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[casi] Latest Iraq threat: cash crunch

Christian Science Monitor
3 Sept 2003

Latest Iraq threat: cash crunch

US administrator Paul Bremer says the coalition budget for Iraq will fall
short by $3.5 billion this year.
By Ilene R. Prusher - Staff writer of The Christian Science Monitor

BAGHDAD -- 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 have stanched the flow to just $2.3
billion per year, down from an earlier estimate of $3.4 billion.

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

"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

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

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

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