Global Policy Forum

By Mark Matthews

Money is intended for rebuilding use; international board plans to do audit.

U.S. officials in charge of the Development Fund for Iraq drained all but $900 million from the $20 billion fund by late last month in what a watchdog group has called an "11th-hour splurge." An international monitoring board is planning an audit of money from the fund that was spent on contracts for Iraq's reconstruction that were approved without competitive bidding. The fund, made up largely of Iraqi oil revenue, is intended to pay for the rebuilding of Iraq. Critics have charged that U.S. officials have failed to account properly for money spent so far.

In a report this week, the General Accounting Office said that "contracts worth billions of dollars in Iraqi funds have not been independently reviewed." It also questioned what control over U.S.-approved contracts would now exist with the handover of formal sovereignty to Iraqis. Beth Marple, a U.S. spokeswoman in Baghdad, said the rapid spending was agreed on between the now-dissolved Coalition Provisional Authority and Iraqi officials. She said that "the unfunded needs of the Iraqi people demanded that these dollars be put to work."

U.S. authorities have not identified all the contractors hired. But they have told international monitors that some of the contracts were awarded without competitive bidding to Halliburton, the Texas-based company formerly led by Vice President Dick Cheney. Halliburton has been at the center of Pentagon and congressional inquiries. Some critics have suggested that American authorities tapped the Iraqi money to avoid the stricter controls Congress demanded on the spending of U.S. tax dollars, after reports last year of overcharges by Pentagon contractors.

"Perhaps they prefer to have the flexibility to give away contracts to whichever companies they want on whatever terms they want," said Svetlana Tsalik, director of the George Soros-funded Revenue Watch, part of the Open Society Institute. Soros, a billionaire financier, is a harsh critic of the administration and has contributed heavily to groups seeking to defeat President Bush.

In recent reports, Revenue Watch and the British-based group Christian Aid faulted the Coalition Provisional Authority for making commitments on spending of Iraqi oil revenue that will outlast the occupation. Revenue Watch referred to the spending as "the CPA's 11th-hour splurge." Christian Aid faulted U.S. occupation authorities for failing to disclose full details of the spending. The group said the authorities may also have understated by up to $3 billion the amount of Iraqi oil revenue that went into the development fund. "This lack of accountability creates an environment ripe for corruption and theft at every level," Christian Aid said in a report titled Fueling Suspicion: the Coalition and Iraq's Oil Billions.

The Development Fund for Iraq was set up by the United Nations Security Council last year after Bush declared major combat over in Iraq. Besides the new Iraqi oil revenue, it includes leftover oil revenue that was put into the U.N.-run Oil for Food program before the United States invaded Iraq.

Diverse Spending

The development fund has been spent in several ways. As of May, more than half the money had gone to operate Iraqi ministries. The rest went to relief and reconstruction projects; out of that money, about $350 million was put at the discretion of U.S. military commanders for projects intended to improve relations with Iraqis. Until the handover, the provisional authority had the ultimate say over how the money was used. Decisions were made in meetings with Iraqi officials appointed by the provisional authority and the U.S.-picked Iraqi Governing Council.

Noting the latest reports by the provisional authority, Joseph Christoff, who directs the GAO's international affairs section, said that of the $20 billion in the fund, all but $900 million had been committed as of late June. The GAO is an investigative arm of Congress. "They clearly spent [development fund money] at a much faster pace than the appropriated dollars," Christoff said in a telephone interview. The GAO report said that as of April, the provisional authority had spent nearly $13 billion from the fund on reconstruction activities. By that time, the authority had spent only $8.2 billion out of U.S. tax dollars - money that would likely invite greater congressional scrutiny.

The Security Council created an International Advisory and Monitory Board for Iraq to watch how the development fund was spent. The board is made up of representatives of the United Nations, World Bank, International Monetary Fund and the Arab Fund for Economic and Social Development. In February, the board began to question the awarding of no-bid contracts awarded by the provisional authority with money from the development fund, according to minutes of the board's meetings. The next month, the board was told that Halliburton won some of the contracts without competitive bidding. The provisional authority "indicated that as a general rule, effective January 2004 contracts were no longer awarded without competitive bidding," according to the board's minutes.

The board demanded that the provisional authority turn over audits of the uncompetitive contracts. None had been provided by its June meeting. The board then delivered a public rebuke of the U.S. authorities. In a statement issued June 22, the board said it "regrets, despite its repeated requests, the delay in receiving reports on audits undertaken by various agencies on sole-sourced contracts" paid for by the development fund. The board chose to launch an audit "to determine the extent of sole-sourced contracts." In a telephone interview from Baghdad, Marple said she could not immediately explain why the provisional authority used development fund money for no-bid contracts or why it had been slow to provide information to the monitors.

New-Government Role

The new Iraqi government is now in control of deciding how Iraqi oil revenue is spent, though the international monitoring board will continue an oversight role. Rend al-Rahim, Iraq's chief representative in Washington, argued in a speech this week that too much money had been spent on costly infrastructure and high-tech projects that did not employ large numbers of Iraqis. Noting that the new government "will now have a lot of authority in awarding contracts from the Development Fund for Iraq," she said it must focus on projects "that can employ tens and hundreds of thousands of Iraqis and get money into the pockets of Iraqis and again give them a stake in the new Iraq."