Iraq's Kurds Find Prosperity Brings Distrust -- Tensions Churn Over Who Benefits in Economy Dominated by Two Parties

Sabah Melhem is among a new generation of entrepreneurs who are rebuilding Iraqi Kurdistan, representing the hope and the pitfalls for a nation teetering between chaos and normality.
By Sudarsan Raghavan
Washington Post Foreign Service
Saturday, March 21, 2009

AKRA, Iraq -- On a hilltop overlooking this small Kurdish town, a sleek $28 million hospital rises like a cutting-edge sculpture. Inside, builder Sabah Melhem admired a European medical scanner gleaming under white fluorescent light. Virtually every room contains state-of-the-art equipment, unlike anywhere else in Iraq. "I hope in every city I can build a hospital like this," Melhem declared. "This is my dream."

Two floors down, it is apparent who helps to turn such dreams into reality: a larger-than-life photo of Kurdish leader Massoud Barzani looms over the entrance, a reminder of how much patronage still prevails in one of Iraq's most stable and developed regions.

Melhem is part of a generation of entrepreneurs driving the economic transformation of Kurdistan, as northern Iraq's Kurdish autonomous region is known. Many Iraqis say that a strong economy that allows sects and ethnic groups to share in the country's wealth is a vital path to stability. But below the surface of Kurdistan's prosperity, tensions are churning over who is benefiting from economic growth. The two ruling Kurdish political parties, America's staunchest allies in Iraq, dominate virtually every aspect of the regional economy, spawning conflicts of interest and corruption, according to Kurdish and U.S. officials.

"They are interfering," said Noshirwan Mustafa, a senior leader of the Patriotic Union of Kurdistan (PUK), the political party led by Iraqi President Jalal Talabani. Investors, Mustafa said, are expected to provide the parties with stakes in businesses. "If you want to contract with the government or with a ministry, you should give a share to the parties," he said.

Mustafa, who recently had a falling out with Talabani, said the PUK and the rival Kurdish Democratic Party (KDP), led by Barzani, each receive $35 million a month as part of the funds transferred to the Kurdistan Regional Government by the central government in Baghdad. "Nobody knows how they spend the money," Mustafa said.

Iraq's minister of planning, Ali Baban, said the central government does not monitor how Kurdish authorities spent the 17 percent share of the national budget that Kurdistan receives each year. When asked about Mustafa's assertion that some of the funds go to political parties, Baban said, "If that is true, it would be a violation and a breach of the regulations governing the spending of public funds, but such breaches do exist in most provinces of the country."

According to the 2009 draft budget, the Kurdistan Regional Government will receive roughly $6.2 billion from the central government. The region has two audit boards, each affiliated with one of the two main parties, but Abdulbasit Turki Saeed, the head of the central government's Board of Supreme Audit, said he was discussing with Kurdish authorities how to monitor the funds this year. "Legally, every dinar that was not spent properly concerns us," Saeed said. "But from what actually happens, nothing surprises me. Since the occupation until now we have seen everything."

Kurdish officials denied that the parties receive monthly allocations of central government funds, but they conceded that corruption is a major concern.

"Corruption in Iraq is an old problem. But in Kurdistan it is much less than in other parts of Iraq," said Mullah Baktiar, a PUK spokesman. Falah Mustafa Bakir, a top KDP official, said the regional government's budget is transparent: "We do not deny that there are things happening that should not happen, but we are determined to correct this."

Critics assert that senior leaders of both parties hide their ownership of large companies by funneling tens of millions of dollars through mid-level party members or reliable entrepreneurs.

"The big problem is Talabani's family and Barzani's family," said Kamal Rahim, the editor of Hawlati, the region's largest independent newspaper. "Both families have small groups that they trust. They are running everything for them and dealing for them. Some of the businessmen, they are not even members of the parties."

Mustafa said the PUK owns Nokan, a conglomerate in Sulaymaniyah, the hub of eastern Kurdistan, with interests in construction, trade and food. "Every political party has the right to invest and work to finance themselves. But they are using the PUK influence," he said, referring to Nokan. Mustafa himself owns a media company.

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