he appeared before this very committee in June of 2005 to discuss his audit report, the special inspector general stated, and I quote, "There have been some misinterpretations about exactly what we said, so let me be clear about what the audit did not say. It did not say the money was lost. It did not say the money was stolen. It did not say the money was fraudulently disbursed by US authorities," end of quote.

Indeed, the special inspector general and the United States -- United Nations -- each concluded that the CPA had properly disbursed Iraqi funds from the development fund to the Iraqi ministries. The core difference between the inspector general and the CPA turns largely on how the Iraqis handled the money -- their money -- after we disbursed it to those ministries, for the special inspector general's report implies that we should have gone much further, seeking to impose modern or in some cases, as some members have suggested, American financial control systems on the disbursement of these Iraqi funds by Iraqi ministers themselves, and this in less than a year, on a failed state, in the middle of a war.

Mr. Chairman, I know of no person who spent meaningful time in Baghdad working with the Iraqi ministers -- ministries -- who thought this was possible in the conditions under which we worked.

Hereto, as so often in Iraq, the ideal clashed with the reality we faced. We had to find a way to get the Iraqi people's money working quickly for them rebuilding their country.

As was the case with salaries and pensions, we could not wait to install modern financial systems in the ministries. A team of experts from the International Monetary Fund came and found that the existing Iraqi systems were adequate and recommended we use them while beginning the longer-term process of modernizing those systems.

We agreed. And so disbursements from the Iraqi Development Fund were made to the Iraqi ministries according to the procedures and controls spelled out in CPA regulations. The ministries used the existing Iraqi systems to carry out their responsibilities for the proper use of those funds.

It was not a perfect solution. But, Mr. Chairman, there are no perfect solutions in Iraq.

And let me say in addition, Mr. Chairman, that during my time in Baghdad, I regularly visited these ministries -- the Ministry of Finance, Ministry of Planning, the central bank.

BREMER: I saw, at first hand, the primitive systems which Iraqi civil servants were struggling with. Most ministries did not even have computers, but kept their records on hand-written spreadsheets.

And while I am not -- certainly not -- a financial expert, my personal observations convinced me that the experts from the International Monetary Fund were correct in judging that we could not expect rapidly to modernize the systems in the middle of a war.

But there was also a political dimension to our decision to use these existing Iraqi financial systems for the control of Iraqi funds once they were dispersed.

The coalition strategy, and, indeed, the intent of the international community expressed in several U.N. resolutions was to give the Iraqis responsibility quickly. This was, after all, their money to be used for the benefit of the Iraqi people.

When Iraqi ministers were appointed by the Iraqis on September 3rd, 2003, I made clear to the ministers that it was their responsibility to develop and execute their ministry budgets.

My colleagues and I were, of course, acutely aware of the risks of corruption. Corruption had been encouraged, one could say even institutionalized, under Saddam Hussein, particularly in the oil-for- food program which has already been touched on.

So we took efforts to combat corruption. We established the independence of the Iraqi judiciary. We appointed inspectors general in every Iraqi ministry, revitalized an old, respected Iraqi audit agency, and set up a national commission to which any Iraqi can bring charges of fraud or waste.

Of course, these institutions alone, in a short time, cannot abolish corruption. But a start has been made.

Mr. Chairman, I commend the committee's intention to see what lessons can be learned from these experiences. And I went out for several, briefly, for your consideration, before we turn to questions.

First, there is no substitute for good planning. We heard how the planning before the war was inadequate. I agree.

The executive branch has taken steps in the last couple of years to improve its ability to cope with post-conflict situations. And I hope Congress will support these, where appropriate.

Secondly, as I explained in my longer statement, a business as usual approach to both contracting and personnel severely hampered our ability to begin the massive job of reconstruction.

The special inspector general has developed useful ideas for processes in both these areas, contracting and personnel, which I commend to the attention of the committee.

Thank you.