Global Policy Forum

The $20 Billion the US Gave for Reconstruction Will be Exhausted Within Months

By Peter Grier

Time and money are running out on the US-directed reconstruction effort in Iraq. The main conduit for American rebuilding aid - the Iraq Relief and Reconstruction Fund (IRRF) - is scheduled to close at the end of this year. Almost all the cash Congress has allocated for the fund, some $20 billion in all, has been spent, or will be, in coming months. Yet many important efforts remain unfinished, for reasons ranging from insurgent attacks to incompetence and contractor corruption. More than 75 percent of oil and gas restoration projects are incomplete, as are 50 percent of electrical and 40 percent of water and sanitation projects, according to the April report of the Special Inspector General for Iraq Reconstruction.

The bottom line: Iraqis are facing what US officials call a "reconstruction gap" as they assume responsibility for rebuilding. Meeting already-identified needs might require a further $18 billion to $28 billion, according to one estimate. Domestic Iraqi resources, and aid from countries other than the US, might help close this gap. But some experts say that additional US funds - beyond what's currently planned - might be needed, or crucial goals could remain unmet.

"You don't want to be penny-wise and pound-foolish here," says Steven Kosiak, director of budget studies at the Center for Strategic and Budgetary Assessments in Washington. When the US invaded Iraq in 2003, it took control of a nation with a ruined economy and infrastructure. In the 1970s, Iraq's per-capita income was close to that of Spain. Since then it has dropped to that of a sub-Saharan African nation.

In an effort to jump-start economic activity and civic life, US reconstruction efforts have encompassed much more than the rebuilding of infrastructure ruined by war. More than 3,000 schools have been constructed with US funds, according to the US Army Corps of Engineers. US officials have tried to rescue Iraqi agriculture, such as a date palm industry that deteriorated during the years of Saddam Hussein.

But the general course of reconstruction has not been smooth. Insurgent and factional violence has hobbled rebuilding, as it has the country as a whole. Between 16 and 22 percent of reconstruction dollars pay for armed guards and other costs related to security, James Kunder, an assistant administrator of the US Agency for International Development, told the House International Relations Committee at a hearing last week. Fraud and abuse have also been problems. Stuart Bowen Jr., the Special Inspector General for Iraq Reconstruction (SIGIR), has 72 open investigations into allegations of corruption, according to his latest quarterly report to Congress. Earlier this year, Robert Stein, who was a regional Coalition Provisional Authority (CPA) comptroller, and contractor Philip Bloom pleaded guilty to participation in a scheme to defraud the CPA of more than $8.6 million, the report noted. Then there's waste, brought about by haste, inattention, incompetence, or a combination of the three. In May, an audit by Mr. Bowen found that a $243 million program to build healthcare clinics would finish just 20 of the 150 that had been planned, unless extra cash is forthcoming.

Forty-one natural-gas turbines bought with US funds, and meant to generate needed electricity, are being run on fuel oil, due to limited natural-gas availability. This cuts their output by 50 percent, according to the US Government Accountability Office, increases maintenance needs three-fold, and reduces the life of the equipment. US officials defend the rebuilding effort as the best that could be accomplished under the circumstances. The latest SIGIR quarterly report calls reconstruction "a picture of significant progress achieved through a substantial US investment of time, talent, and tax dollars...."

But critics point out that basic services have yet to be restored three years after the US invasion. Oil and electricity production have yet to return to prewar levels. Some 60 percent of clean water produced in Iraq is lost to leakage and contamination. "The US aid process has failed. It has had some important individual successes, but it has wasted at least half of the some $22 billion in US funds ... it attempted to use to secure and develop Iraq's economy," wrote Anthony Cordesman, a senior expert on Iraq at the Center for Strategic and International Studies, in a recent study.

The question is, what next? As the IRRF phases out, most projects will turn to Iraqi control. Further US aid would be funneled through the normal foreign-affairs budget. Yet many projects won't be completed by the handover date. As of April, 277 electricity projects remained incomplete, with 58 not yet even started. Forty-two oil and gas projects aren't finished - and only 13 are.

US budget plans don't call for big additions to the money already spent. For fiscal 2007, the US requested $770 million in reconstruction funds - and a House committee has trimmed that by $200 million pending final passage. US officials are pressing other nations to pay up pledges of aid they've already made. But a reasonable estimate of the money still needed is $18 billion to $28 billion, according to Mr. Kosiak, and total foreign aid pledges are only $13 billion. "Even assuming ... that this gap could be covered by drawing equally upon US, international, and Iraqi resources, this suggests that an additional $5 billion to $10 billion in US reconstruction assistance might need to be provided," he wrote in an analysis of reconstruction earlier this year.