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.
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.
What is left is 27 cents on each dollar to build roads and schools, prepare for elections, and repair decrepit water and electricity systems, the CSIS analysis concluded.
Administration officials called that breakdown "credible." Kolbe suggested that overhead and security costs swallowed half the $1.1 billion spent so far on reconstruction. As violence escalates, that percentage could get worse before it gets better.
"Little is being accomplished," said Rep. Nita M. Lowey (N.Y.), the ranking Democrat on the Appropriations foreign operations subcommittee. "The Iraqi people are not seeing much benefit."
Senior State Department officials are beginning to change course, Lowey acknowledged. Most of the $3.46 billion being shifted from large infrastructure programs will go toward training Iraqi security forces. But $380 million will be earmarked for economic reforms, private-sector development and agriculture programs. And $286 million will go to short-term "make-work" projects, enough to employ 800,000 Iraqis in short order, State Department officials say.
That would be a dramatic increase from the 74,770 Iraqis currently employed by the reconstruction effort, Mitchell said.
In the run-up to January's scheduled election in Iraq, U.S. authorities hope to inject $300 million to $400 million a month into Iraqi-identified projects and job-creation efforts. The success of that effort could have enormous consequences for pro-Western candidates as Iraqis go to the polls to elect the country's first democratic government.
But administration and congressional sources cautioned the shift may not work. A high-ranking official in the now-disbanded provisional government said occupation authorities set up a make-work program early on, aiming to hire 100,000 Iraqis to clean up canals, dig ditches and do other "messy, dirty" jobs as day laborers. At its height, 60,000 workers signed up.
"It's not like somebody slapped his forehead and said, 'Oh, short-term work creation is the way to do it,' " said the official, who spoke on the condition of anonymity at the request of his current employer. "We didn't do it as well as we wanted, but we did try."
In some cases, large U.S. contractors are employing Americans to do work that Iraqis could handle for a fraction of the cost, such as driving buses, the former occupation official said. But some reconstruction efforts will still have to stay in the hands of Western contractors, Kolbe said. "You can't do electrical distribution in little, decentralized projects," he said.