Order Code RL31833
CRS Report for Congress
Received through the CRS Web
Iraq: Recent Developments
in Reconstruction Assistance
Updated August 12, 2005
Curt Tarnoff
Specialist in Foreign Affairs
Foreign Affairs, Defense, and Trade Division
Congressional Research Service { The Library of Congress

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Iraq: Recent Developments
in Reconstruction Assistance
Summary
Large-scale reconstruction assistance programs are being undertaken by the
United States following the war with Iraq. To fund such programs, in April 2003,
Congress approved a $2.48 billion Iraq Relief and Reconstruction Fund (IRRF) in the
FY2003 Supplemental Appropriation. In November 2003, the FY2004 Supplemental
Appropriation provided an additional $18.4 billion for the IRRF. The FY2005
Emergency Supplemental signed into law in May 2005 provides $5.7 billion in a new
Iraqi Security Forces Fund for the training and equipping of Iraqi security forces.
Contributions pledged at the October 24, 2003 Madrid donor conference by
other donors amounted to roughly $3.6 billion in grant aid and as much as $13.3
billion in possible loans.
On June 28, 2004, the entity implementing assistance programs, the Coalition
Provisional Authority (CPA), dissolved, and sovereignty was returned to Iraq. U.N.
Security Council Resolution 1546 of June 8, 2004, returned control of assets held in
the Development Fund for Iraq to the government of Iraq. U.S. assistance is now
provided through the U.S. embassy.
Many reconstruction efforts on the ground are underway, but security concerns
have slowed progress considerably. Most reconstruction funding is targeted at
infrastructure projects — roads, sanitation, electric power, oil production, etc. Aid
is also used to train and equip Iraqi security forces. A range of programs are in place
to offer expert advice to the Iraqi government, establish business centers, rehabilitate
schools and health clinics, provide school books and vaccinations, etc. Of the $21
billion appropriated to the Iraq Relief and Reconstruction Fund in the FY2003 and
2004 supplementals, $16.6 billion had been obligated and $9.5 billion spent by late
July 2005.
The report will be updated as events warrant. For discussion of the Iraq political
situation, see CRS Report RL31339, Iraq: U.S. Regime Change Efforts and Post-
Saddam Governance.

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Contents
Funding for Reconstruction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
U.S. Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
FY2006 Foreign Operations Appropriations . . . . . . . . . . . . . . . . . . . . . . . . . 3
Oil Resources and Development Fund for Iraq . . . . . . . . . . . . . . . . . . . . . . . 4
Iraqi Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Other Donors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Role of the United Nations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
U.S. Assistance Policy Structure on Iraq . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
U.S. Reconstruction Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Reconstruction Priorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Reconstruction Programs and Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Rate of Implementation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Implementing Agencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Policy Reforms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Fallujah . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
CERP and CHRRP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
The Role of Iraqis in Reconstruction: Employment, Outreach, and
Project Sustainability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
How Much Assistance Reaches Iraq? . . . . . . . . . . . . . . . . . . . . . . . . . 22
Waste and Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Assessments of Reconstruction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
List of Tables
Table 1. U.S. Appropriations for Iraq Reconstruction . . . . . . . . . . . . . . . . . . . . . . 2
Table 2. Iraq Relief and Reconstruction Fund (IRRF) . . . . . . . . . . . . . . . . . . . . . 12

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Iraq: Recent Developments
in Reconstruction Assistance
Large-scale reconstruction assistance programs are being undertaken by the
United States in Iraq. This report describes recent developments in this assistance
effort. The report will be updated as events warrant.1
Funding for Reconstruction
Following years of authoritarian rule and economic sanctions, the United States
and the international community agreed in the spring of 2003 that efforts should be
made to introduce economic reform and democratic government to post-war Iraq.
The best available estimates of the eventual cost of this Iraq reconstruction are
provided in an October 2003 World Bank and U.N. Development Group needs
assessment of 14 sectors of the Iraqi government and economy. Prepared for the
benefit of the international donors conference held in Madrid on October 23-24,
2003, it established the targets by which the adequacy of available resources
continues to be judged. The World Bank/U.N. assessments put the cost of
reconstruction for the 14 sectors at $36 billion over four years, a figure that does not
include $19.4 billion estimated by the Coalition Provisional Authority (CPA) for
security, oil, and other sectors not covered by the Bank/U.N. assessments. Combined
World Bank and CPA projected reconstruction costs through 2007 amount to $55
billion.2
Several potential “spigots” are available to fund Iraq reconstruction. U.S.
foreign aid appropriations for Iraq were provided in FY2003, FY2004, and FY2005
in three emergency supplemental bills. International donors have also made aid
contributions. Iraqi funds, mostly derived from oil export profits, have been
employed largely to cover the “normal” operating costs of the Iraqi government, but,
where sufficient amounts are available, have been used to address reconstruction
needs. Additionally, the reduction or rescheduling of Iraqi debt repayments makes
further resources available. These sources of reconstruction funding are discussed
below.
1 For detailed discussion of the Iraq political situation, see CRS Report RL31339, Iraq: U.S.
Regime Change Efforts and Post-Saddam Governance.
2 For the full text of the report online, see the World Bank website at
[http://siteresources.worldbank.org/INTIRAQ/Overview/20147568/Joint%20Needs%20
Assessment.pdf].

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CRS-2
Table 1. U.S. Appropriations for Iraq Reconstruction
($ millions)
Appropriations
FY2003
FY2004
FY2005
Total
Iraq Relief and
2,475.0
18,439.0
—
20,914.0
Reconstruction Fund
(of which 2,473.3
(of which14,160.9
obligated 1/5/05)
obligated 8/10/05)
DOD - Iraq Security
—
—
5,700.0
5,700.0
Forces Fund
DOD - Oil Repair
802.0
—
—
802.0
DOD - Iraq Army
51.2
—
—
51.2
DOD - CERP
—
140.0
368.0
508.0
Other Agency Funds
478.2
—
—
478.2
Total U.S.
3,806.4
18,579.0
6,068.0
28,453.4
Reconstruction
Assistance
Sources: Section 2207 Report to Congress Pursuant to P.L. 108-106, July 2005; CPA Inspector
General, Report to Congress, Pursuant to P.L. 108-106, July 30, 2005; Department of State, Iraq
Weekly Status Report, August 10, 2005; and CRS calculations.
U.S. Assistance
In the FY2003 Emergency Supplemental (P.L. 108-11, H.R. 1559/H.Rept. 108-
76), signed on April 16, 2003, $2.5 billion was appropriated for a special Iraq Relief
and Reconstruction Fund (IRRF) for the purpose of aid efforts in a wide range of
sectors, including water and sanitation, food, electricity, education, and rule of law.
The legislation gave the President control over the Fund, and amounts could be
transferred only to the Department of State, the Agency for International
Development (USAID), the Department of the Treasury, the Department of Defense,
and the Department of Health and Human Services, subject to the usual notification
procedures.
The FY2004 Emergency Supplemental (P.L. 108-106,H.R. 3289/H.Rept. 108-
337), signed on November 6, added $18.4 billion to the IRRF and allowed funds to
go directly to the CPA in addition to the above named agencies. While earlier funds
had been used to support a broad range of humanitarian and reconstruction efforts,
the FY2004 appropriation was largely intended to have an immediate impact on the
two greatest reconstruction concerns raised since the occupation of Iraq began —
security and infrastructure.
The reconstruction funds were provided entirely as grants, after the
Administration threatened to veto any measure that provided aid in the form of loans.
The legislation established an Inspector General office to monitor the use of funds
by the CPA, and included extensive reporting requirements regarding expenditures,
projects, and other sources of revenue.

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CRS-3
On September 14, 2004, the Administration asked Congress to approve a
significant re-allocation of $3.46 billion of the $18.4 billion (see Reconstruction
Priorities below). Because the desired changes were greater than the supplemental’s
restriction on how much a specific sector — such as security or health — could be
increased (no more than 20%) or decreased (no more than 10%) from the original
congressional allocation, a simple notification to the appropriations committees was
insufficient. Requiring legislative action in order to accommodate the President’s re-
allocation plan, Congress included such authority in the FY2005 Continuing
Resolution (P.L. 108-309).
Although the IRRF accounts for most U.S. reconstruction aid to Iraq, funds have
been drawn from other accounts for related purposes. Department of Defense
appropriations were used to cover the FY2003 operational expenses of the CPA and
have gone to pay part of the costs for repair of Iraq’s oil infrastructure, for training
of the Iraqi army, and toward the Commanders Emergency Response Program
(CERP). In addition to drawing from the IRRF, USAID has used its own funds to
pay for humanitarian programs in Iraq.
The FY2005 emergency supplemental (P.L. 109-13, H.R. 1268/H.Rept.109-72),
signed on May 11, 2005, provides $5.7 billion for a new DOD account — the Iraq
Security Forces Fund — supporting the training and equipping of Iraqi security
forces. Previously, most security training funds have been provided out of the IRRF.
Policy responsibility for the IRRF, although originally held by the White House and
delegated to the CPA (under DOD authority), has, since the end of the occupation in
June 2004, belonged to the State Department. Moving authority for training back to
DOD for this one large element of reconstruction aid is a sharp departure from
historic practice. Under most military assistance programs — Foreign Military
Financing, International Military Education and Training Program, the training of the
Afghan army — State makes broad policy and DOD implements the programs. The
conference report on the supplemental adopts the President’s formula for the new
account but requires that the Iraq Security Forces Fund be made available “with the
concurrence of the Secretary of State.”
FY2006 Foreign Operations Appropriations
In another departure from previous practice, the Administration requested Iraq
reconstruction funds under traditional foreign aid accounts in the regular FY2006
foreign operations budget instead of funneling requests exclusively through
emergency supplementals and for the IRRF. The FY2006 request for Iraq is $414
million. Of this amount, $360 million would be under the Economic Support Fund
(ESF) account and is expected to be used for traditional development programs
supporting local governance ($85 million), civil society ($30 million), elections ($15
million), private sector development ($90 million), economic reform ($90 million),
and agriculture ($50 million). Another $26.5 million has been requested under the
International Narcotics and Law Enforcement (INCLE) account for activities in the
justice and rule of law sectors, $700,000 for International Military Education and
Training (IMET), and $27 million under the Nonproliferation, Anti-terrorism,
Demining, and Related Programs (NADR) account for anti-terrorism training. Many
of these assistance activities are currently funded out of the IRRF.

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CRS-4
In response, on June 28, the House approved H.R. 3057 (H.Rept. 109-152),
eliminating the Administration’s Iraq requests, including use of funding for Iraq
under the Migration and Refugee Assistance account (estimated at $43 million) on
the grounds that sufficient funds remain unobligated and available through the IRRF.
Its bill would allow the Administration to use the IRRF for the purposes outlined in
its request. The Senate version of the FY2006 State/Foreign Operations
appropriations (S.Rept. 109-96), approved July 20, includes the Administration
requests for Iraq. It contains an amendment that would provide $58 million in ESF
funds for democracy building programs divided between the International Republican
Institute and the National Democratic Institute.
Oil Resources and Development Fund for Iraq
Efforts are being made to restore and expand Iraq’s oil production capacity. Oil
exporting resumed in mid-June 2003, but oil production has been slowed by
sabotage. In September 2004, rates of production reached a peak of 2.67 million
barrels/day compared with a pre-war rate of 2.5 million barrels/day, but as of early
August 2005 rates are at 2.2 million barrels/day. The target had been 2.8-3.0 million
barrels/day by end of 2004.3 Even with the rise in oil prices, revenue from oil
production is expected to be $5 billion less than the amount anticipated to cover
expenditures in the FY2005 Iraqi government budget. Recognizing the importance
of oil revenue to Iraq reconstruction, the State Department, in its September 2004 re-
allocation of IRRF appropriations, transferred from other programs an additional
$450 million to efforts to improve oil production infrastructure.
Prior to the war, the Administration had expected that Iraq’s oil reserves would
help it “shoulder much of the burden for [its] own reconstruction.”4 The May 22,
2003, U.N. Resolution 1483 which ended sanctions permitted the occupying coalition
to use oil reserves for more long-term reconstruction purposes. The resolution
shifted responsibility for oil profits and their disbursal from the U.N. to the United
States and its allies by establishing a Development Fund for Iraq (DFI) held by the
Central Bank of Iraq and into which oil profits and other Iraqi assets would be
deposited. Under Security Council Resolution 1546, adopted on June 8, 2004, the
transitional government of sovereign Iraq now has control over use of DFI funds.5
During the occupation, DFI funds available to the CPA — $20.7 billion by June
28, 2004 — were used to support a wide range of reconstruction activities, including
3 Department of State, Iraq Weekly Status Report, August 10, 2005.
4 Press briefing by Ari Fleisher, White House, February 18, 2003; Sec. 1506 Report to
Congress, July 14, 2003, p. 4.
5 Other Iraqi assets are also expected to be put in the DFI. On March 20, 2003, President
Bush issued an executive order confiscating non-diplomatic Iraqi assets held in the United
States. Of the total assets seized, an estimated $1.74 billion worth were available for
reconstruction purposes. Another $927 million in assets located by the United States in Iraq
were also used for these purposes. In addition, foreign governments were reported to hold
an estimated $3.7 billion in seized or frozen assets, of which $847 million had been
deposited in the DFI by June 28, 2004. Security Council Resolution 1511 urges member
states to deposit seized assets in the DFI immediately.

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CRS-5
the currency exchange program, oil and electricity infrastructure repair, purchase of
firefighting equipment, the Iraqi operating budget, and the Oil for Food Program’s
monthly food baskets, responsibility for which was transferred from the U.N. to the
CPA on November 22, 2003.6 The CPA established a Program Review Board in
June 2003 to prioritize and recommend how DFI resources were used. Although
composed of coalition, multilateral bank, and U.N. officials, the multilateral bank
members had no vote and the U.N. official served only as an observer. The Program
Review Board published brief minutes of its meetings but little detailed information
regarding the nearly 2,000 contracts it awarded utilizing Iraqi funds. Reportedly,
U.S. contractors received as much as $1.9 billion of DFI funds, of which Halliburton
subsidiary Kellogg, Brown & Root (KBR) was awarded $1.7 billion.7
Many questions have been raised regarding the CPA’s use and monitoring of
DFI funds. Security Council Resolution 1483 (May 2003) required that an
international advisory board to monitor the sale and use of oil be established, but at
first the CPA opposed international institution efforts to create a system of “special
audits” that would allow the board to look at any issue. CPA failure to establish the
board led to international criticism, and Security Council Resolution 1511 (October
2003) recommended that the board be established as a priority and that the DFI
should be “used in a transparent manner.”8 On October 21, 2003, the CPA
announced that it would allow the advisory board to go forward and the first meeting
of the International Advisory and Monitoring Board (IAMB) was held on December
5, 2003. However, a delay in appointing accountants by the CPA continued to
prevent work up to early February 2004. On March 24, the IAMB recommended
installation of a metering system for oil extraction to prevent diversion, and criticized
the use of non-competitive bidding for contracts funded by the DFI.9 Security
Council Resolution 1546 (June 2004) determined that the IAMB should continue to
exist after the turn-over of sovereignty with the addition of an Iraqi government-
appointed full voting member.10
In its June 2004 audit, KPMG, the accounting firm designated by the IAMB to
audit the DFI, noted the CPA’s inadequate accounting systems and records and lack
of controls over ministry spending of DFI resources, opening the door for corruption.
KPMG also pointed out the use of non-competitive bidding for some contracts
6 Since the end of the occupation, the SIGIR estimates another $17.3 billion, mostly oil
revenues, has been added to the DFI. It pays for Iraqi government programs. SIGIR, Report
to Congress, July 30, 2005.
7 “$1.9 Billion of Iraq’s Money Goes to U.S. Contractors,” Washington Post, August 4,
2004.
8 Security Council Resolution 1511, October 16, 2003, para. 23. “Oil to Come Under Iraqi
Control as U.S. Fails to Form Advisory Board,” Financial Times, August 19, 2003; “Annan
Deals a Blow to U.S. Draft Resolution,” Financial Times, October 3, 2003.
9 The IAMB website is at [http://www.iamb.info/]; IAMB, Press Release, March 24, 2004;
“Monitoring Panel for Iraq Spending Yet to Start Work,” Financial Times, February 5,
2004.
10 Security Council Resolution 1546, June 8, 2004, para. 24.

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CRS-6
funded by the DFI. Subsequent audits highlighted multiple financial irregularities.11
A representative on the IAMB accused the Administration of withholding
information on non-competitive contracts, and repeated requests to U.S. agencies for
information on sole-sourced contracts funded by the DFI were not answered.12 The
organization Christian Aid accused the CPA of being “in flagrant breach of the U.N.
resolution” giving it use of DFI funds. “Last minute” spending by the CPA of $2.5
billion in DFI resources in the weeks prior to the turn-over of sovereignty also drew
critical attention. Among other things, the spending went for equipment for security
forces, vocational training, and oil and electric infrastructure, and local projects.
Iraqi officials were critical of the contrast between the slow spending of U.S. funds
and the rapid draw-down of the DFI.13 A January 2005 audit by the U.S. Special
Inspector General for Iraq Reconstruction (SIGIR) seems to have confirmed the
IAMB accusations with a finding that the CPA “provided less than adequate
controls” for $8.8 billion of DFI resources it moved through Iraqi ministries. An
April 2005 SIGIR audit has concluded that CPA managers of DFI funds distributed
in the South-Central region of Iraq could not account for more than $96.6 million in
cash and receipts.14
In addition, an October 2004 Pentagon audit of a KBR noncompetitive contract
to import oil into Iraq found $100 million in excess charges of $875 million
examined. Of the $875 million, $725 million are DFI funds, and $72 million in U.S.
appropriations. Although the Pentagon agreed to an IAMB request that it conduct
by this spring a special audit of all noncompetitive contracts funded out of the DFI,
it reportedly has moved slowly to meet that request.15
11 KPMG Audit dated June 29, 2004, available on-line at IAMB website
[http://www.iamb.info/]; Iraq Revenue Watch, Disorder, Negligence and Mismanagement:
How the CPA Handled Iraq Reconstruction Funds, Report no. 7, September 2004; Iraq
Revenue Watch, Audit Finds More Irregularities and Mismanagement of Iraq’s Resources,
December 2004; “Big Spender,” Financial Times, December 10, 2004.
12 Press Release, “Statement by the International Advisory and Monitoring Board on Iraq,”
September 8, 2004; “U.S. Won’t Turn Over Data for Iraq Audits,” Washington Post, July
16, 2004.
13 Christian Aid, Fuelling Suspicion: the Coalition and Iraq’s Oil Billions, June 2004;
“U.S. Is Quietly Spending $2.5 Billion from Iraqi Oil Revenue to Pay for Iraqi Projects,”
New York Times, June 21, 2004.
14 Audit of Oversight of Funds Provided to Iraqi Ministries through the National Budget
Process, Report No. 05-004, January 30, 2005; and Control of Cash Provided to South-
Central Iraq, Audit Report No. 05-006, April 30, 2005, both available at SIGIR website
[http://www.cpa-ig.org].
15 “Now You See It: An Audit of KBR,” New York Times, March 20, 2005; Defense
Contract Audit Agency, Audit Report 3311, October 8, 2004, available at Government
Reform Committee minority website [http://www.democrats.reform.house.gov].

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CRS-7
Iraqi Debt
The United States has sought to obtain support from creditors for Iraq debt
relief. Iraq’s debt, both public and private, is estimated at $125 billion.16 The United
States has argued that any new Iraqi government should not be burdened with debts
associated with the policies of its previous ruler and has supported a near total
forgiveness of debt. Some large holders of Iraqi debt — France, Germany, and Russia
for instance — have been more inclined to reschedule debt than to forgive it, arguing
that, as an oil rich country, Iraq could afford someday to pay its debts.17
Several steps have led to a partial resolution of the debt issue. In December
2003, President Bush appointed former Secretary of State James Baker III as his
personal envoy responsible for seeking a reduction in debt owed by Iraq. A series of
meetings between Baker and the leaders of debt-holding countries in the winter of
2004 led to statements of support, but no firm commitment, for varying levels of
relief. In September 2004, after the assumption of sovereignty by Iraq — a sovereign
government can negotiate with creditors — Iraq cleared its overdue financial
obligations to the IMF and gained access to $436 million in IMF Emergency Post
Conflict Assistance. This could make it easier for Iraq to reach agreement with
private and government creditors. Further, Congress approved (P.L. 108-309) $360
million to cover the costs of cancelling the roughly $4 billion Iraqi debt obligation
owed the United States — the U.S. debt was formally forgiven on December 17
($352.2 million was actually required for this purpose). These factors have
culminated in an agreement by the 19 Paris Club government creditors on November
20, 2004, to write off roughly $31 billion in Iraqi debt, 80% of what it owed to this
group. Under the agreement, 30% would be forgiven now, followed by another 30%
after Iraq adopts a three-year IMF reform program, and a final 20% when the
program is completed. See CRS Report RS21765, Iraq:Debt Relief, for further
details.18
Other Donors
Immediately following the U.S. intervention in Iraq, U.N. appeals for postwar
humanitarian relief to Iraq met with $849 million in grant donations from non-U.S.
donors.19 The Madrid donor conference, held on October 23-24, 2003, produced a
minimum total of $13.6 billion in grant and loan reconstruction aid pledges from
16 Based on Paris Club data. Does not include $29 billion in unpaid Gulf War reparations.
International Monetary Fund, Iraq: Use of Fund Resources — Request for Emergency Post-
Conflict Assistance, September 24, 2004.
17 G-7 Agrees That Iraq Needs Help with Debt,” Washington Post, April 13, 2003;
“Restructuring, Not Forgiveness,” Financial Times, April 15, 2003.
18 “Major Creditors Agree to Cancel 80% of Iraq Debt,” New York Times, November 22,
2004.
19 As of April 5, 2004. Includes appeal and outside-appeal aid from all donor countries,
except the United States. U.N. Office for the Coordination of Humanitarian Affairs. Total
Humanitarian Assistance for Iraq Crisis 2003. April 5, 2004, [http://www.reliefweb.int/
w/rwb.nsf].

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CRS-8
other donors. Of this amount, roughly $3.0 billion is grant aid, including $1.5 billion
by Japan, $452 million (in new funds) by the United Kingdom, $220 million by
Spain, $236 million by the European Union (EU), $200 million by South Korea, and
$236 million by Italy. Between $9.6 and $13.3 billion in loans were offered,
including $3.5 billion by Japan, between $3.0 and $5.0 billion by the World Bank,
between $2.6 and $4.3 billion by the IMF, and $500 million by Saudi Arabia.20 Of
the Madrid pledges, as much as $2.5 billion has been disbursed bilaterally, most of
it as a contribution to the IRFFI (see below), and an additional $436 as IMF
assistance.21 At an international conference held in Brussels in June 2005, donors
promised to step up their efforts to assist Iraq, although few new financial pledges
were made. A July 2005 follow-up conference in Amman, Jordan, did produce an
agreement on the use of the Madrid $3.5 billion Japanese loan pledge and $500
million in loans from the World Bank. Iraqi officials at both meetings argued that
Iraq is now able to implement development projects and donors need not utilize
expensive foreign contractors.22
Japan and Britain have been notably active in providing bilateral assistance.
Japan, the second largest donor after the United States, has already spent most of the
$1.5 billion in grant aid it pledged. Among other things, it has provided significant
funding for electrical power station rehabilitation, water treatment units and tankers,
medical equipment, and firetrucks and police vehicles. Britain has offered
considerable technical assistance and related support for improvements in the justice
system, governance, and economic policy. In November 2004, the EU pledged an
additional $21 million (not counted above), specifically to support the January 2005
elections. In January, the EU pledged another $260 million for use in 2005.23
Recently, Iran was reported to have offered Iraq $1 billion in low-interest loans. Its
assistance is expected to target the electricity sector as well as provide funding for an
airport in the holy Shiite city of Najaf.24
During much of the occupation, donors had been reluctant to contribute to
reconstruction because they had no say in where the funds are to be allocated.25 To
deal with this concern, a multi-donor trust fund, the International Reconstruction
Fund Facility for Iraq (IRFFI), was established on December 11, 2003. It encourages
contributions by keeping them outside the control of the United States, but supports
needs identified in the World Bank needs assessment and approved by the Iraqi
government. The Facility has two windows, one run by the Bank (the World Bank
20 See “Iraq Pledges Roll In,” BBC News, October 24, 2003.
21 Department of State. 2207Report to Congress, July 2005, Appendix II.
22 “Iraqis Press Donors for Billions More in Reconstruction Aid,” New York Times, July 19,
2005; “Iraq is Ready for Foreign Aid, Minister Says,” New York Times, June 20, 2005.
23 “E.U. Pledges Aid to Iraq,” Washington Post, November 6, 2004. Department of State,
2207 Report to Congress, July 2005, Appendix II.
24 “Iraq to Build Airport with Help from Iran,” Washington Post, August 3, 2005; “Iran
Extends $1 Billion Credit to Baghdad,” Financial Times, July 21, 2005.
25 “U.S. Seeks Help With Iraq Costs, But Donors Want a Larger Say,” New York Times, July
14, 2003; “Bush’s Plea for Iraq Aid Falls on Deaf Ears,” Financial Times, September 25,
2003.

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CRS-9
Iraq Trust Fund) and one by the United Nations (UNDG Iraq Trust Fund). As of July
2005, donors had committed and deposited about $1 billion to the Facility. To date,
the World Bank Fund ($392 million deposited) has financed textbooks, school
rehabilitation, and water and sanitation infrastructure, and has provided hundreds of
Iraqi civil servants with management training. The UNDG Fund ($660 million) is
supporting a wide range of projects, most to be implemented by the Iraqi
government.26
Role of the United Nations. In what was perceived by analysts as an about-
face in policy, the Bush Administration began in early January 2004 to press the U.N.
to return to Iraq and play an active role in the political transition. Since the dual
bomb attacks in August and September 2003, Secretary General Kofi Annan had said
that the U.N. would not return unless security was assured, its role was well-defined,
and that the role was commensurate with the risks involved.27 However, on January
27, 2004, he approved a “technical” mission, headed by U.N. Iraq envoy Lakhdar
Brahimi, that ultimately led to a plan to appoint a transition government which was
accepted by the United States and the Governing Council.28 At the same time that
envoy Brahimi was negotiating the transition to sovereignty, a U.N. team headed by
Carina Perelli began working on assisting the Iraqi Electoral Commission with the
implementation of elections for the National Assembly, successfully held on January
30, 2005. With U.N. assistance the electoral law was drafted, thousands of registrars
were trained, 540 registration centers were set up around the country, millions of
ballots were printed, 5,300 voting centers established, and thousands of poll watchers
trained. Much of the U.N. work was conducted from outside Iraq, with only about
40 expatriates in Iraq and 600 Iraqi employees implementing activities.29
The appointment on July 12, 2004, of Ashraf Jehangir Qazi as the new U.N.
Special Representative to Iraq and the August 12, 2004, approval of U.N. Security
Council Resolution 1557 extending the U.N. Mission for Iraq (UNAMI) for another
year suggested a growing U.N. presence and activity in Iraq itself. Security Council
Resolution 1619, approved August 11, 2005, extends UNAMI another year and calls
on the U.N. to play a leading role in assisting Iraq. With Trust Fund support, the
development organizations within the United Nations are actively working on dozens
of projects, and the U.N. is helping with the constitution-writing process. Currently,
there are about 800 U.N. international and local staff in Iraq. On November 30, the
Security Council asked the Secretary General to establish a trust fund account to
26 Department of State, 2207 Report to Congress, April 2005, Appendix II.
27 “Wary Annan Set to Discuss a Possible U.N. Role in Iraq,” Washington Post, January 19,
2004.
28 “Envoy Urges U.N.-Chosen Iraqi Government, Washington Post, April 15, 2004;
“Administration Split Over Role of U.N.,” Washington Post, February 18, 2004; “U.N. to
Send Expert Team to Help in Iraq, Annan Says,” New York Times, January 28, 2004.
29 “U.N. Says Mission Accomplished and That Legitimacy is Now in Hands of Iraqis,” New
York Times, January 26, 2005.

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CRS-10
finance a U.N. force in Iraq to protect U.N. personnel. The EU has pledged $12
million for this purpose.30
U.S. Assistance Policy Structure on Iraq
On June 28, 2004, the Coalition Provisional Authority (CPA), the agency
established to temporarily rule Iraq and implement reconstruction programs, was
dissolved as Iraq regained its sovereignty. The United States is continuing to provide
an assistance program and, to the extent possible, policy guidance to the Iraqi
government through its U.S. embassy under Ambassador Zalmay Khalizad. The
embassy employs about 1,000 U.S. and 400 Iraqi staff. An Iraq Reconstruction
Management Office (IRMO) within the U.S. embassy has supplanted CPA assistance
efforts in setting requirements and priorities. It is headed by Ambassador William
B. Taylor, Jr., the former Coordinator of U.S. Assistance to Afghanistan and, before
that, Europe and Eurasia. The CPA’s Program Management Office (PMO), although
changing its name to the Project and Contracting Office (PCO), continues to be
responsible for contract management and execution for the roughly $11.3 billion
dedicated to infrastructure construction and remains within the Department of
Defense, but reports to the Department of State as well as to the Department of the
Army. It is now headed by Major General Daniel Long.31
Immediate overall responsibility for management of U.S. military activity in Iraq
belongs to General George Casey, Jr.. As commander of the multinational forces in
Iraq, Casey is responsible for establishing a new relationship between coalition forces
and the new Iraqi government and providing training and support to Iraqi security
forces. He also serves as principal military adviser to the U.S. ambassador.
With the dissolution of the CPA which was under the Secretary of Defense, the
Secretary of State assumes responsibility for assistance. Within the State
Department, Robin Raphel is the coordinator for Iraq reconstruction aid.
The post of CPA Inspector General, created under the FY2004 Emergency
Supplemental legislation, was redesignated the Special Inspector General for Iraq
Reconstruction (SIGIR) by the DOD Authorization for FY2005 (P.L. 108-375). The
SIGIR is currently Stuart Bowen, Jr. The SIGIR reports to both the Secretary of
Defense and State. The SIGIR office has about 39 employees examining a range of
issues, including the extent and use of competition in contracting; efficient and
effective contract management practices; and charges of criminal misconduct. In
addition to audits and investigations, the SIGIR issued his first report to Congress on
March 30, 2004 and has reported quarterly since then.32 P.L. 108-375 extends the
30 Kofi Annan, “There’s Progress in Iraq,” Washington Post, June 21, 2005; “United
Nations to Set Up Trust Fund for Iraq,” Washington File, November 30, 2004.
31 The PCO and IRMO were established by a National Security Presidential Directive of May
11, 2004. See PCO website at [http://www.rebuilding-iraq.net].
32 See [http://www.cpa-ig.org/] for reports and audits. SIGIR, Report to Congress, July 30,
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CRS-11
SIGIR beyond its originally mandated December 2004 expiration and grants
operational authority until 10 months after 80% of the reconstruction funds have been
obligated. The Senate version of H.R. 3057, the FY2006 Foreign Operations bill,
would permit it to function until 10 months after 80% of funds have been expended.
U.S. Reconstruction Assistance
Among the key policy objectives laid out by the Bush Administration in
conjunction with the war in Iraq was the economic and political reconstruction of the
country. Discussion and debate have been ongoing regarding the strategy to reach
these ends utilizing reconstruction aid funds and the effectiveness of aid
implementation.
With the dissolution of the CPA, U.S. influence in post-occupation Iraq is no
longer based on dictate but on persuasion by the U.S. Ambassador, with leverage
provided by the security support of the U.S. military and billions of dollars in
reconstruction aid. U.S. efforts to “remake” Iraq have been facilitated in part by the
presence of U.S. advisers attached to each of the Iraqi ministries to provide technical
expertise. With ministries now sovereign, U.S. advisers, in the words of one Iraqi
government official, have become “consultants.”33
Reconstruction Priorities
Reconstruction priorities have changed over time, mirroring shifting events on
the ground. For example, in November 2003, when the CPA decided to accelerate
the hand-over of sovereignty soon after passage of the FY2004 supplemental
appropriations, it revised its planned allocations, increasing substantially the
democratization effort — from $100 million to $458 million. By the time of the
transition in June 2004, about 22% of total FY2004 IRRF funds were targeted on
improving the security capabilities of the Iraqi government, including training and
equipment for police, army, and customs personnel. About 67% of funds were aimed
at improvements in infrastructure — including electricity, oil production, water and
sewerage, transportation, and telecommunications — in order to stabilize the country
by creating jobs and stimulating the economy. Technical assistance and small-scale
grants in such areas as democratization, civil society, microenterprise, education,
economic policy, and health account for the remainder of the appropriated FY2004
funds (about 10%).
The Administration-proposed re-allocation of resources, approved by Congress
in September 2004 (P.L. 108-309), reflected a review conducted by the Iraq
Reconstruction and Management Office and the U.S. Embassy country team after the
32 (...continued)
2005.
33 “Iraqis Start to Exercise Power Even Before Date for Turnover,” New York Times, June
13, 2004; “U.S. Has Leverage, But Wants to Show Iraqis Are in Charge,” New York Times,
June 29, 2004.

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State Department took charge of Iraq non-military policy on June 28, 2004. The
review identified security needs, increased oil production, greater employment, and
democracy as the highest priorities, while suggesting that many large-scale
infrastructure projects were too slow and dependent on an improved security situation
to have an immediate impact. Security — mostly training and equipping Iraqi forces
— increased by $1.8 billion. Efforts to increase oil production capacity gained $450
million. Employment creation — mostly USAID labor-intensive road, clean water,
and other improvement projects — received an additional $280 million. Democracy
programs geared toward assisting the pending elections grew by $180 million.
General development programs — mostly conducted by USAID in the areas of
economic reform, private sector development, and agriculture — increased by $380
million. To demonstrate U.S. commitment to debt reduction prior to a Paris Club
discussion of the Iraq issue, the re-allocation drew on $352.2 million to subsidize
U.S. forgiveness of $4 billion in bilateral Iraqi debt to the United States.
Table 2. Iraq Relief and Reconstruction Fund (IRRF)
($ millions)
Current
Obligations as
Sector
Exp.
Allocation
of 8/10/05
FY2004 Supplemental (P.L. 108-106)
Security and Law Enforcement
5,036
4,544
3,206
Justice, Public Safety, and Civil
1,224
979
444
Society
Democracy
905
867
476
Electricity
4,308
2,578
1,406
Oil Infrastructure
1,723
1,211
444
Water and Sanitation
2,157
1,453
290
Transport and Telecommunications
509
388
131
Roads, Bridges, Construction
355
210
128
Health
786
586
182
Private Sector
860
818
484
Education, Refugees, Human Rights,
363
315
128
Governance
Administrative Expenses
213
213
213
Total FY2004 Supplemental
18,439
14,161
7,532
FY2003 Supplemental
2,473
2,473
2,407
(P.L. 108-11)
TOTAL IRRF
20,914
15,268
6,992
Sources: Department of State, Iraq Weekly Status Report, August 10, 2005; 2207 Report, July 2005.

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CRS-13
In all, these sectors gained $3.46 billion of the $18.44 billion FY2004
supplemental appropriation. That amount was drawn from three sectors to which the
funds had originally been allocated — purchases of already refined imported oil
(-$450 million), water and sewerage (-$1.935 billion), and electricity (-$1.074
billion) — sectors where the benefits of planned large-scale projects were viewed as
too long-term to make an immediate difference. The re-allocated funds came out of
amounts that had not yet been obligated.
Following this re-allocation, reconstruction aid priorities in Iraq, as determined
by the State Department, put 32% of total FY2004 funds into security (versus 22%
previously), 16% into democratization and traditional development sectors (10%
before), and 51% into economic infrastructure (67%).
In December 2004, the Embassy again reviewed its priorities. It allocated $211
million for fast-disbursing projects to meet needs for electricity and it targeted $246
million for a variety of high visibility and quick disbursing projects to provide
essential services in the four post-battle cities of Fallujah, Samarra, Najaf, and Sadr
City. Following another review, in March 2005 the State Department reallocated
$832 million of IRRF funds. Of these funds, $225 million — since changed to $196
million — is being used for short-term, high visibility, job creation activities,
including projects providing essential services in Baghdad ($100 million), USAID
Community Action Program projects ($100 million), and micro/small business loan
programs ($5 million). The reallocation also includes $607 million for a number of
projects which State expects will make some important reconstruction efforts more
sustainable. Among these are operations and maintenance programs in the oil,
electricity, and water sectors to insure that training and spare parts are provided to
Iraqis so they can manage U.S.-rehabilitated equipment and efforts to complete some
work in these sectors where costs have grown due to unanticipated security and
newly identified urgent requirements. Most of the reallocated funds again come from
canceled long-term energy and water projects.
Reconstruction Programs and Issues
Status. A wide range of reconstruction project work is underway. For a
variety of reasons, not least of which is the poor security situation, these efforts have
produced a somewhat mixed picture. The Iraqi government appears to be a
functioning concern, with ministries restocked with equipment following the massive
looting that occurred after the initial invasion and government officials and staff
being trained in budgeting, management, and other work skills. Health facilities
continue to be rehabilitated, healthcare providers trained, and children immunized.
Neighborhood councils have been established in 445 locations throughout the
country. More than 3,120 grassroots projects have been or are being conducted
through USAID grants provided to hundreds of community action groups. School
materials have been provided, schools inventoried, and thousands of schools
renovated. Eighty percent of the 800 planned school construction projects have been
completed. A broad range of economic policy reform efforts has been initiated.
Business centers have been set up throughout the country and a micro-loan program
established. Voter education, training of election monitors, and related activities
contributed to successful January elections. Currently, assistance is being provided
to facilitate the drawing up of the constitution and the eventual national referendum

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CRS-14
on it. Construction utilizing FY2004 funds has greatly accelerated in the past six
months; about 2,145 construction projects have broken ground.34
Positive claims for the success of reconstruction programs during the past two
years have been countered by reports of slow and ineffective implementation.
Although project completion rates now appear to be greatly improved, for more than
a year projects were slow to get off the ground. Objectives in critical sectors, such
as oil production and electric power generation, have not been met. Electric power
was 95,600 Megawatt Hours before the war. It is currently at 102,900 MWh — the
goal has been 120,000. Oil production is currently at 2.2 million barrels/day — the
goal was 2.8-3.0 million by December 2004. A recent survey reportedly has found
that 85% of households lack stable electricity and 54% lack access to clean water.
The one consistent bright spot among reconstruction claims — a successful health
program — has been marred by reports that acute malnutrition among children has
nearly doubled since the coalition invasion in 2003.35 Anecdotal reports of successful
reconstruction programs, not surprisingly, emanate from the Kurdish north and the
Shiite south. In the four central provinces where there is significant turmoil and more
than 40% of the population resides, reports are less sanguine.36
Rate of Implementation. A particular congressional concern has been the
rate of implementation.37 One Administration argument for the $18.4 billion
appropriated in November 2003 was the urgent need to demonstrate progress so as
to employ Iraqis and win their hearts and minds. However, as of end of March 2004,
only about $2.2 billion of that $18.4 billion had been obligated, let alone expended.
The obligation and expenditure rate has accelerated notably since November 2004.
As of early August 2005, $14.2 billion (77%) had been obligated, and $7.5 billion
(41%) expended.38 Among reasons for the slow progress were pressures to employ
34 Another 355 projects using Iraqi AIRP funds have been started. PCO webpage,
[http://www.rebuilding-iraq.net ] ; Department of State, Iraq Weekly Status Report, August
10, 2005; USAID, Iraq Reconstruction Weekly Update, August 11, 2005.
35 Department of State, Iraq Weekly Status Report, August 10, 2005; “Head of
Reconstruction Says Unexpected Security Costs Eating Into Budget,” Washington Post, May
22, 2005; “Iraqis Wait for Better Days That Never Come,” Financial Times, May 3, 2005;
“Power Grid in Iraq Far From Fixed,” Washington Post, May 1, 2005; “A Promise
Unfulfilled: Iraq’s Oil Output is Lagging,” New York Times, May 2, 2005; “Children Pay
Cost of Iraq’s Chaos,” Washington Post, November 21, 2004; “U.S. Handing Over An
Unfulfilled Iraq,” Chicago Tribune, June 27, 2004; “Reality Intrudes on Promises in
Rebuilding of Iraq,” New York Times, June 30, 2004.
36 “Iraq’s Kurds Enjoy Self-Rule and Are Trying to Keep It,” New York Times, December
31, 2004; “Basra Revival, But It’s Harder Than Expected,” New York Times, January 19,
2005.
37 For example, see hearing on security assistance, House Foreign Operations Subcommittee,
Committee on Appropriations, April 29, 2004 and hearing on reconstruction assistance,
Senate Foreign Relations Committee, September 15, 2004.
38 Of the original $2.475 billion appropriated for the Iraq Relief and Reconstruction Fund
in April 2003, only 61%, had been disbursed by end of February 2004, and the percentage
remained the same on June 30, 2004. Nearly all had been obligated by then. Currently,
(continued...)

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CRS-15
open and competitive bidding for most of the new reconstruction contracts and inter-
agency disputes over control of the funds. It also took significant time to plan and
design construction projects prior to breaking ground. And the slow process of
forming the post January-election transition government has stymied Iraqi decision-
making affecting projects. Security concerns, however, have been chiefly responsible
for delaying reconstruction.
To speed up the reconstruction process, in April 2004, CPA-head Bremer
initiated the Accelerated Iraqi Reconstruction Program (AIRP) which utilizes Iraqi
DFI funds ($313 million) to get work underway in ten cities.39 The September 2004
re-allocation of reconstruction funds was, in part, intended to speed up
implementation, including the expanded use of smaller projects.40 That effort has
been pushed further by a December 2004 targeting of $457 million specifically to
rapid-disbursing grassroots projects and the March 2005 reallocation favoring short-
term priorities. Further, recently-departed Ambassador Negroponte has argued for
greater flexibility in the application of federal acquisition regulations.41 The FY2004
Defense Authorization (P.L. 108-375) permits such regulations to be waived for the
CERP program (sec. 1201 (c)).
Security. The successful conduct of much reconstruction work is contingent
on an environment of order and stability. More than two years since Operation Iraqi
Freedom was launched, violence persists against both U.S. forces and Iraqis. Among
the many effects of the continued instability on the reconstruction effort:
! The instability has delayed implementation of reconstruction
projects.
! Completed reconstruction projects and pre-existing infrastructure
have been destroyed. Major pipelines have been sabotaged, shutting
down oil exports. As a result, roughly $887 million in export
revenues were lost in the first quarter of this fiscal year alone. Last
year, power was cut to more than 100 electrical lines, and nearly
1,200 electrical towers were felled. In the Sunni triangle, small-
scale rehabilitation projects have been destroyed soon after
completion.42
38 (...continued)
97% has been spent. Department of State, Iraq Weekly Status Report, August 10, 2005.
CPA Inspector General, Report to Congress, July 30, 2004.
39 Department of State, 2207 Report to Congress, April 2005; “Accelerated Iraq
Reconstruction Effort Exceeds Goals and Schedules,” PCO, Iraq, July 4, 2004.
40 “U.S. Seeks to Provide More Jobs and Speed Rebuilding in Iraq,” New York Times, July
27, 2004.
41 “Iraq Commanders Warn That Delays in Civil Projects Undermine Military Mission,”
New York Times, October 17, 2004.
42 Charles Hess, DOD News Briefing, December 15, 2004; “Insurgents Wage Precise
Attacks on Baghdad Fuel,” New York Times, February 21, 2005; “Sabotage Cuts Power to
(continued...)

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! Reconstruction costs have risen due to the need to provide for
security and insurance for personnel. According to the State
Department, ensuring security for project personnel has likely
accounted for as much as 16-22% of the cost of reconstruction
activities. As a result, funds have been drained from the purposes
for which they were intended, especially affecting projects in the
water and sanitation and roads and bridges construction sectors. In
recent months, USAID reportedly cancelled two electric power
generation programs; the Army Corps of Engineers cut a planned 23
electric substation rehabilitation program to nine. Substantially
greater U.S. assistance has been required to train and equip Iraqi
troops and police than was previously anticipated.43
! Projects to which funds have been committed may cost more to
complete than originally anticipated. According to the SIGIR,
USAID projects funded with the FY2003 supplemental have been
about 20% more expensive than the original estimates, and a
sampling of FY2004-funded USAID and PCO projects suggests
these may be as much as 50-85% more costly to complete than the
initial cost estimates. This trend, likely due at least in part to
unexpected security expenses, may severely decrease the number of
reconstruction projects the United States is able to undertake in Iraq
unless additional funding is provided.44
! Implementing organizations and personnel have fled. Fearing for
their safety, many aid implementors have been withdrawn from the
country — in the autumn CARE International, Doctors Without
Borders, and the International Rescue Committee. U.N. and bilateral
aid donors have been reluctant to initiate projects of their own;
many, including the U.N., are running programs from Jordan or
Kuwait utilizing Iraqi personnel to the extent possible.45
! The quality of aid has likely been negatively affected as
implementors cannot meet with local people and design and monitor
projects as they would in other countries. The pool of foreign
42 (...continued)
More Than 100 Electrical Lines,” New York Times, June 11, 2004.
43 State Department, 2207 Report to Congress, July 2005; SIGIR, Report to Congress, July
30, 2005; “Security Costs Slow Iraq Reconstruction,” Washington Post, July 29, 2005.
44 SIGIR, Report to Congress, April 30, 2005, p. 75-78. The July 30, 2005, SIGIR Report
notes that efforts are currently being made to gather program management data that may
elucidate the amount of funds available and/or necessary to complete current and new
projects.
45 “Wolfowitz Says Iraq Violence Impedes Rebuilding Aid,” Wall Street Journal, June 1,
2005; “Driven from Iraq, Aid Groups Reflect on Work Half Begun,” New York Times,
November 15, 2004; “Security Conditions Continue to Hamper U.N. in Iraq,” Washington
File, August 11, 2004; “Charities Get Ready to Leave,” London Times, September 9, 2004.

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CRS-17
expertise available to advise the government and NGOs is restricted
to those few willing to endure the country’s hardships. U.S. agency
personnel stay only a short time and therefore institutional
knowledge is not maintained. Iraqi experts necessary to successful
reconstruction have left — ten percent of registered doctors have
reportedly given up work in the past year.46
! In a broader sense, prolonged insecurity has undermined the trust of
the Iraqi people in U.S. and now transition government leadership
to bring about a democratic and economic transformation in Iraq,
opening the door to further political discontent and possible civil
war.47
There are two elements in the effort to provide the security that might allow
political and economic reconstruction to take hold — U.S. and coalition
peacekeeping forces and the training of Iraqi security forces to replace them. The
number of U.S. troops is currently estimated at roughly 142,000. There are also
about 23,000 troops from 27 other nations.48 As violence and hostage-taking
increased through 2004 and into 2005, many participating countries, including the
Philippines, Hungary, the Netherlands, Ukraine, Poland, and Italy announced
reductions or departures. Although NATO rejected the Administration request that
it provide forces, it did agree to help train 1,000 Iraqi troops. Six NATO members
refuse to send troops to conduct training inside Iraq, but France and Germany have
committed to training 1,500 forces elsewhere.49
Thirty-eight percent of total U.S. appropriations for reconstruction — nearly $11
billion — are aimed at building Iraqi security forces. Most of these funds — $7.5
billion — have been added since September 2004, as the security situation remained
unstable and efforts to train forces appeared inadequate. According to the State
Department, in early August there were 66,700 trained and equipped conventional
Iraqi police. In addition, there were 78,800 army forces. In all, about 66% of the
required 271,041 security force personnel — 178,200 — are currently defined by
officials as ready for action. However, reports by officials and observers have
46 “Facing Chaos, Iraqi Doctors are Quitting,” New York Times, May 30, 2005; SIGIR,
Report to Congress, July 30, 2005, p. 20.
47 “In Jaded, Perilous Capital, A Collision of Perceptions,” Washington Post, July 29, 2005;
“As Violence Deepens, So Does Pessimism,” Washington Post, May 18, 2004; “Fueling
Anger in Iraq,” Washington Post, December 9, 2003; “The Best, Brightest, and Wealthiest
Flee Iraq,” Chicago Tribune, November 21, 2004.
48 Iraq Index, Brookings Institution, [http://www.brookings.edu/iraqindex], April 27, 2005,
page 14; Department of State, Iraq Weekly Status Report, July 27, 2005.
49 “NATO Agrees on Modest Plan for Training Iraqi Forces, New York Times, February
23, 2005; “NATO and U.S. Plan Aid to Strengthen Iraqi Force,” New York Times, February
11, 2005; “NATO Agrees to Expansion of Forces Training Soldiers in Iraq,” New York
Times, December 10, 2004.

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CRS-18
suggested that many fewer could be said to be capable of the most demanding jobs.50
Increasing attention is now being paid by U.S. officials to the lack of adequate
logistical capabilities in the Iraqi Ministry of Defense. Problems in paying, feeding,
and supplying equipment to troops are compounded by reports of corruption in the
Ministry procurement office.51
During the past two years, poorly trained and equipped security forces, no-
shows and desertions, dismissals of police for criminal behavior, and bribe-taking for
obtaining higher rank or for release of insurgent suspects have threatened U.S. plans
to increase security using Iraqi personnel.52 As a result of these problems, Major
General David H. Petraeus was sent to Iraq in mid-April 2004 to oversee the
organization and training of all Iraqi security forces. In July 2005, he was replaced
by Maj. Gen. Martin E. Dempsey.53
Implementing Agencies. Dozens of U.S. and international companies and
NGOs are participating in the reconstruction of Iraq.54 The bulk of FY2004 IRRF
programs — the roughly $11.3 billion dedicated to construction — is managed by the
Project and Contracting Office (PCO). The PCO coordinates, manages and monitors
contracting and expenditures in six sectors — transport and communications;
electricity; buildings/health; security/justice; public works/water resources; and oil.
The PCO’s parent organization, the Department of Defense, is responsible for
security training. Together, they account for roughly 73% of the $17.8 billion in
FY2004 IRRF appropriations that had been allocated as of June 2005.
50 “Iraqis Not Ready to Fight Rebels on Own, U.S. Says,” New York Times, July 21, 2005;
“Building Iraq’s Army: Mission Improbable,” Washington Post, June 10, 2005; “As Iraqi
Army Trains, Word in Field is It May Take Years,” New York Times, June 13, 2005;
Senator Joseph Biden, “Training Iraqis: the Facts,” Washington Post, February 6, 2005.
“Many Iraqi Troops Not Fully Trained, U.S. Officials Say,” New York Times, February 4,
2005. Department of State, Working Papers: Iraq Weekly StatusReport, August 10, 2005.
51 “Worry Grows as Iraq’s Defense Ministry Falls Short of Expectations,” New York Times,
August 3, 2005.
52 “Iraqi Security Has Come Far, With Far to Go,” Washington Post, August 1, 2004;
“Wanted: Police Academy ASAP,” Washington Post, May 16, 2004; “Iraqi Battalion
Refuses to ‘Fight Iraqis’,” Washington Post, April 11, 2004; “Iraqi Police Suspected in
Slaying of Americans,” Washington Post, March 13, 2004; “Recruits Abandon Iraqi Army,”
Washington Post, December 13, 2003; “U.S. Needs More Time to Train and Equip Iraqis,”
New York Times, May 24, 2004; “Iraqis Readiness Disputed in Hearing,” Washington Post,
January 20, 2005. “U.S. Says Police in Iraq Need Bolstering,” Washington Post, November
25, 2004. U.S. Officials Say Iraq’s Forces Founder Under Rebel Assaults,” New York
Times, November 30, 2004.
53 “Army Commander in Charge of Training Iraqi Security Gets New Post,” New York
Times, July 23, 2005; “Biggest Task for U.S. General Is Training Iraqis to Fight Iraqis,” New
York Times, June 27, 2004.
54 For information on contract awards and solicitations, and business opportunities in Iraq, see
the following websites: the Iraq Project and Contracting Office [http://www.rebuilding-iraq.net],
USAID’s Iraq Reconstruction effort [http://www.usaid.gov/iraq/activities.html]; and the
Department of Commerce (DOC) Iraq Reconstruction Task Force [http://www.export.gov/iraq/].

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CRS-19
Responsible for 17% of allocated FY2004 appropriations ($3.0 billion), the
Agency for International Development (USAID), manages the widest range of
economic, social, and political development programs. Its programs include a $1.8
billion construction project contracted to Bechtel and most activities related to public
health, agricultural development, basic and higher education, civil society, local
governance, democratization, and policy reform.55 Other U.S. government agencies
involved in the reconstruction effort include the Department of State (accounting for
7% of FY2004 allocations), which continues work begun in 2003 providing police
training, and the Treasury Department (0.2%), which provides economic advice to
the transition government.56
Policy Reforms. While most reconstruction activities provide needed
infrastructure and services, some far-reaching economic and political policy reforms
promoted by the CPA stirred controversy in Iraq, especially as they were viewed as
imposed by an occupying administration. For example, in a move to establish an
open and free market economy and obtain revenue to meet development needs,
Ambassador Bremer approved new laws in September 2003 abolishing all curbs on
foreign direct investment except in natural resources. According to the Financial
Times, the reforms were “near universally unpopular,” Iraqi businessmen and unions
fearing they would be unable to compete.57 According to the press, CPA
Administrator Bremer issued 97 legal orders in the last two weeks of the occupation
alone.58 Such laws and regulations could face resistance and reversal under the new
government, although the interim constitution requires approval of a majority of the
government’s ministers, president, and vice-presidents to overturn existing laws.
On the other hand, as a result of the continuing instability and the accelerated
agreement to turn over sovereignty, some controversial positions which were favored
by Ambassador Bremer and his staff — privatization of state-owned business,
elimination of crop subsidies, and an end to the Oil for Food program’s free food
baskets — were put off entirely. Iraqi government officials might have preferred that
the CPA bear the burden of such potentially destabilizing decisions rather than leave
them to a new Iraqi government.59 Fuel and food subsidies as well as support for
55 Most FY2003 IRRF funds — 73% — were utilized by USAID. It awarded $1.8 billion
in contracts and grants in the abovementioned sectors, as well as in seaport and airport
administration, capital construction, theater logistical support, and personnel support. All
FY2005 funding — $5.7 billion for Iraqi security force training — is managed by DOD.
56 SIGIR, Report to Congress, July 30, 2005, appendix D.
57 “Free-Market Iraq? Not So Fast,” New York Times, January 10, 2004; “Business Deals
May be Invalid, Experts Say,” Financial Times, October 29, 2003; “Governing Council Hits
at Minister Over Business Reform,” Financial Times, September 25, 2003; “Iraq Offering
Laws to Spur Investment From Abroad,” New York Times, September 21, 2003; “Economic
Overhaul for Iraq,” Washington Post, September 22, 2003.
58 “U.S. Edicts Curb Power of Iraq’s Leadership,” Washington Post, June 27, 2004.
“Reconstructing Iraq’s Economy,” Washington Quarterly, Autumn 2004.
59 “Attacks Force Retreat From Wide-Ranging Plans for Iraq,” Washington Post, December
28, 2003; “Iraqis Face Tough Transition to Market-Based Agriculture,” Washington Post,
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state-owned enterprises are said to account for as much as $11 billion annually,
nearly half the Iraqi budget. Because these practices divert funds from needed
reconstruction for which the United States might have to compensate, Administration
officials are reportedly pressuring the Iraqi transition government to face the need for
economic policy reform. At a meeting of the U.S.-Iraqi Joint Commission on
Reconstruction and Economic Development in July 2005, Iraqi officials agreed to
address subsidy issues. However, in early August, the Iraqi cabinet rejected
proposals to reduce subsidies.60
Fallujah. One reconstruction concern is the effort to rapidly rehabilitate areas,
such as Fallujah, which have been the scene of intense military operations against
insurgent forces. U.S. officials argue that the post-battle reconstruction effort is as
important as the military effort to insure long-term Iraqi government control of these
cities. Nevertheless, some observers have criticized the glacial pace of the
rehabilitation effort in Najaf, and there are reported complaints of corruption and
overpayments for poorly done work. In the case of Fallujah, as of mid-December
little reconstruction work had begun; as of mid-March electricity was reportedly
available to forty percent of homes and running water and sewage to one third. These
basic assistance efforts are being followed by small projects to repair clinics and
schools. Then larger projects — many already planned but put on hold during the
long period of insurgent domination in the city — will be implemented. Officials
estimate a combined Iraqi-U.S. aid effort of perhaps $120 to $150 million to
reconstruct Fallujah.61
CERP and CHRRP. Until recently, drawn from DFI Iraqi seized assets and
oil profits and Department of Defense funds rather than reconstruction
appropriations, the Commander’s Emergency Response Program (CERP) contributes
to the reconstruction effort by providing “walking around money” for U.S. military
civil affairs officers throughout Iraq. Currently, a total of $1 billion — $547 million
in Iraqi funds and $508 million in U.S. DOD appropriations — has been made
available for this purpose. Provided in the form of small grants — over 36,300 such
projects totaling $662 million as of end of 2004 — the CERP supports a wide variety
of reconstruction activities at the village level from renovating health clinics to
59 (...continued)
January 22, 2004; “Iraq Privatization Postponed for Now,” Dow Jones Newswires, October
27, 2003.
60 “Despite Crushing Costs, Iraqi Cabinet Lets Big Subsidies Stand,” New York Times,
August 11, 2005; “Iraqi Economy Adds to Tensions with U.S.,” Financial Times, July 7,
2005; “Iraqis Reluctant to End Love Affair with Fuel Subsidies,” Financial Times, June 13,
2005.
61 National Public Radio, All Things Considered, March 21, 2005; “Vital Signs of a Ruined
City Grow Stronger in Fallujah,” New York Times, March 26, 2005; Department of Defense,
News Briefing, Charles Hess and Bill Taylor, January 19, 2005; DOD briefing, Charles
Hess, December 15, 2004; “Residents Trickle Back, But Fallujah Still Seems Dead,” New
York Times, January 6, 2005; “Rebuilding What the Assault Turns to Rubble,” Washington
Post, November 10, 2004; “Pace of Rebuilding Najaf Causes Friction,” New York Times,
October 18, 2004; “In Fallujah’s Ruins, Big Plans and a Risk of Chaos,” New York Times,
December 1, 2004.

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CRS-21
digging wells to painting schools. In lieu of civilian U.S. government or NGO aid
personnel, who are not present in most of the country, commanders identify local
needs and dispense aid with few bureaucratic encumbrances. The grants have been
credited with helping the military better exercise their security missions, while at the
same time meeting immediate neighborhood development needs. The Commanders
Humanitarian Relief and Reconstruction Program (CHRRP) uses IRRF funds — $84
million to date — combined with Iraqi government grants — $136 million — for
similar purposes. CHRRP projects are usually conducted on a larger-scale.62
The Role of Iraqis in Reconstruction: Employment, Outreach, and
Project Sustainability.
Seeking to encourage economic growth and decrease
unemployment, the CPA made efforts to insure that Iraqi business had an opportunity
to participate in contracts, including appointing business liaison representatives and
making the extent to which firms planned to utilize Iraqi services a factor in the
awarding of contracts. Although U.S. government requirements could be waived for
Iraqi contractors, most work for Iraqi business has come in the form of subcontracts.
Since the State Department took over reconstruction, an effort has been made to
move greater amounts of assistance in the form of projects directly contracted to
Iraqis. According to the SIGIR, in the first quarter of FY2005, 40% of new contracts
were awarded to Iraqi companies.63 One factor in this decision has been the
deleterious impact of security on the activities of the large-scale contractors. In
January, Contrack International, holder of a $325 million roads and bridges
construction contract, announced its withdrawal.64 The State Department planned to
replace it with direct contracting with Iraqi firms. Efforts have been made as well to
give the Iraq Transitional Government some decision-making responsibility over
U.S.-funded reconstruction work, including on-site supervision and drafting of
contracts. USAID used Iraqi Ministry employees to implement electrical distribution
projects in Baghdad. The PCO claims that hundreds of Iraqi firms are currently
working on U.S.-funded reconstruction projects, and that about 118,000 Iraqis are
employed under them.65
As it has sought to involve Iraqis in the reconstruction process, the embassy has
expanded its outreach to the provinces. It has encouraged the creation of Iraqi
Provincial Reconstruction Development Committees (PRDCs) in provinces
throughout the country. The PRDCs are composed of local and national government
representatives. At the same time, the embassy has established Provincial Support
Teams (PSTs), made up of embassy, PCO, and USAID staff. The intention is that
these two entities work together to identify projects which can be implemented and
carried out with U.S. financing. As a result, it is hoped local governments may be
strengthened while U.S. projects achieve more lasting support. In its June 2005
review of resources, the IRMO has allocated $241 million of IRRF funds to back the
PRDC-PST partnership — $80 million that will be used through the CERP and $161
62 SIGIR, Report to Congress, April 30, 2005, p.100; SIGIR, Report, July 30, 2005, App C.
63 SIGIR, Report to Congress, January 30, 2005, p. 106.
64 BNA, Inc. Federal Contracts Report, January 11, 2005
65 Department of State, Iraq Weekly Status Report, August 10, 2005; State Department,
2207 Report to Congress, July 2005, p. 2.

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million that will go through USAID’s Community Action Program (CAP) and Local
Governance Program (LGP).66
As more large-scale construction projects are completed, there is increasing
concern regarding the ability of Iraqis to maintain them physically and fund them
financially once they are handed-over to Iraqi authorities. A “principal objective” of
PCO contracting has always been the “swift transition of the reconstruction effort to
Iraqi management and control.”67 To insure long-term sustainability, the PCO is
focusing on what they call capacity development. At this point, each contractor is
responsible for providing training to the appropriate personnel in the labor force who
will operate and maintain power plants, water systems, etc., and contractors are liable
for repairs and equipment replacement for a period of 90 days following project
completion. At the Ministry level, the PCO is assisting development of policies and
laws conducive to efficient use and maintenance of infrastructure. It is also working
to develop the capacity of private sector contractors, especially women-owned
businesses, to respond to Iraqi government contracting opportunities in the future.68
How Much Assistance Reaches Iraq? How much of the nearly $21
billion in reconstruction assistance reaches Iraq has been an issue of some concern.
As noted earlier, one consequence of the unstable and dangerous environment in
which reconstruction programs are implemented has been the high cost of providing
security to employees. Estimates for security range anywhere from 10% to as much
as 50% of project expenses, but actual costs would vary project by project, depending
on location, type of activity, and numbers of foreign employees. An additional
program cost related to security is insurance for employees, salaries, and housing —
all of which are likely higher than in other locations in the world. Corruption and
mismanagement, which are thought to be prevalent in Iraq, would also drain project
funds. In December 2004, the Post-Conflict Reconstruction Project at the Center for
Strategic and International Studies estimated security costs at 30% of project funds;
insurance and salaries at 12%; corruption at 15%; overhead at 10%; and profits at
6%. If these estimates are accurate, actual reconstruction services and infrastructure
investments may only account for about 27% of total aid. However, it should be
noted that such estimates might vary widely according to the type of aid provided.
The CSIS estimate is more likely to apply to large-scale infrastructure construction
projects than to projects where the assistance is delivered in the form of a few experts
or grassroots community development grants.69
Waste and Fraud.
A lack of transparency in early contracting and
periodic reports suggesting that U.S. and Iraqi funds are being squandered have
66 Department of State, 2207 Report to Congress, July 2005, p. 2.
67 Iraq Reconstruction Pre-Proposal Conference Briefing Slide Show, DOD, Jan. 21, 2004.
68 Briefing by PCO on Capacity Development, March 17, 2005; State Department, 2207
Report to Congress, June 2005, p. 5.
69 CSIS, Post-Conflict Reconstruction Project, Estimated Breakdown of Funding Flows for
Iraq’s Reconstruction: How are the Funds Being Spent?, December 2004.

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disturbed a number of legislators.70 As a result, the FY2004 supplemental established
an Inspector General for the CPA, now called the Special Inspector General for Iraq
Reconstruction (SIGIR). The SIGIR has issued a number of audits and launched
dozens of investigations of possible criminal activity.71 Up to now, however, the
most egregious examples of waste and fraud appear to center not on IRRF
reconstruction aid, but on DOD appropriations — especially the Halliburton Kellogg,
Brown & Root projects — and on the CPA’s use of Iraqi funds (see the DFI section
of this report for more details).72
One of the more worrying findings to date regarding use of U.S. reconstruction
funds has come from a SIGIR project assessment program in which a team with
engineering, audit, and investigative experience looked at four water projects in
central Iraq. Three of the four reviews found problems, including inadequate design
work, insufficient quality control, and the failure of Government project engineers
to approve invoices and recommend payment. As a result of this program, SIGIR
intends to assess other infrastructure projects throughout the country.73
Assessments of Reconstruction
There have been dozens of reports and articles during the past two years that
have sought to analyze, criticize, and recommend action regarding the progress of
reconstruction aid.74 Most focus on the history of the occupation and those problems
70 For example, a cement plant’s renovation, estimated to cost $15 million by U.S.
engineers, was repaired by Iraqis for $80,000. [Rep. Henry Waxman, letter to Joshua Bolten,
Director of OMB, Sept. 26, 2003.] The Governing Council questioned a decision by the
CPA to spend $1.2 billion training 35,000 police in Jordan rather than in Iraq at, in its view,
“a fraction of the cost.” [“Iraqis Say U.S. Occupation Authority Misspend Millions in Its
Awarding of Contracts,” New York Times, Oct. 4, 2003.] Press reports suggested that
ministry equipment was sold on the streets and reconstruction subcontracts were delivered
for bribes. [“Spoils of War,” National Public Radio, April 21-23, 2004.] The Department
of Defense IG found numerous “irregularities” in contracting procedures followed by DOD
acquisition support for the CPA and its predecessor through August 2003. [DOD IG Audit,
Contracts Awarded for the Coalition Provisional Authority by the Defense Contracting
Command, Report No. D-2004-057, March 18, 2004.] The State Department IG found
contractor DynCorp had overcharged $685,000 for services rendered to the Bureau of
International Narcotics and Law Enforcement Affairs police training program [SIGIR report,
Jan. 30, 2005, p. 21.]
71 See SIGIR website [http://www.cpa-ig.org/] for audit reports to date. SIGIR, Report to
Congress, July 30, 2005, p. 44-69.
72 For discussion of the Halliburton issues, see Joint Report of the House Committee on
Government Reform Minority Staff and Senate Democratic Policy Committee,
Halliburton’s Questioned and Unsupported Costs in Iraq Exceed $1.4 Billion, June 27,
2005.
73 SIGIR, Report to Congress, July 30, 2005, p. 60-66.
74 Among the most incisive are Anthony Cordesman, Cleaning Up the Mess, Center for
Strategic and International Studies, July 7, 2004; David Rieff, “Blueprint for a Mess,” New
York Times Magazine, November 2, 2003; George Packer, “War After War: Letter from
(continued...)

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that help explain the current state of affairs. For example, Reconstructing Iraq, a
September 2004 report from the International Crisis Group, examines the gamut of
mistakes that many agree were made prior to and during the occupation. These
include the lack of a reconstruction plan; the failure to adequately fund
reconstruction early on; unrealistic application of U.S. views to Iraqi conditions by,
for example, emphasizing privatization policy; the organizational incompetence of
the CPA; shifting deadlines, such as the November decision to end the occupation
seven months later; and the inadequate utilization of Iraqis both in making policy
and in implementing reconstruction projects. The report then draws on these failures
to inform its recommendations for the future, including the suggestion that staff with
expertise in post-conflict situations be utilized and encouraged to serve in Iraq longer
than six months; that Iraqis representing a range of views participate in design and
implementation of U.S. reconstruction projects; that development of the Iraqi private
sector be emphasized through greater use of Iraqis as subcontractors; and that prime
contractors be required to employ Iraqis as much as possible.75
Another category of assessments are reviews of specific projects. Security
concerns in Iraq have made difficult the kind of expert and anecdotal reports usually
produced in other places by interest groups and the news media. Most project
assessments, therefore, have come from the various government auditors. Even
these, however, appear constrained by security in the number of site-visits they are
able to undertake to review project results. One of four water projects recently
assessed by the SIGIR could not be visited due to security concerns, and the SIGIR
is conducting some of its assessments by aerial imagery because of the risk to its
personnel.76
One problem with assessing the progress of reconstruction is that there is no
“big picture” overview. Responsible government agencies provide information
regarding how many infrastructure projects are being started and completed, how
many small-scale grants are being provided, and how many people are being trained,
but there is little detail regarding to what degree the overall national need for
drinking water, sanitation, health care, electricity, and other requirements is being
met by the billions of dollars in U.S. resources targeted at these needs.
74 (...continued)
Baghdad,” The New Yorker, November 24, 2003; Kenneth M. Pollack, “After Saddam:
Assessing the Reconstruction of Iraq,” Foreign Affairs, January/February 2004; John Hamre
and others, Iraq’s Post-Conflict Reconstruction: A Field Review and Recommendations,
Center for Strategic and International Studies, July 17, 2003; James Fallows, “Blind into
Baghdad,” The Atlantic Monthly, January/February 2004; Center for Strategic and
International Studies, Post-Conflict Reconstruction Project, Frederick Barton and Bathsheba
Crocker, Co-Directors, Progress or Peril? Measuring Iraq’s Reconstruction, September
2004 and November 12 Update; and Larry Diamond, Squandered Victory: The American
Occupation and the Bungled Effort to Bring Democracy to Iraq, Henry Holt, 2005.
75 International Crisis Group, Reconstructing Iraq, September 2, 2004. Available at
[http://www.icg.org/home/index.cfm ].
76 SIGIR, Report to Congress, July 30, 2005, p. 60-66. For a recent assessment of several
aspects of reconstruction, see GAO, Rebuilding Iraq: Status of Funding and Reconstruction
Efforts, GAO-05-876, July 2005.

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