Latest Iraq threat: cash crunch

The reconstruction of Iraq, Bush administration officials predicted before the war, will pay for itself.

But hopes of using Iraq's own oil and resources to fund the rebuilding were contingent on an ideal of postwar peace and security. Instead, a serious budget crunch, combined with a vicious circle of violence, sabotage, and economic instability is slowing reconstruction plans.

Many potential donor nations are shying away from getting involved. As international aid groups pull personnel out in the wake of the UN bombing, less foreign money is being pumped into the local economy. And, significantly, oil revenues aren't flowing as expected. A coalition official says that war damage and sabotage are stanching the flow, to an estimated $2.3 billion in the period from May through December 2003, down from an earlier estimate of $3.4 billion. [Editor's note: In the original version of the story, the estimated oil revenues were incorrectly stated as annual amounts.]

The cash shortfall means that here in Baghdad, officials are already seeing reconstruction and development projects - including electricity, gas, and water facilities - put on hold because they do not have the funds to start work.

"There are substantial needs not met by this money," says a coalition official, who asked not to be named. Paul Bremer, the top US civilian official in Iraq, has been warning officials in Washington that this year's budget will fall short "somewhere in the neighborhood of $3.5 billion" and has warned that "tens of billions" more will be needed.

But the administration's congressional critics say they will demand a fuller accounting of postwar operations, and a clear picture of the administration's vision for achieving success in Iraq, before appropriating more money.

Officials here say that some basic infrastructure severely damaged during or since the war - as well as utilities neglected under the old regime - is expected to remain unrepaired. These include utilities, leaving many Iraqis with worse standards of living than they had under Saddam Hussein.

When college students across the country go back to school in a few weeks, many can expect to find university campuses that have not recovered from the looting and destruction that followed the Iraqi regime's downfall.

The future offers no immediate fiscal relief for the coalition. Iraq's budget for 2004, according an internal document provided by an official in the Coalition Provisional Authority [CPA], "has inadequate funds for security, electrical, water, sewage, irrigation, housing, education, health, [and] agriculture." For many middle and working-class Iraqis, basic services like electricity, safe highways, and a living wage have disappeared. In frustration, many Iraqis say, some of those struggling people are joining the resistance movements.

Tuesday, as Shiites buried their assassinated senior cleric in Najaf, a bomb went off at the Baghdad police headquarters, in an apparent attempt to assassinate the police chief. One Iraqi police officer was killed; 15 others were wounded.

The bloodshed, including bombings at the UN headquarters and the Jordanian embassy here last month, are keeping investors and even small businesses away. "If you cannot get money to fix security, electricity, and infrastructure problems, that will prevent small businesses from wanting to come here to start up, and it keeps foreign investment out," the CPA official explains. "How can I run a business if I don't have a guarantee of security?"

Already, the terrorism that Washington once accused Iraq of supporting abroad is now plaguing Iraq at home - and grounding what the Bush administration thought would be a solid take-off for the postwar economy.

Now, the UN, nongovernmental organizations, and other major groups like the Red Cross are scaling back their operations in Iraq after the bombing of the UN headquarters, representing a withdrawal of foreign cash and demand for services that would have been pumped into Iraq.

With several tens of billions of dollars more needed, according to Bremer, the US will need its allies to help foot the bill. A donor conference, to that end, will be held near the end of October. But it is already proving difficult to get countries to foot the reconstruction bill for a war that many of them opposed outright.

The US is now forced to turn to countries it dismissed six months ago as part of "Old Europe" to help pay for the new Iraq. Moreover, the experience of drumming up pledges for reconstruction aid for Afghanistan at a January 2002 conference in Tokyo teaches the Iraq team that donors are not always the most reliable bunch.

Even after countries make their pledges, most have to go back to their legislatures and parliaments to fund them. Finance experts here say that means that any money pledged in Madrid, Spain, next month will not show up in Iraq's budget until 2005 or 2006."When you think about these things, it just isn't going to happen," says the CPA officer. "I need other funds in 2004."

One of the Bush administration's hopes for rebuilding Iraq was that by revamping the oil ministry and using seized Baathist funds and other assets, a free Iraq would fuel its own renaissance. But oil revenues, have been disappointing, in large part due to looting attacks on oil pipelines and facilities by groups trying to derail US efforts here.

Saboteurs have also targeted power grids, cutting power to homes and businesses that have become accustomed to having it for decades. Seized assets, smaller than expected, have virtually run dry. Seized assets in the US totaled about $1.7 billion, a US official here says, while only $795 million was seized in the country during the war, plus another $1 million found with Mr. Hussein's sons.

The funds the US seized or won from congressional appropriations are being used to try to close the gap for the second half of 2003. But even that, many here say, is hardly covering all the bases. Beyond the most urgent needs, projects that could build confidence in US intentions to help rebuild Iraq are moving much more slowly, due to financial limitations, than many Iraqis expected.

The Ministry of Higher Education, for example, only received about half of what it asked for, or approximately $33 million, to carry it through the rest of the year, says Farouk Darweesh, an adviser to the ministry sent here by a US-funded program to bring exiled experts to Iraq.

When the students come back to school over the coming month, he says, "they will see improvement, but not the extent that many hoped. I would expect that they would, initially at least, be disappointed."

School labs and workshops, particularly in science courses that have the most tangible equipment, "were stripped and are bareboned - there's hardly anything there." Graduate-level courses in need of such equipment will not be held this year. Many Iraqis blame US forces for allowing the looting to carry on as long as it did, and still speak with frustration of Bush administration officials' acceptance of the chaos as an understandable venting of anger.

"The funds allocated to the Ministry of Education, though welcomed indeed, are not sufficient to effect restoration of everything inside for the next academic year," says Mr. Darweesh.