Accounting and Accountability in Iraq

By PAUL KRUGMAN

The New York Times

July 23, 2004

Accountability is important. The nation will be ill served if officials who didn't do all they could to prevent a terrorist attack, or led the nation into an unnecessary war, manage to shift the blame to someone else.

But those weren't the only big mistakes of the last few years. Will anyone be held accountable for the mishandling of postwar Iraq?

Last month we learned that the United States, while it has spent vast sums on the war in Iraq, has so far provided almost no aid. Of $18.4 billion in reconstruction funds approved by Congress, only $400 million has been disbursed.

Almost all of the money spent by the Coalition Provisional Authority, which ran Iraq until late June, came from Iraqi sources, mainly oil revenues. This revelation helps explain one puzzle: the sluggish pace of reconstruction, which has yet to restore many essential services to prewar levels.

But it creates another puzzle: given that the authority was spending Iraq's money, why wasn't it more careful in its accounting?

When a foreign power takes control of an oil-rich nation's resources, it inevitably faces suspicion about its motives. Fairly or not, the locals are all too ready to believe that the invaders came to steal their oil.

The way to deal with such suspicion is to let in as much sunlight as possible by appointing financial officials with strong reputations for independence, keeping meticulous books, and welcoming and cooperating with international audits.

What actually happened was just the opposite. Every important official with responsibility for Iraqi finances was a Bush administration loyalist. The occupying authority dragged its feet on an international audit, which didn't even begin until April 2004.

When KPMG auditors hired by an international advisory board finally got to work, they found that no effort had been made to keep an accurate record of oil sales, and that accounting for the $20 billion Development Fund for Iraq consisted of "spreadsheets and pivot tables maintained by a single accountant."

The auditors also faced a lack of cooperation. They were denied access to Iraqi ministries, which were reputed to be the locus of epic corruption on the part of Iraqis with connections to the occupiers. They were also denied access to reports concerning what they delicately describe as "sole-source contracts."

Translation: they were stonewalled when they tried to find out what Halliburton did with $1.4 billion.

By obstructing international auditors, by the way, the U.S. wasn't just fueling suspicion about the misappropriation of Iraqi oil money - it was also breaking its word. After Saddam's fall, the U.N. gave the U.S. the right to disburse Iraqi oil-for-food revenues, but only on the condition that this be accompanied by international auditing and oversight.

A digression: yes, oil-for-food is the U.N.-administered program from which Saddam undoubtedly siphoned off billions. But we expect America to be held to a higher standard.

There are also allegations that Saddam's revenue diversion was aided by corrupt U.N. officials. I think we should wait and see what Paul Volcker, the genuinely independent head of the U.N. inquiry - the sort of person the U.S. occupation should have employed - has to say. Meanwhile, it's worth noting that these accusations are entirely based on documents that are purported to be in the possession of none other than Ahmad Chalabi, who has himself been accused of corruption.

And there are a few curious side stories. On the day the U.S. raided Mr. Chalabi's offices, a British associate of Mr. Chalabi who had been promising to come out with a devastating report told London's Daily Telegraph that a remarkably effective hacker attack had destroyed all his computer files, including the backup copies.

After the United States's falling-out with Mr. Chalabi, the oil-for-food investigation was taken out of the hands of Mr. Chalabi's allies. But the new head of the investigation was assassinated on July 1.

Meanwhile, the war, fed by the failure of reconstruction, goes on. The transfer doesn't seem to have made any difference: more American soldiers were killed in the first three weeks of July than in all of June, even though Knight-Ridder reports that the U.S. military has stopped patrolling in much of Anbar Province, the heart of the insurgency.

And while the U.S. has yet to disburse any significant amount of aid, the Government Accountability Office says that war costs for this fiscal year alone will run $12.3 billion above Pentagon projections.

Will anyone be held accountable?