Los Angeles Times
September 26, 2004
WASHINGTON — Less than half of the aid in the Bush administration's
reconstruction package for Iraq is being spent in ways that will benefit Iraqis,
U.S. government officials and independent experts said.
Nearly a year
after Congress set aside $18.4 billion for the rebuilding, costs related to the
insurgency in Iraq — such as security services, insurance and property
losses — are consuming an increasing share of the money, analysts said.
Another large chunk of the aid — contractors' profits and American and
other foreign workers' salaries — winds up outside Iraq and doesn't help
the Iraqi economy, they said.
U.S. officials, pointing to "unusually
difficult" conditions in Iraq, acknowledged last week that security and other
overhead in Iraq were a large expense. Some government analysts said those
costs might eat up half or more of the rebuilding aid. However, private
analysts estimated that the "Iraq premium" meant that up to 75% of U.S.
spending in the country pr ovided no direct benefit for Iraqis.
"The
central point is this money is not reaching the Iraqis," said Frederick Barton,
co-director of the reconstruction studies program at the Center for Strategic
and International Studies, a Washington think tank, and a former Clinton
administration official in the U.S. Agency for International Development.
"We're spending a lot of money we believe is helping people and converting Iraq
to a new kind of economy. That's where I think we're kidding ourselves."
The issue of the special costs is drawing attention at a time when the
administration is facing congressional criticism for spending only about $1
billion of the $18.4-billion package. Sen. Richard G. Lugar (R-Ind.),
chairman of the Senate Foreign Relations Committee, complained last week that
the slow pace of spending reflected "the incompetence of the
administration."
The costs also highlight questions
that have been raised about the Bush administration's approach to the re
construction, which emphasizes big infrastructure projects.
Barton and
his organization estimate that less than 30% of the money spent reaches Iraqis.
Another 30% appears to be going to security, about 10% to U.S. government
overhead, 6% to contractor profits, and 12% on insurance and foreign workers'
salaries. The rest, perhaps 15%, may be lost to corruption and mismanagement,
they estimate.
Several government analysts, who spoke on condition of
anonymity because of the political sensitivity of the issue, acknowledged that
the total amount lost to special costs was probably about 50% and that the
administration planned to undertake a study to determine the extent of the extra
costs. One government analyst said the costs of security and lost property
could be estimated with some precision, "and that gets you close to around 50%."
A senior official with the U.S. Embassy in Baghdad insisted in an
interview that "every dollar we are spending is going to benefit Iraqis" but
that the secur ity situation in Iraq had worsened since Congress appropriated
the money in November.
"We're in an unusually difficult situation over
there, and the costs of security are bigger now than when we started out the
program," said the senior official, who declined to be identified. "But the
taxpayers and the Congress want us to do the job. They want us to protect our
workers, and to complete these projects."
The official said he had
seen various estimates about these special costs, but could not comment on their
accuracy.
At a House subcommittee hearing Friday, Deputy Secretary of
State Richard L. Armitage said the tab for contractor security and the
government's administrative overhead came to about 30% of total costs.
"However, as we go out to more construction sites and more areas, that number's
going to go up," he told Rep. Jim Kolbe (R-Ariz.), chairman of the House
Appropriations subcommittee on foreign operations.
The government's
predicament stems from choices it made last year when it laid out its original
plan for spending the $18.4 billion. It is the largest sum the United States
has ever earmarked for the reconstruction of one country, experts said.
In most postwar redevelopment efforts, such as those in Bosnia-Herzegovina,
Kosovo and Haiti, U.S. officials have focused on starting small-scale, locally
staffed rebuilding projects, training police and other officials, and working to
get government agencies and democratic institutions up and running. Larger
infrastructure projects came later, often financed by multinational lenders such
as the World Bank.
But in Iraq, U.S. officials believed that far more
was at stake and wanted to make sure that Iraq became a stable, successful
country. They launched a massive rebuilding program that involved major
contractors, such as Bechtel and Halliburton, and drew a large number of foreign
workers.
The program's goal was to eventually provide Iraqis with a
highly advanced utility and oil infrastructure. But in the short run, the
program meant that U.S. tax dollars were being funneled through U.S. firms and
foreign companies, rather than Iraqi businesses, analysts pointed out. It also
meant that there was a lot of people and property to protect.
Huge
projects "require them to use big international companies, and inevitably don't
pump enough money into the local economy with the speed that's needed," said
Larry Diamond, a Hoover Institution political scientist who was a senior advisor
to the Coalition Provisional Authority in Iraq earlier this year. "And of
course the security situation has not allowed them to get much done."
Diamond said he viewed this approach as "one of several strategic mistakes the
administration made in its approach to the postwar situation." The State
Department recently acknowledged that it needed to change that approach, asking
Congress to shift $3.4 billion of the aid from infrastructure projects to
security, job-producing programs and other purposes.
James D obbins, a
longtime U.S. diplomat who was President Bush's special envoy to Afghanistan,
said beginning the reconstruction with infrastructure projects was "an
aberration from the way we've approached post-conflict reconstruction over the
last 60 years, including Germany and Japan."
Big contractors such as
those now involved in Iraq previously had a "small role or none at all," he
said.
As they shifted money toward improving security, U.S. officials
and contractors said the costs of working in the combat zone might yet increase.
Insurgents have been attacking construction sites more than once each
day, according to Army figures. As they resort to frightening new techniques,
including kidnapping contractors in their homes and offices, costs for security
and insurance rise further.
Some companies operating in Iraq hire one
security employee for each non-security worker on their payroll. Security
workers are often former military personnel who can earn up to several hundred
thous and dollars a year for their risk — five to six times what they
would be earning in the United States, businesspeople said.
Insurance
costs, which swing wildly from day to day for companies doing business in Iraq,
are often 10% of a contract's value, a U.S. analyst estimated. In rare cases,
they have reached far higher, a U.S. official said.
"Security and
insurance have become central issues in trying to get anything done," said
Anthony DeLuca, a Washington-based executive of SBA Inc., a company with several
reconstruction contracts. Many contractors are paying three to four times what
they would be paying in the United States for security and insurance, he
said.
Experts said the government might have another big headache over
costs because of language in many contracts that protected contractors against
losses due to sabotage or theft. It's not clear yet how far the government's
liability will go, but some experts believe that it could be substantial. "The
government may have to write some big checks," one government expert
said.
Congress' attitude about how the administration has been handling
the aid program will become clearer early next year, when the White House is
expected to ask for billions more.
"Congress is going to say, 'Are you
sure you know how to spend this money?' " said Gordon Adams, a former federal
budget official now with the Elliott School of International Affairs at George
Washington University. "I think they're going to have an uphill climb."