Order Code RL31833
Iraq: Reconstruction Assistance
Updated June 25, 2007
Curt Tarnoff
Specialist in Foreign Affairs
Foreign Affairs, Defense, and Trade Division

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Iraq: Reconstruction Assistance
Summary
A large-scale assistance program has been undertaken by the United States in
Iraq since mid-2003. To date, nearly $42 billion has been appropriated for Iraq
reconstruction. On February 5, 2007, the Administration presented an FY2007
Supplemental request for Iraq reconstruction of about $6.6 billion, a regular FY2008
request of $391.8 million, and an Emergency FY2008 request of $3.5 billion. The
FY2007 Supplemental (H.R. 2206, P.L. 110-28), signed into law on May 25, 2007,
provides a total of $6.3 billion in Iraq reconstruction assistance, $316 million less
than the Administration request. Of this amount, about $1.6 billion appropriated to
the Economic Support Fund (ESF) account is subject to a presidential certification
of Iraqi progress in 18 benchmarks. On June 21, 2007, the House approved H.R.
2764, the FY2008 State/Foreign Operations regular appropriations bill, rejecting
requested regular FY2008 funding for Iraq.
Contributions pledged by other donors at the October 2003 Madrid donor
conference and in subsequent meetings have amounted to roughly $15.2 billion in
grants and loans, of which about $3.8 billion had been disbursed.
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. economic assistance
is now provided through the U.S. embassy while security aid is chiefly managed by
the Pentagon.
Many reconstruction efforts on the ground are completed or ongoing, but
security concerns have slowed progress. Reconstruction programs include the
training and equipping of Iraqi security forces; construction of road, sanitation,
electric power, oil production, and other infrastructure; and a range of programs to
offer expert advice to the Iraqi government, establish business centers, provide school
books and vaccinations, finance village development projects, and promote civil
society, etc.
The report will be updated as events warrant. For discussion of the Iraq political
situation, see CRS Report RL31339, Iraq: Post-Saddam Governance and Security,
by Kenneth Katzman.

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Contents
Most Recent Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Funding for Reconstruction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
U.S. Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
The FY2007 Supplemental Appropriations . . . . . . . . . . . . . . . . . . . . . . 3
Administration Request for FY2008 and Congressional Action . . . . . . 6
Oil Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Iraqi Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Other Donors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Iraq Trust Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
United Nations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
U.S. Assistance Policy and Program Structure . . . . . . . . . . . . . . . . . . . . . . . . . . 11
U.S. Reconstruction Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Reconstruction Priorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Current Priorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Reconstruction Programs and Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Infrastructure Sustainability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Ministerial Capacity Development (MCD) . . . . . . . . . . . . . . . . . . . . . 18
Provincial Reconstruction Teams (PRTs) . . . . . . . . . . . . . . . . . . . . . . 18
The Role of Iraqis in Reconstruction and the Plan to Re-start
State-Owned Enterprises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
CERP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Accountability, Waste, and Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
The Development Fund for Iraq (DFI) . . . . . . . . . . . . . . . . . . . . . . . . . 28
Assessments of Reconstruction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Appendix: Criticisms of Iraq Reconstruction . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
List of Tables
Table 1. U.S. Assistance to Iraq . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Table 2. Iraq Relief and Reconstruction Fund (IRRF) . . . . . . . . . . . . . . . . . . . . 14

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Iraq: Reconstruction Assistance
Most Recent Developments
On June 21, 2007, the House approved H.R. 2764, the FY2008 regular
State/Foreign Operations appropriations bill. In view of the recently passed FY2007
supplemental appropriations and pending FY2008 emergency proposal, the House
chose to delete requested FY2008 regular funding for Iraq.
The FY2007 Supplemental (H.R. 2206, P.L. 110-28), signed into law on May
25, 2007, provides a total of $6.3 billion in Iraq reconstruction assistance, $316
million less than the Administration request of about $6.6 billion. Roughly $1.6
billion in Economic Support Fund (ESF) funds are withheld pending a certification
of Iraqi progress in 18 benchmarks.
On February 5, 2007, the Administration presented three budget requests to fund
Iraq reconstruction: an FY2007 Supplemental request (see above), a regular FY2008
request of $391.8 million, and an Emergency FY2008 request of $3.5 billion.
Introduction
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 rehabilitate economic infrastructure and introduce representative government
to post-war Iraq, among other objectives.1 To meet these ends, a large-scale
assistance program has been undertaken by the United States in Iraq. This program,
funded through a mix of appropriations accounts, is undergoing increased scrutiny
in the 110th Congress. This report describes recent developments in this assistance
effort and key issues of potential interest to Congress.2
Funding for Reconstruction
The first formal estimate of the possible cost of Iraq reconstruction amounted
to $55 billion over the four years from 2003 through 2007. This figure was the sum
total of an October 2003 World Bank and U.N. Development Group needs
assessment of 14 sectors of the Iraqi government and economy — $36 billion —
1 U.N. Security Council Resolution 1483, May 22, 2003.
2 For detailed discussion of the Iraq political situation, see CRS Report RL31339, Iraq:
Post-Saddam Governance and Security, by Kenneth Katzman.

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combined with a $19.4 billion Coalition Provisional Authority (CPA) projection for
security, oil, and other sectors not covered by the Bank/U.N. assessment.3 These
amounts, calculated in mid-2003, did not take into account the significant costs of
instability and security needs that have emerged since then.
In the succeeding years, several “spigots” have been available to fund Iraq
reconstruction. U.S. foreign aid appropriations for Iraq have been provided mostly
in annual emergency supplemental bills beginning in FY2003. International donors
have also made aid contributions. Iraqi funds, largely derived from oil export profits,
have been employed to cover the “normal” operating costs of the Iraqi government,
and, when sufficient amounts are available, have been used to address reconstruction
needs. Additionally, the reduction or rescheduling of Iraqi debt repayments has made
further resources available. These sources of reconstruction funding are discussed
below.
U.S. Assistance
In the first several years of the U.S. effort in Iraq, the bulk of U.S. assistance
was provided through a special Iraq Relief and Reconstruction Fund (IRRF)
supporting aid efforts in a wide range of sectors, including water and sanitation, food,
electricity, training and equipping of Iraqi security forces, education, and rule of law.
The Fund was established in the FY2003 Emergency Supplemental (P.L. 108-11,
H.R. 1559/H.Rept. 108-76), signed on April 16, 2003, with an appropriation of $2.5
billion. A subsequent FY2004 Emergency Supplemental (P.L. 108-106, H.R.
3289/H.Rept. 108-337), signed on November 6, 2003, added $18.4 billion to the
IRRF. The Fund was placed under the direct control of the President.
In addition to the IRRF, funds drawn from other accounts have been used for
similar purposes. Department of Defense appropriations 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, the U.S. Agency for International Development (USAID) has used
its own funds to pay for humanitarian and other programs in Iraq.
The FY2005 emergency supplemental (P.L. 109-13, H.R. 1268/H.Rept.109-72),
signed on May 11, 2005, provided $5.4 billion for a new DOD account, the Iraq
Security Forces Fund (ISFF), supporting the training and equipping of Iraqi security
forces. Previously, most security training funds had been provided out of the IRRF.
Policy responsibility for the IRRF, originally delegated to the CPA (under DOD
authority), had, since the end of the occupation in June 2004, belonged to the State
Department as a result of a Presidential directive (NSPD 36, May 11, 2004), which,
nonetheless, continued to give DOD the main role in directing security aid. Putting
funding for security assistance entirely under DOD, however, is a sharp departure
from historic practice. Under most military assistance programs — Foreign Military
Financing (FMF) and the International Military Education and Training Program
(IMET) — State makes broad policy and DOD implements the programs. The
3 For the full text of the report online, see the World Bank website at [http://siteresources.
worldbank.org/INTIRAQ/Overview/20147568/Joint%20Needs%20Assessment.pdf].

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conference report on the supplemental adopted the President’s formula for the new
account but required that the Iraq Security Forces Fund be made available “with the
concurrence of the Secretary of State.” The FY2006 Emergency Supplemental (P.L.
109-234) added $3 billion to the ISFF, the FY2007 regular Defense appropriations
(P.L. 109-289) added another $1.7 billion, and the FY2007 Supplemental (P.L. 110-
28) added $3.8 billion.
For the regular FY2006 foreign operations appropriations, the Administration
departed from previous practice by requesting $414 million in Iraq reconstruction
funds under traditional foreign aid accounts instead of funneling requests exclusively
through emergency supplementals and for the IRRF. However, some Members felt
that sufficient funds remained unobligated in the IRRF — at the time, $3-$5 billion
— from which the Administration could draw to pay for continuing reconstruction.
As a result, Congress provided (P.L. 109-102, H.R. 3057) only $61 million in funds
for Iraq ($60.4 million after rescission) — $5 million for the Marla Ruzicka Iraqi
War Victims Fund and $28 million each for the democratization activities of the
International Republican Institute and the National Democratic Institute.
In the FY2006 Emergency Supplemental Appropriations (P.L. 109-234), signed
into law on June 15, 2006, Congress approved (H.R. 4939; H.Rept. 109-494)
roughly $5 billion for Iraq reconstruction activities — $3 billion for the ISFF; $378
million for the CERP; and $1.6 billion in so-called “stabilization” assistance for Iraq
to be provided largely under the ESF account ($1.485 billion).4
FY2007 regular foreign operations funding for Iraq is provided under the terms
of a continuing appropriations resolution (H.R. 5631/P.L. 109-289 Division B, as
amended by H.J.Res. 20, P.L. 110-5, on February 15, 2007). It sets funding levels
for major aid accounts. Country allocations based on those levels have not yet been
formally released. When it proposed its FY2007 budget in February 2006, the
Administration had requested nearly $773 million in funding for Iraq under several
accounts, including $478.8 million in ESF to continue programs to sustain U.S.-
funded infrastructure and to support democracy, governance, civil society, economic
policy reform, private sector, and agriculture programs; $254.6 million in the
International Narcotics and Law Enforcement (INCLE) account aimed at rule of law
programs.
The FY2007 Supplemental Appropriations. The FY2007 Supplemental
(H.R. 2206, P.L. 110-28), signed into law on May 25, 2007, is meant in part to
address the President’s new strategy for Iraq, announced on January 10, 2007. The
strategy, seeking to deal with increasing instability, especially in Baghdad, proposed
the introduction of about 26,200 more U.S. troops and other efforts to create a more
secure environment for successful political and economic development. New
reconstruction efforts would include a doubling in the number of Provincial
Reconstruction Teams (PRTs) from 10 to 20 and an increase in the number of U.S.
civilian staff for them from 250 to at least 400.
4 The conference report also provided funding for operational and security costs — $220.8
million for the PRTs, $101 million for USAID, and $24 million for the SIGIR.

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Table 1. U.S. Assistance to Iraq
(appropriations in $ millions)
2007
2007
2008 Regular
2008 Emerg.
Fiscal Year
2003
2004
2005
2006
Regular
Supp.
Total
(req.)
(req.)
Iraq Relief and Reconstruction Fund (IRRF)
2,232.3a
17,797.9a
—
10.0
—
—
20,040.2
—
—
DOD - Iraq Security Forces Fund (ISFF)
—
—
5,700.0
3,007.0
1,700.0
3,842.3
14,249.3
—
2,000.0
DOD - Iraq Army
51.2
—
—
—
—
—
51.2
—
—
DOD - CERP
—
140.0
718.0
753.0
375.0
350.4
2,336.4
—
977.4b
DOD - Oil Repair
802.0
—
—
—
—
—
802.0
—
—
DOD - Iraq Freedom Fund
—
—
—
—
—
50.0
50.0
—
—
Other USAID Funds
469.9
—
—
—
—
—
469.9
—
—
Economic Support Fund (ESF)
—
—
—
1,534.6
182.8d 1,574.0
3,291.4
298.0
772.0
Democracy Fund
250.0
250.0
INCLE (Int’l Narcotics & Law Enforcement)
—
—
—
91.4
20.0d
150.0
261.4
75.8
159.0
IFTA (Treasury Dept. Tech Asst.)c
—
—
—
13.0
—
2.75
15.8
—
—
MRA (Migration & Refugee Asst.)
—
—
—
—
—
45.0
45.0
—
35.0
Total U.S. Reconstruction Assistance
3,555.4
17,937.9
6,418.0
5,409.0
2,277.8
6,264.5
41,862.6
373.8
6,920.8
Sources: Section 2207 Report to Congress, April 2007; SIGIR Report to Congress, April 2007; Department of State, Iraq Weekly Status Report, June 13, 2007; and CRS calculations.
Notes: This table is not comprehensive. It omits several smaller accounts: Nonproliferation, Anti-Terrorism, and Demining (NADR), International Disaster and Famine Assistance
(IDFA), and the International Military Education and Training Program (IMET). The table does not contain agency operational costs, except where these are embedded in the larger
reconstruction accounts.
a. The IRRF was originally appropriated $2,475 million for FY2003 and $18,439 million for FY2004. Amounts shown above are those available for use after appropriations expired
at end FY2006.
b. FY2008 Emergency request is for both Iraq and Afghanistan.
c. Assistance may have been provided in unmarked years; amounts not reported.
d. Based on preliminary estimates. Actual regular FY2007 country allocations not yet available.

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The enacted version of the FY2007 Supplemental provides a total of $6.3 billion
in Iraq reconstruction assistance, $316 million less than the Administration request
of about $6.6 billion. The bill matches the Administration request for both the ISFF
($3.8 billion) and the CERP ($350 million), but cuts by half, to $50 million, support
for a plan funded under the Iraq Freedom Fund account to rehabilitate more than 140
of the nearly 200 state-owned enterprises that composed a large portion of the Iraqi
economy prior to the U.S. occupation.
The INCLE account, supporting rule of law programs, is decreased by $50
million to a level of $150 million — $50 million was cut from prison construction.
The Migration and Refugee account (MRA) is increased by $30 million to a level of
$45 million in view of the recent increases in displaced people.
Perhaps the most significant difference between the request and the final
legislation is a cut of roughly $248 million from proposed political, social, and
economic assistance programs that would be solely funded in the Administration
proposal under ESF at $2.1 billion. H.R. 2206 addresses these types of activities
under two accounts totaling $1.8 billion — ESF at $1.6 billion and the Democracy
Fund at $250 million. Programs within these accounts are funded as follows:
Economic Support Fund
— PRTs: $620 million
— Community Action Program (CAP): $95 million
— Community Stabilization Program (CSP): $354 million
— Local Governance Program: $90 million
— Private Sector Agribusiness Development: $70 million
— Strengthening Financial Markets: $10 million
— Financial Market Development: $10 million
— Targeted Development Programs: $57.4 million
— National Capacity Development: $140 million
— Policy, Subsidy, Legal and Regulatory Reform: $60 million
— Civil Society Development: $67.6 million
Democracy Fund
— Continuation of Democracy Programs: $200 million
— Human Rights: $40 million
— Women’s Programs: $10 million
The enacted FY2007 Supplemental would impose conditions on the availability
of the nearly $1.6 billion in appropriated Iraq reconstruction funds under the ESF
account. Funds would be withheld until the President certified in reports to be
submitted before July 15 and September 15, 2007, that the government of Iraq had
made progress in 18 benchmarks, including whether it enacted the hydro-carbon law,
taken specific steps toward provincial and local elections, reformed de-Baathification
laws, and begun expenditure of the promised $10 billion Iraqi funds for
reconstruction. The benchmark certification requirements can be waived by the
President.
With regard to operational costs (not included in Table 1), H.R. 2206 cuts the
Administration’s request for DOD Iraq Freedom Fund support for PRTs by $50

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million to a level of $100 million. It cuts the overall State operational request for
the embassy and PRTs by $74 million but does not earmark a portion of the $750
million total to set apart funds available for the PRTs. It fully funds operational costs
for the SIGIR at $35 million. The legislation would also extend the life-span of the
SIGIR by including, for the purpose of calculating its termination date, FY2007
reconstruction funds from any account in the definition of the IRRF. Previously, the
SIGIR terminated 10 months after 80% of the IRRF and FY2006 funds are expended.
Administration Request for FY2008 and Congressional Action. On
February 5, 2007, at the same time that it presented its FY2007 Supplemental
request, the Administration requested regular FY2008 and FY2008 Emergency
appropriations for Iraq (see Table 1). The FY2008 regular request under the
State/Foreign Operations appropriations was $391.8 million, mostly in ESF, for the
kinds of community, small-scale activities that are undertaken by the PRTs, such as
improvements to community infrastructure, job training, vocational education, and
micro-loans. In addition to PRT assistance, the request would provide support at the
national level for Ministerial capacity development, agriculture and private sector
reform, and strengthening of the judicial process and democratization efforts.
The FY2008 emergency request for ESF was $966 million. The request also
includes funding under DOD appropriations for the CERP and the ISFF. The ISFF
would receive $2 billion in FY2008 emergency appropriations. The CERP would
receive probably at least half of a $977.4 million FY2008 emergency request that
includes Afghanistan. FY2008 emergency funds were also requested for operational
costs (not included in Table 1) for staffing and administering reconstruction
programs: $679 million for PRT and $45.8 million for USAID operations.
On June 12, 2007, the House Appropriations Committee marked up H.R. 2764,
the FY2008 State/Foreign Operations regular appropriations bill (H.Rept. 110-197).
In view of the recently passed FY2007 supplemental appropriations and pending
FY2008 emergency proposal, the committee did not include requested FY2008
regular funding for Iraq. On June 21, the House approved the measure, after rejecting
amendments to restore $158 million (Wolf) and another (Shays) to shift $50 million
to Iraq.
Oil Resources
Oil revenues have been a critical element in reconstruction funding. 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.”5 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
5 Press briefing by Ari Fleisher, White House, February 18, 2003; Sec. 1506 Report to
Congress, July 14, 2003, p. 4.

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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.6
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
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 in November 2003. Under Security Council Resolution 1546, adopted on June
8, 2004, the transitional government of sovereign Iraq obtained control over use of
DFI funds, which continue to be replenished with oil revenue.
Oil production accounts for more than 90% of the Iraqi government revenue.
Recognizing the importance of oil revenue to Iraq reconstruction, more than $2.5
billion of total U.S. reconstruction funding has been devoted to efforts to restore and
expand oil production infrastructure. Oil exporting resumed in mid-June 2003, but
oil production was slowed by sabotage and corruption. In September 2004, rates of
production reached a peak of 2.67 million barrels/day compared with an estimated
pre-war rate of 2.5 million barrels/day (MBD), but rates have fallen since then and,
as of early June 2007, stand at 2.0 MBD. The CPA target had been 2.8-3.0 MBD by
end of 2004. The Iraqi government had hoped to raise production to at least 2.5 MBD
in 2006, but its current goal for 2007 is 2.1 MBD.7
After paying for operating budget expenses and a variety of government social
programs, very little of Iraq’s oil revenue has been left for reconstruction. Fuel and
food subsidies as well as support for state-owned enterprises are said to account for
as much as $11 billion annually. Because these practices divert funds from needed
reconstruction for which the United States might have to compensate, Administration
officials have repeatedly pressured the Iraqi transition government to face the need
to address the subsidy issue. As part of its agreement with the IMF pursuant to a debt
reduction with the Paris Club, Iraq in mid-December 2005 began to take steps to end
its subsidy of gasoline, increasing the price of fuel from 5 cents to its current roughly
30 cents a gallon. There is speculation that Iraq will end the fuel subsidy entirely in
the next year.8
6 On March 20, 2003, President Bush issued an executive order confiscating non-diplomatic
Iraqi assets held in the United States, an estimated $1.74 billion worth 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 urged member
states to deposit seized assets in the DFI.
7 Department of State, Iraq Weekly Status Report, June 13, 2007. “Iraqis Look to Raise Oil
Output Next Year,” Financial Times, December 29, 2005.
8 Country Report Iraq Updater Fiscal Policy, Economist Intelligence Unit, May 15, 2007;
“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.

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A further concern regarding the amount of oil income available for
reconstruction is the extent of corruption and mismanagement in the Iraqi
government. An audit of the DFI undertaken on behalf of the International Advisory
and Monitoring Board (IAMB) found that controls over export earnings are
ineffective and funds are improperly accounted for by government staff. The
Comptroller General of the GAO has also suggested that there is “massive
corruption” in the Oil Ministry. Iraq ranks next to the bottom on Transparency
International’s corruption index.9
Finally, it appears that Iraqi ministries are having difficulty spending the
revenue on capital projects such as roads, schools, and oil production. According to
U.S. officials, only about 40 percent of the 2006 capital budget of about $6 billion
was utilized, and one U.S. government official has noted that only ten percent of a
$3.5 billion capital budget available to the Oil Ministry was spent in 2006. Among
the reasons for this situation has been a rapid turnover in personnel, security
concerns, lack of skills in contracting and managing projects, and a fear of being
accused of corrupt practices.10 Complementing the Administration’s new strategy for
Iraq, the Iraqi government has approved a 2007 budget containing $10.5 billion for
capital investment, of which $2.4 billion is expected to go to provincial governments.
PRT assistance is partly aimed at helping the government at the local level develop
the capacity to efficiently utilize these Iraqi-owned resources. The 2007 Iraq budget
also includes $2.4 billion for investments in oil production and another $3 billion for
the construction of new oil refineries to reduce oil product imports.
Iraqi Debt
At the time of the invasion, Iraq’s debt, both public and private, was estimated
at $125 billion.11 Since then, 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 — were more inclined to
reschedule debt than to forgive it, arguing that, as an oil rich country, Iraq could
afford someday to pay its debts.12
Several steps led to a partial resolution of the debt issue. A series of meetings
in early 2004 between the President’s personal envoy for Iraq debt reduction, former
9 “Iraq Rated Amongst Most Corrupt,” International Herald Tribune, November 6, 2006;
“Corruption Cited in Iraq’s Oil Industry,” Washington Post, July 17, 2006; “An Audit
Sharply Criticizes Iraq’s Bookkeeping,” New York Times, August 12, 2006.
10 “Oil Revenues are in the Billions, but Iraq is Failing to Spend Them,” New York Times,
December 11, 2006; Ambassador Joseph Saloom, DOD News Briefing, March 1, 2007;
Ambassador David Satterfield, State Department Teleconference, February 7, 2007.
11 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.
12 G-7 Agrees That Iraq Needs Help with Debt,” Washington Post, April 13, 2003;
“Restructuring, Not Forgiveness,” Financial Times, April 15, 2003.

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Secretary of State James Baker III, and the leaders of debt-holding countries led to
statements of support, but no firm commitment, for varying levels of relief. By
September 2004, Iraq had both assumed sovereignty and cleared its overdue financial
obligations to the IMF, making it easier for Iraq to negotiate an agreement with
private and government creditors. Further, Congress authorized $360 million (P.L.
108-309) to cover the costs of cancelling the roughly $4 billion Iraqi debt obligation
owed the United States. These factors culminated in an agreement by the 19 Paris
Club government creditors on November 20, 2004, to write off roughly $32 billion
in Iraqi debt, 80% of what it owed to this group. In addition to Paris Club creditors,
Iraq owes about $67 billion in other bilateral debt (mostly to Gulf States countries)
and $20 billion in commercial debt. Of the latter, about $16 billion is expected to be
forgiven in the near future.13 In May 2007, several nations forgave a portion of Iraqi
debt as part of their participation in the International Compact with Iraq. Saudi
Arabia, for example, reportedly is negotiating to forgive 80% of Iraq’s estimated $15
billion debt.
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.14 Additionally, the Madrid donor conference, held on October 23-24, 2003,
produced a minimum total of $13.6 billion in reconstruction aid pledges from more
than forty other donors. Later pledges have raised the total non-U.S. reconstruction
aid offer to $15.2 billion as of end March 2007.15
Of this reconstruction assistance, grant aid pledges from other donors total
roughly $5.1 billion. These include $1.5 billion by Japan, $642 million by the United
Kingdom, $222 million by Spain, $905 million by the European Commission, $200
million by South Korea, and $236 million by Italy. About $10.1 billion in loans have
been offered, including by Japan ($3.5 billion), the World Bank ($3.0 billion), the
IMF ($2.6 billion), and the Islamic Development Bank ($500 million). Of all these
pledges, as much as $3.8 billion has been disbursed, much of it as a contribution to
the IRFFI (see below).16
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 and has developed projects for use of $1.6 billion
of a $3.5 billion concessional loan. Among other things, it has provided significant
funding for electrical power station rehabilitation, water treatment units and tankers,
13 State Department, 2207 Report to Congress, January 2007, Appendix II-14. See CRS
Report RL33376, Iraq’s Debt Relief: Procedure and Potential Implications for International
Debt Relief, by Martin A. Weiss for further details.
14 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.
15 SIGIR, Report to Congress, April 30, 2007, pp. 112-113.
16 SIGIR, Report to Congress, April 30, 2007, p. 111.

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CRS-10
medical equipment, and firetrucks and police vehicles. The loan is funding port and
power plant rehabilitation and irrigation improvements. Britain has offered
considerable technical assistance and related support for improvements in the justice
system, governance, and economic policy.
Among multilateral contributions, the IMF continues to offer a $297 million
Emergency Post-conflict Assistance package and a $475 million Standby
Arrangement on which Iraq can draw, but has yet to do so. The World Bank has
allocated $399 million of a $500 million concessional loan program, including a
$100 million education project, $135 million road project, and $124 million electric
power project.17
Iraq Trust Fund. 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.18 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 Iraq Trust Fund) and one by the United Nations (UNDG Iraq
Trust Fund). As of March 31, 2007, donors had deposited about $1.6 billion to the
Facility. The World Bank Fund ($456 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 ($1.1
billion deposited) is supporting a wide range of projects, most to be implemented by
the Iraqi government.19
United Nations. In addition to the above donor projects, the United Nations,
since its return to Iraq in early 2004, has been largely responsible for providing
assistance and guidance to assist the democratization of Iraq, including support to the
transitional government and the Iraqi Electoral Commission. U.N. envoy Lakhdar
Brahimi helped negotiate the transition to sovereignty, and a U.N. team headed by
Carina Perelli assisted 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. election work was
conducted from outside Iraq, with only about 40 expatriates in Iraq and 600 Iraqi
employees implementing activities. Subsequently, the U.N. helped with the
constitution-writing process, the constitutional referendum, and the December 2005
parliamentary election. With Trust Fund support, the development organizations
within the United Nations are actively working on dozens of projects. There are
17 SIGIR, Report to Congress, April 30, 2007.
18 “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.
19 IRFFI website [http://www.irffi.org].

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CRS-11
about 800 U.N. international and local staff in Iraq.20 U.N. Security Council
Resolution 1700, approved August 10, 2006, extended the U.N. Mission for Iraq
(UNAMI) another year and called on the U.N. to continue to play a leading role in
assisting Iraq.
In response to a continuing U.S. effort to encourage greater levels of donor
contributions, the U.N. and Iraq, on July 27, 2006, launched an International
Compact with Iraq. Under this initiative, participating donor countries would pledge
a certain threshold of funds. In return, Iraq would promise a five-year program of
specific reforms and actions leading to long-term economic and political
development. The Compact was finalized at a donor meeting held in Egypt on May
3, 2007, attended by more than 60 countries. Roughly $30 billion in financial
commitments are estimated to be associated with the Compact, including $10 billion
from the United States that was requested in the FY2007 Supplemental, FY2008
regular, and FY2008 Emergency budget proposals.21
U.S. Assistance Policy and Program Structure
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. At that time, broad responsibility for
assistance programs moved from the Secretary of Defense to the Secretary of State.22
At the Department of State, the Senior Advisor and Coordinator for Iraq is David
Satterfield. In Iraq, the United States provides assistance and, to the extent possible,
policy guidance to the Iraqi government through its U.S. embassy. Ryan Crocker is
the Ambassador. The embassy employs about 1,000 U.S. direct hire staff.
By executive order (13431), on May 15, 2007, an Iraq Transition Assistance
Office (ITAO) was established in the embassy, supplanting the functions of the Iraq
Reconstruction Management Office (IRMO) that had, itself, supplanted CPA efforts
in setting requirements and priorities for the aid program. The ITAO is headed by
Mark Tokola. Under the President’s new strategy for Iraq, an office of the
Coordinator for Economic Transition in Iraq (CETI), headed by Ambassador
Timothy Carney, has been established to help integrate assistance with military
strategy and facilitate the transition to Iraqi self-reliance.
The Project and Contracting Office (PCO), formerly the CPA’s Program
Management Office (PMO), are run by the Army Corps of Engineers, Gulf Region
20 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. “U.N. Says Mission
Accomplished and That Legitimacy is Now in Hands of Iraqis,” New York Times, January
26, 2005.
21 Ambassador David Satterfield, State Department briefing on April 30, 2007.
22 According to National Security Presidential Directive (NSPD) of May 11, 2004. It made
the Secretary of State responsible for “continuous supervision and general direction of all
assistance for Iraq.”

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CRS-12
Division (GRD), headed by Brig. Gen. Michael J. Walsh.23 The GRD-PCO is chiefly
responsible for the roughly $10 billion in FY2004-funded IRRF programs dedicated
to infrastructure construction, as well as follow-on sustainability efforts. The
GRD/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. Although in the Department
of the Army, it reports to the Department of State as well as to the Department of the
Defense.
Overall responsibility for management of U.S. military activity in Iraq belongs
to Gen. David H. Petraeus, commander of the multinational forces in Iraq. He also
serves as principal military adviser to the U.S. ambassador. Utilizing the roughly $5
billion in IRRF funds and $14 billion of ISFF funds, with the policy guidance of the
Ambassador, Lt. General James Dubik is the officer immediately in charge of
overseeing the training and support of all Iraqi security forces. Although the State
Department had assumed control of technical assistance provided to the different Iraq
ministries, in October 2005 it ceded responsibility to DOD for the two ministries
most closely involved in security matters — Interior and Defense. Among reasons
given for this switch are that DOD has greater resources at its disposal and that State
has had difficulty filling advisor positions in these ministries, the latter point disputed
by some. In most other countries, State has responsibility for training police forces.24
A third major U.S. actor in the implementation of the aid program is the U.S.
Agency for International Development (USAID). Responsible for about $5.2 billion
of assistance to date, USAID manages a wide range of economic, social, and political
development programs. Its programs have included a $2.7 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.25
On May 15, 2007, President Bush chose Lieutenant General Douglas Lute to
serve as his so-called “war czar” in the capacity of Assistant to the President and
Deputy National Security Advisor. He is expected to coordinate and manage the
implementation of the new strategy in Iraq, including assistance program activities.
The post of CPA Inspector General, created under the FY2004 Emergency
Supplemental legislation (P.L. 108-106), was redesignated the Special Inspector
General for Iraq Reconstruction (SIGIR) by the FY2005 DOD Authorization (P.L.
108-375). Special Inspector General Stuart Bowen, Jr., reports to both the Secretary
of Defense and State. The SIGIR office has about 60 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. The
23 The PCO and IRMO were established by the May 11, 2004 NSPD. See GRD-PCO website
at [http://www.rebuilding-iraq.net].
24 “Aid to Iraq Ministries to Shift to Pentagon,” Washington Post, September 26, 2005.
25 USAID, Bi-Weekly Update, January 8, 2007.

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CRS-13
SIGIR issued his first report to Congress regarding his audits and investigations on
March 30, 2004, and has reported quarterly since then.26
The life span and scope of authority of the SIGIR have been recurrent issues of
concern to Congress. P.L. 108-375 extended the SIGIR beyond its originally
mandated December 2004 expiration until 10 months after 80% of the reconstruction
funds were obligated. The FY2006 Foreign Operations appropriations (P.L. 109-
102) permitted it to function until 10 months after 80% of FY2004 IRRF funds were
expended. The FY2007 Defense Authorization (H.R. 5122/P.L. 109-364) terminated
the SIGIR office on October 1, 2007. Two months after passage of this bill, on
December 20, 2006, P.L. 109-440 set the termination date at 10 months after 80% of
IRRF funds are expended, but, in its definition of IRRF funds for termination
purposes, included all IRRF funding as well as any FY2006 funds made available for
reconstruction purposes regardless of funding account, including ISFF and ESF. In
effect, the legislation extended the life of the SIGIR into 2008. The FY2007
supplemental (P.L. 110-28) adds FY2007 funding to the definition of IRRF for
purposes of determining the SIGIR termination date.
The SIGIR’s scope of authority originally encompassed only the IRRF, although
the SIGIR has responded to specific congressional and executive branch requests to
audit other account programs. The FY2007 Defense Authorization made all FY2006
reconstruction appropriations, regardless of account, subject to SIGIR jurisdiction as
though they were under the IRRF. More recently, both House and Senate committee
reports on the FY2007 supplemental appropriations indicated they also expected
SIGIR authority to include FY2007 reconstruction funding irrespective of funding
account, but they did not address the issue with legislation. The FY2008 Defense
Authorization, H.R. 1585, that was approved by the House on May 17, 2007,
contains language that would broaden the authority of the SIGIR to include all
reconstruction programs from all accounts and all years (and include these as well in
determining termination). Agreement was reached on the House floor during debate
on H.R. 2764, the FY2008 State/Foreign Operations appropriations, to withdraw a
provision with a similar purpose when that bill reaches conference so as to avoid
competing versions.
U.S. Reconstruction Assistance
Among the key policy objectives laid out by the Bush Administration is the
economic and political reconstruction of Iraq. Discussion and debate have been
ongoing regarding the strategy to reach these ends utilizing reconstruction aid funds
and the effectiveness of aid implementation.
Reconstruction Priorities
Reconstruction priorities have changed over time. Allocations within the Iraq
Relief and Reconstruction Fund (IRRF), the main U.S. assistance account in the first
few years, mirrored shifting events on the ground. For example, in November 2003,
26 See [http://www.sigir.mil/] for reports and audits.

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CRS-14
when the CPA decided to accelerate the hand-over of sovereignty, it immediately
revised the allocation of FY2004 IRRF appropriations that had been legislatively
mandated only weeks previously in order to increase substantially the
democratization effort — from $100 million to $458 million. After the State
Department took charge in June 2004, the new U.S. Embassy country team
reallocated FY2004 IRRF resources, emphasizing security needs, increased oil
production, greater employment, and democracy as the highest priorities, at the
expense of many large-scale economic infrastructure projects — in particular water
and sanitation and electricity — that were viewed as too slow and dependent on an
improved security situation to have an immediate impact.
There have been regular reviews of priorities since then, although reallocations
were smaller as amounts available in the IRRF dwindled. Most of the reallocated
IRRF funds have come from canceled long-term energy and water projects.
Although reallocations are pragmatic responses to new events on the ground, their
cumulative impact has been to divert funds from previously planned programs. The
SIGIR has determined that, of 136 infrastructure projects originally planned in late
2003 for the water sector, only 49 will be completed. Of 425 projects planned in
the electricity sector, only 300 will be completed.
Table 2. Iraq Relief and Reconstruction Fund (IRRF)
($ millions)
Current
Obligations as of
Sector
allocation
June 12, 2007
Exp.
FY2004 Supplemental (P.L. 108-106)
Security and Law Enforcement
5,005
4,975
4,797
Justice, Public Safety, and Civil Soc.
1,304
1,297
1,093
Democracy
998
998
933
Electricity
4,217
4,046
3,323
Oil Infrastructure
1,725
1,572
1,456
Water and Sanitation
2,116
1,963
1,614
Transport and Telecommunications
457
447
354
Roads, Bridges, Construction
334
321
227
Health
816
759
669
Private Sector
809
809
789
Education, Refugees, Governance
410
400
368
Administrative Expenses
211
210
188
Total FY2004 Supplemental
18,402
17,798
15,811
FY2003 Supplemental (P.L. 108-11)
2,473
2,232
2,139
Total IRRF
20,875
20,030
17,950
Sources: Department of State, Iraq Weekly Status Report, June 13, 2007.
Current Priorities. As of the end of September 2006, IRRF funds are no
longer available for obligation, and large-scale infrastructure programs will no longer

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CRS-15
be funded from other accounts (although targeted neighborhood-oriented
infrastructure projects will continue).27 The major elements of current assistance are
as follows:
! Military-Security Assistance. Almost two-thirds of total FY2007
regular and supplemental appropriations are for the training and
equipping of Iraqi security forces. This effort is funded entirely
from the ISFF.
Economic-social-democratization assistance is funded mostly with Economic
Support Fund (ESF) assistance, categorized under three “tracks”:
! Security Track. Under the security track are assistance programs
most closely associated with the Administration’s new strategy for
Iraq, largely programs supporting work of the Provincial
Reconstruction Teams (PRTs). Ten new PRTs are being established
to join the existing 10, but concentrated in strategic locations. These
work with Iraqi local leaders to identify economic and political
development projects that can be implemented with U.S. financing
(see PRT section below for details).
! Economic Track. This track encompasses assistance to help Iraqis
operate, maintain, and sustain U.S.-funded infrastructure projects
(see sustainability section below for discussion).
! Political Track. Under the political track are a range of efforts to
support governance, democratization, and rule of law programs at all
levels of government in Iraq, including helping Iraqi ministries
improve their ability to operate and helping local governments
administer their provinces and municipalities.
Security, sustainability, PRTs, and governance remain key features of the
Administration budget requests for FY2008.
Reconstruction Programs and Issues
Status. Reconstruction programs have shown mixed results to date. There are
many positive outputs, such as schools rehabilitated, vaccinations provided, and so
on. However, in the most critical sectors — electric power and oil production —
outputs have been less than originally envisioned. Moreover, the impact of U.S.
projects on Iraq is hard to estimate, and the extent to which they and other-donor
contributions meet the total needs of Iraq has not been fully assessed. Although
mismanagement and corruption play a large role in diminishing returns from
reconstruction efforts, it has been the lack of stability and the effects of the
insurgency that have most affected the course of reconstruction to date.
27 According to the Administration, the remaining un-obligated FY2004 funds (about $437
million) will be used for “upward adjustments and limited in-scope changes to complete
existing contracts.” 2207 Report to Congress, October 2006, p. 1.

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CRS-16
A brief review of reconstruction sectors:28
! Security and Justice. More than 1,200 facilities — police stations,
border forts, fire stations, courts, etc. — have been completed.
About 348,700 police and military security forces have been trained
and equipped. Reports indicate, however, that many are
insufficiently trained to required levels of competence or unwilling
to carry out assigned duties. Security responsibility for 7 of the 18
provinces has now been transferred to Iraqi control. Additional
challenges are the efforts to develop logistics capabilities in the Iraqi
Army and infrastructure protection forces.
! Healthcare. The focus of this sector has been to rehabilitate and
equip facilities and provide medical services such as immunizations.
Health care providers have been trained and completed health
facilities equipped. The immunization program has been a success,
with nearly 98% of children under five immunized against polio.
Many construction projects experienced considerable delays and
contracts won by U.S. firms had to be revoked and re-awarded to
Iraqis. Of 20 hospitals being refurbished, 12 were completed by the
original contractor and the rest re-awarded to Iraqis. Only 7 of a
planned 142 new clinics will be finished by the original contractor.
Further, the Basrah Children’s Hospital has had significant cost
overruns.
! Transportation and Communications. Key results in this sector
are the restoration of the deepwater port at Umm Qasr, and repairs
on 92 of 98 railway stations, as well as two international and three
regional airports. Although the port has shown considerable activity,
only a tiny percentage of Iraqi trains run because of security
concerns. The SIGIR notes that road repairs, mostly village roads,
are only targeting a very small percentage of total road and bridge
work required (for example, only 8 repaired bridges of 1,156 in poor
condition or destroyed). While U.S. assistance has supported
modernization of the postal service and rebuilding of the landline
telephone network, the strongest advance was due to the private
sector provision of mobile phone technology, helping to raise total
phone users from 913,000 to nearly 10 million.
! Democracy, Education, Agriculture and Private Sector
Development. About 6,271 schools have been rehabilitated and
60,000 teachers trained. Local governance was strengthened through
establishment of councils and community associations. More than
3,475 grassroots projects have been conducted through USAID
grants provided to hundreds of community action groups. Voter
education, training of election monitors, and related activities
28 SIGIR, Report to Congress, April 30, 2007, p. 33-94; Department of State, 2207 Report
to Congress, April 2007; Department of State, Iraq Weekly Status Report, June 13, 2007.

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CRS-17
contributed to three successful elections in 2005. Irrigation systems
were rehabilitated, 68 veterinary clinics reconstructed, and 83,500
date palm offshoots were planted. Technical experts provide advice
to government agencies regarding adoption of possible budgetary
and management reforms. Bank credit officers have been trained,
and credit is provided to micro and small business. All these sectors
have nearly run out of IRRF funding and must look to ESF, CERP,
and other accounts for continuing activities.
! Electricity. U.S.-funded projects have added 2,120 megawatts
(MW) to Iraq’s generating capacity. Before the war, electric power
was 4,500 MW; in the first quarter of 2007, it was around 3,832
MW. The goal was originally 6,000 MW. In Baghdad, Iraqis
receive fewer hours of electricity than before the war (averaging
about 6 hours in late April); elsewhere they receive more than
previously (about 11 hours). In addition to the impact of insurgent
activity, other challenges to the growth of electrical power are the
rising demand for electricity, a lack of centralized monitoring and
control systems, poorly maintained infrastructure, and a shortage of
fuels to operate power plants.
! Oil and Gas. Oil and gas production has remained stagnant and
below pre-war levels for some time. The pre-war level of oil
production was 2.5 million barrels/day; it currently (early June)
stands at 2.0 MBD. The original goal was 2.8-3.0 MBD by end of
2004. According to the SIGIR, poor infrastructure, corruption, and
difficulty maintaining and operating U.S.-funded projects join the
destruction caused by the insurgency as major challenges. All U.S.
assistance projects in this sector have been completed.
! Water and Sanitation. Water and sanitation sector assistance has
provided clean water to 5.6 million more people and sanitation to 5.1
million more than before the war.
Infrastructure Sustainability. As more large-scale construction projects
— power plants, water and sanitation systems, oil facilities, etc. — are completed,
there has been increasing concern regarding the ability of Iraqis to maintain and fund
their operations once they are handed-over to Iraqi authorities. This concern has
grown following recent SIGIR “sustainment reviews” that suggested projects
transferred to Iraqi control are not being adequately maintained.29
A “principal objective” of PCO contracting has always been the “swift transition
of the reconstruction effort to Iraqi management and control.”30 To insure long-term
sustainability, the U.S. effort — the so-called “economic track” now led by the Army
Corps of Engineers — has focused on capacity development — providing training
to the appropriate personnel in the labor force who will operate and maintain
29 SIGIR, Report to Congress, April 30, 2007, p. 147.
30 Iraq Reconstruction Pre-Proposal Conference Briefing Slide Show, DOD, January 21,
2004.

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CRS-18
facilities and insuring sufficient funds are available for repairs and equipment
replacement following project completion. At the Ministry level, the IRMO (now
ITAO) is assisting development of policies and laws conducive to efficient use and
maintenance of infrastructure. The SIGIR has pressed the embassy to encourage
ministries to develop strategic plans for sustainment of its infrastructure.31
In addition, the United States is providing significant assistance to support the
physical protection of important infrastructure, in particular electricity and oil
facilities. Efforts to secure infrastructure include the construction of security
perimeters, lighting and communications improvements, establishment of exclusion
zones for pipelines, and enhancements to the forward operating bases used by the
Iraqi army to protect infrastructure.32
The long-term responsibility for sustainability, however, lies with the Iraqi
government, and the IRMO has estimated that it would cost about $1.2 billion
annually to operate and maintain U.S.-sponsored projects.33 Whether the Iraqi
government can shoulder the burden of additional costs will likely depend on the
level of resources it is able to draw on from oil profits and international donors.
Ministerial Capacity Development (MCD). Much effort and assistance has
gone into improving the capabilities of government ministries, including equipping
and training personnel at all levels of service. Ministry officials and staff, however,
remain deficient in knowledge of modern administrative systems and management
practices. The current focus is on improving budget execution and service delivery,
considered by many to be an essential element of an effective Iraqi government. In
the past year, the SIGIR has noted problems with U.S. implementation and
coordination of the MCD, pointing out that, as there is no single organization
responsible for the reconstruction effort, the capacity building program has gone
without an integrated plan providing coordination and priorities to the multiple
organizations responsible for it. Perhaps in response, the new Coordinator for
Economic Transition is leading the Embassy’s Budget Execution Initiative. This $20
million initiative encompasses an interagency task force to coordinate U.S. activities,
including those of USAID and the U.S. senior consultants assigned to each
ministry.34
Provincial Reconstruction Teams (PRTs). In an effort to expand
outreach to the provinces and strengthen local government, the U.S. Embassy, in
mid-2005, began establishing Provincial Reconstruction Teams (PRTs). The PRTs
are made up of Embassy, PCO, USAID, military, and other agency staff, between 35
and 100 members in each. Prior to the new Iraq strategy announced in January 2007,
31 Briefing by PCO on Capacity Development, March 17, 2005; SIGIR, Report to Congress,
April 30, 2007, p. 83-85.
32 SIGIR, Report to Congress, April 30, 2007, p. 81.
33 SIGIR, Transition of Iraq Relief and Reconstruction Fund Projects to the Iraqi
Government, Audit 06-017, July 2006.
34 SIGIR, Status of Ministerial Capacity Development in Iraq, Audit 06-045, January 30,
2007; SIGIR, Report to Congress, April 30, 2007, p. 4.

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CRS-19
10 PRTs had been established in Kirkuk, Ninewa (Mosul), and Babil (Hillah), as well
as in Baghdad, Anbar, Diyala, Salah-ad-Din, Basrah, Nasiriyah, and Irbil (for all of
Kurdistan). The latter three PRTs are British, Italian, and South Korean-led,
respectively.35
The PRTs are a key element in the President’s new strategy for Iraq. That plan
includes doubling the number of PRTs to 20 and expanding the number of civilian
staff from 290 to nearly 600.36 PRTs in Baghdad would increase from one to seven
and in Anbar province from one to three. Greater effort would be made to integrate
civilian teams with U.S. military battalions; the new PRTs will be embedded in
Brigade Combat Teams. In essence, the strategy envisions that, as U.S. and Iraqi
military forces clear an area of Baghdad or Anbar, PRT staff would work with local
Iraqis to further stabilize the area by drawing on all available spigots of U.S. and Iraqi
government funding to create jobs and meet other basic needs.

Existing PRTs work together with local community and Iraqi government
representatives — forming the Provincial Reconstruction Development Councils
(PRDCs) — to identify projects that can be implemented and carried out with U.S.
financing. It is anticipated that, as a result of this collaboration, local governments
may be strengthened while U.S. projects achieve more lasting support. The PRTs
also work closely with provincial governments to strengthen their capacities and
enable them to better interact with the central government, as well as to more
effectively utilize the Iraqi government funds that have been allocated to each
province. According to U.S. officials, only about 18% of the 2006 Iraqi capital
budget of about $6 billion was utilized.37 In conjunction with the Administration’s
new strategy, the Iraqi government has allocated a $10.5 billion capital budget for
2007. An additional expected benefit of the PRTs is that U.S. agencies may better
coordinate their reconstruction programs.
At the disposal of the PRTs are a tool-box of projects that can be implemented
at the grass-roots level. In addition to a range of economic projects directly handled
by the PRTs, USAID runs several programs under the framework of the PRTs. The
Community Action Program (CAP) funds projects identified by local representative
associations, stimulating democratic participation, while meeting local needs and
creating short-term employment. The Community Stabilization Program (CSP)
addresses economic needs in specific strategic cities, providing youth programs,
micro and small enterprise support, and vocational training. The Local Governance
Program (LGP) helps build management and knowledge skills of provincial
government personnel. Complementing the work of the PRTs and USAID, funding
from the Commander’s Emergency Response Program (CERP) is also available to
pacify the local population where PRTs reside. A large proportion of CERP projects
support local, small-scale infrastructure construction, especially in the water and
sanitation and electrical power sectors.
35 Department of State, 2207 Report to Congress, October 2006, p. 5. “Military to Protect
U.S. Aid Teams in Iraq,” Washington Post, April 14, 2006.
36 Ambassador Satterfield, Teleconference, February 7, 2007.
37 SIGIR, Report to Congress, April 30, 2007, p. 4.

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There have been security and staffing constraints to the work of PRTs, however,
that might also pose problems for the expansion plan. One reason there had been
limited grassroots development work in the provinces up to the creation of the PRTs
is the lack of security. Although originally reluctant to divert the necessary
manpower from its other responsibilities, the Department of Defense agreed to
provide protection to the PRTs. A Memorandum of Understanding to this effect was
signed in November 2006. However, according to the SIGIR, minimum “movement”
by PRT personnel has required three armored vehicles and eight “shooters.” Normal
business is, therefore, difficult — the SIGIR reported in October 2006 that many PRT
members could not regularly meet with local government officials to carry out their
capacity-building chores; and in the two locations where coalition military provide
security, due to U.S. rules forbidding their use, U.S. personnel generally could not
leave their compounds.38 Further, a former PRT diplomat who left in January 2007
has suggested that local Iraqis are too intimidated to meet with U.S. staff. She noted
that a town council in Diyala province had not had a quorum since October and that
training sessions had been cancelled due to security concerns.39 In January 2007
congressional testimony, Secretary Rice indicated that civilian staff have been able
to meet regularly with local government personnel and Ambassador Satterfield
claimed in February 2007 that the SIGIR views on this issue do not reflect current
reality. But a recent article based on PRT foreign service officer reports indicates
that the problem persists. Moreover, it suggests that security obstacles facing PRTs
may increase as U.S. troops currently protecting PRT staff hand responsibility for
security over to Iraqi forces.40
A second issue is the availability of qualified U.S. government civilian staff.
Early reports of its first year of operations suggested that State was having difficulty
enticing its personnel to volunteer for PRT posts. According to the SIGIR, DOD
stepped in to provide military civil affairs personnel in place of the State posts, but
required skills for such posts as local government, economic, and agricultural
advisers were not being fully met. That situation appears to be continuing. It has
been reported that about 129 of the new PRT posts are going to be temporarily
occupied by military personnel or civilians until State is able to recruit sufficient
numbers of skilled individuals. Those recruited in specialized skills will likely be
contract personnel, because such skills are not typically available from either the
State or USAID foreign service. As many as 269 such personnel are expected to
eventually be needed.41
38 SIGIR, Status of the Provincial Reconstruction Team Program in Iraq, 06-034, October
29, 2006.
39 “Ex-Envoy Says Iraq Rebuilding Plan Won’t Work,” Reuters, February 17, 2007.
40 “Rice’s Rebuilding Plan Hits Snags,” Washington Post, January 15, 2006; Testimony of
Secretary Rice to Senate Foreign Relations Committee, January 11, 2007; Teleconference
of Ambassador Satterfield, February 7, 2007; Shawn Dorman, “Iraq PRTs: Pins on a Map,”
Foreign Service Journal, March 2007.
41 “Pentagon Agrees to Help Fill State Department’s Iraq Reconstruction Jobs on Temporary
Basis,” New York Times, February 20, 2007; Teleconference of Ambassador David
Satterfield, February 7, 2007; and Robert Perito, Provincial Reconstruction Teams in Iraq,
United States Institute of Peace, February 2007.

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CRS-21
The Role of Iraqis in Reconstruction and the Plan to Re-start State-
Owned Enterprises. One facet of the U.S. reconstruction effort has been to
attempt to encourage economic growth and decrease unemployment by trying to
utilize Iraqis to the extent possible in the implementation of projects. In 2003-2004,
this involved making Iraqi businessmen aware of contract opportunities and
encouraging U.S. contractors to employ Iraqi firms. Although U.S. government
requirements could be waived for Iraqi contractors, most work for Iraqi business
came in the form of subcontracts for U.S. prime contractors.
When the State Department took over reconstruction in July 2004, however,
greater efforts were made to contract project work directly with Iraqis. By 2005, the
SIGIR estimated that about 70%-80% of new contracting was directly with Iraqis.42
A contributing factor in this effort was the deleterious impact of security on the
activities of the large-scale contractors. In January 2005, Contrack International,
holder of a $325 million roads and bridges construction contract, announced its
withdrawal.43 Consequently, many bridge and road projects were then implemented
directly with the Ministry of Construction, with estimated savings of between 30%
and 40%.44 USAID also used Iraqi Ministry employees to implement electrical
distribution projects in Baghdad. As some U.S. contractors were shown to perform
inadequate work, they were replaced by Iraqi contractors. The PCO claims that
hundreds of Iraqi firms are currently working on U.S.-funded reconstruction
projects, although these numbers are falling significantly as construction projects are
completed. CERP and USAID Community Action Program grants are often designed
to directly employ large numbers of Iraqis, many at the village level. About 93,587
Iraqis are reported to be currently employed under all U.S.-funded projects.45
U.S. defense officials, seeking to create employment opportunities for Iraqi
citizens, have recently begun rehabilitating some of the roughly 200 state-owned
enterprises that composed a large portion of the Iraqi economy prior to the U.S.
occupation. Soon after the occupation began, the CPA attempted to privatize them
in an effort to open up a free market economy in Iraq, but officials gave up on what
promised to be a politically unpopular endeavor when the turnover of sovereignty
was accelerated. The Defense Department plan envisions the production in Iraq of
items required by the U.S. military, some of which are currently produced by
neighboring countries. Additionally, U.S. firms have been asked to consider
purchasing supplies from Iraqi enterprises. Since November 2006, three factories
have started-up: one producing Iraqi uniforms, another armored vehicles, and
another household ceramic bathware for domestic Iraqi consumption. DOD officials
think that up to 140 of these enterprises could potentially be viable. To support this
effort, the Administration sought $100 million in DOD FY2007 supplemental
42 Stuart Bowen, Testimony to House Foreign Operations Appropriations Subcommittee,
September 7, 2005.
43 BNA, Inc. Federal Contracts Report, January 11, 2005.
44 Ambassador Jeffrey, Testimony to House Foreign Operations Subcommittee, September
7, 2005. State Department, 2207 Report to Congress, October 2005, p. 3.
45 Department of State, Iraq Weekly Status Report, June 13, 2007.

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CRS-22
funding; Congress approved $50 million for this purpose. It will be used to supply
generators and other supplies.46
Skepticism has been expressed regarding the DOD plan. Some observers
question the extent to which violence will be reduced as a result of expanded
employment. Some are concerned that the SOEs may provide targets for insurgents.
Others suggest that, unless well-managed, investments in SOEs may provide
opportunities for corruption and political manipulation.47
CERP. Drawn from DFI and Department of Defense funds rather than IRRF
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. Up to now, a total of $2.5 billion — $548
million in Iraqi funds and nearly $2 billion in U.S. DOD appropriations — has been
made available for this purpose. Another $350 million has been appropriated in the
FY2007 Supplemental.
The CERP supports a wide variety of reconstruction activities at the village
level from renovating health clinics to digging wells to painting schools, provided in
the form of small grants. CERP also has funded small-scale infrastructure efforts,
such as repair or provision of electric generators and construction of sewer systems.
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. In addition to reconstruction, CERP funds are
used for compensation payments to the families of killed or injured Iraqis.48
Security. The successful conduct of reconstruction work is contingent on an
environment of order and stability. More than four 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 hindered implementation of reconstruction
projects. Security threats are preventing PRT personnel from
communicating directly with local governments, construction
46 DOD News Briefing with Deputy Undersecretary Paul Brinkley, March 28, 2007; “To
Stem Iraqi Violence, U.S. Aims to Create Jobs,” Washington Post, December 12, 2006;
“Bush to Propose Restoring Iraqi Factories to Create Jobs,” New York Times, January 10,
2007; “Aging and Shut, Iraq Factories May Reopen and Mitigate Ills,” New York Times,
January 18, 2007.
47 United States Institute of Peace, State-Owned Enterprises: Post-Conflict Political
Economy Considerations, March 2007. “Defense Skirts State in Reviving Iraqi Industry,”
Washington Post, May 14, 2007.
48 SIGIR, Report to Congress, January 30, 2007, Appendix G.

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CRS-23
workers from appearing at their jobs, and project managers from
monitoring project work.49
! Completed reconstruction projects and pre-existing infrastructure
have been destroyed. For instance, on October 20, 2006, attacks on
the electrical grid cut Baghdad off from the national grid and greatly
reduced its supply. Major pipelines continue to be sabotaged,
shutting down oil exports. Along with criminal activity and poor
equipment, insurgent attacks are estimated to be responsible for the
loss of $16 billion in oil revenue in the past two years.50
! Reconstruction costs rose substantially due to the need to provide for
security and insurance for personnel. Estimates of the portion of
project costs devoted to security have varied widely. In 2005, the
State Department estimated it at 16%-22%. According to the SIGIR,
USAID projects funded with the FY2003 supplemental were about
20% more expensive than the original estimates. A 2006 SIGIR
survey of major U.S. contractors found security costs to range from
a low of 7.6% to a high of 16.7%. Unanticipated security costs as
well as the related need to shift $1.8 billion from water and power
projects to the training and equipping of Iraqi forces has meant that
funds have been drained from infrastructure programs. Among other
results, USAID cancelled two electric power generation programs;
the Army Corps of Engineers cut a planned 23 electric substation
rehabilitation program to nine.51
! Implementing organizations and personnel have fled. Fearing for
their safety, many aid implementors have been withdrawn from the
country. U.N. and bilateral aid donors have been reluctant to initiate
projects of their own; many are running programs from Jordan or
Kuwait utilizing Iraqi personnel to the extent possible.52
49 For example, the SIGIR reports that on March 24, 2006, a project manager received an e-
mail threatening all employees — as a result, no one came to work the next day. SIGIR,
Report to Congress, April 30, 2006, p. 12. SIGIR, Status of the Provincial Reconstruction
Team Program in Iraq, 06-034, October 29, 2006.
50 SIGIR, Report to Congress, October 30, 2006, p. 4; “Iraq Insurgents Starve Capital of
Electricity,” New York Times, December 19, 2006; “Report Details Oil Industry Losses,”
Washington Post, September 29, 2006; “Mortar Attack Shuts Down Refinery,” Los Angeles
Times, February 2, 2006.
51 SIGIR, Report to Congress, January 30, 2007, p.154-55; Howard Krongard, State
Department IG, testimony to House Government Reform Committee, October 18, 2005;
James Kunder, USAID, testimony to House Foreign Operations Subcommittee, September
7, 2005; “Security Costs Slow Iraq Reconstruction,” Washington Post, July 29, 2005.
52 “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-24
! 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
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. According to the U.N., in
May 2006, 22 doctors, nurses, and non-medical staff were killed and
50 were wounded. In 2006, more than 300 teachers and Ministry of
Education staff were killed.53
! In a broader sense, prolonged insecurity has undermined the trust of
the Iraqi people in U.S. and now Iraqi government leadership to
bring about a democratic and economic transformation in Iraq,
opening the door to further political discontent and possible civil
war.54
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 roughly 149,700. There are also about 11,637 troops from
25 other nations.55
About $19.2 billion in U.S. appropriations has been aimed at building Iraqi
security forces. According to the State Department, in early June 2007, there were
194,200 trained and equipped conventional Iraqi police and Ministry of Interior
forces and 154,500 army and other defense forces, although the actual number of
active duty soldiers is said to be one-half to one-third of the total because of leave,
attrition, and desertion.56 Reports by officials and observers have suggested that
many fewer could be said to be capable of the most demanding jobs. The U.S.
military commander formerly in charge of training recently informed Congress that
53 “Civilian Death Toll Reaches New High in Iraq, U.N. Says,” New York Times, November
23, 2006; “As Death Stalks Iraq, Middle-Class Exodus Begins,” New York Times, May 19,
2006; “Iraq’s Attorneys Practicing in a State of Fear, Washington Post, June 10, 2006;
“Professionals Fleeing Iraq as Violence, Threats Persist,” Washington Post, January 23,
2006; “Facing Chaos, Iraqi Doctors are Quitting,” New York Times, May 30, 2005; “World
Bank Considers Sending Staff Back to Baghdad,” Washington Post, September 18, 2005.
54 “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.
55 Iraq Index, Brookings Institution, [http://www.brookings.edu/iraqindex], June 7, 2007,
page 27; Department of State, Iraq Weekly Status Report, June 13, 2007.
56 Department of State, Iraq Weekly StatusReport, June 6, 2007. SIGIR, Report to
Congress, April 30, 2007, p. 92.

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CRS-25
an additional 20,000 Iraqi soldiers would be needed to ensure security.57 During the
past three years, poorly trained and equipped security forces, no-shows and
desertions, dismissals of police for criminal behavior, bribe-taking for obtaining
higher rank or for release of insurgent suspects, and infiltration of police and other
units by sectarian militia groups have threatened U.S. plans to increase security using
Iraqi personnel.58
Accountability, Waste, and Fraud
A lack of transparency in early contracting and numerous reports in the media
suggesting that reconstruction funds were being squandered led to the establishment
in the FY2004 supplemental of an Inspector General for the CPA, now called the
Special Inspector General for Iraq Reconstruction (SIGIR). To date, the SIGIR has
issued more than 86 audits and 94 project assessments, and it has conducted 96
limited onsite inspections as well as dozens of investigations of possible criminal
activity.59
Some of the most egregious examples of misconduct appear to center on the
CPA’s use of Iraqi funds (see the DFI section below).60 Other notable cases involve
use of IRRF funds blended with Iraqi or DOD funds. A KBR contract to repair oil
fields and import gasoline and other oil products into Iraq (Restore Iraqi Oil, or RIO),
funded by about $900 million in U.S. funds, both DOD and IRRF, and $1.5 billion
in Iraqi money, led to findings by Defense Contract Audit Agency auditors disputing
$263 million in charges. Either the charges were inflated — KBR paid a Kuwait
company 40% more for gasoline than the U.S. military pays — or they were
unsupported by documentation. In the end, the Army, citing the wartime conditions
under which KBR operated, decided to ignore its auditors and pay KBR all but $10.1
57 “Big Boost in Iraqi Forces is Urged,” Washington Post, June 13, 2007.
58 GAO, Stabilizing Iraq: Factors Impeding the Development of Capable Iraqi Security
Forces, GAO-07-612T, March 13, 2007; “U.S. Officers Detail Problems with Iraqi
Soldiers,” Washington Post, November 1, 2006; “In Baghdad, a Force Under the Militias’
Sway,” Washington Post, October 31, 2006; “Flaws Cited in Effort to Train Iraqi Forces,”
Washington Post, November 21, 2006; “On Baghdad Streets, A Police Partnership Falters,”
New York Times, October 22, 2006; “Searching for the Exit,” New York Times, October 25,
2006; “Iraqi Soldiers Refuse to Go to Baghdad, Defying Order,” New York Times, August
29, 2006; “An Army of Some,” New York Times Magazine, August 20, 2006.
59 See SIGIR website [http://www.sigir.mil/] for audit reports to date. SIGIR, Report to
Congress, April 30, 2007, Section 3.
60 At an October 18, 2005 congressional hearing (House Government Reform Committee),
the DOD IG revealed that all DOD IG office personnel had been withdrawn from Iraq in the
previous year; the Army Audit Agency, however, does have auditors in Iraq and is following
the KBR LOGCAP contract. For a summary 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.

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CRS-26
million of the disputed charges, a percentage reportedly considered unusually low in
such cases.61
In November 2006, an audit of the same program conducted by the International
Advisory Monitoring Board (IAMB), which monitors the use of Iraqi funds, agreed
that the Army was justified in reimbursing KBR but also found that the excessive
cost of the program was in large part due to the cost of fuel delivery, accounting for
as much as 86 percent of the total cost. In one $871 million work order, for example,
only $112 million was attributable to the cost of fuel; the rest was for the fleet of
tanker trucks which transported it to Iraq from Kuwait. Payment was made for the
trucks even when, due to a lack of armed escorts, they sat idle. Rather than an
indictment of KBR, the IAMB audit suggests Army mismanagement of the
program.62
On March 9, 2006, Custer Battles, a contractor on the project that distributed the
new Iraqi currency, was found guilty of fraud. Although the contract let by the CPA
was for roughly $20 million, the judge controversially ruled that Custer Battles could
only be charged for fraud relating to the $3 million which was U.S. taxpayer money
— the rest were Iraqi funds and not under U.S. jurisdiction. The contractor received
a $10 million fine.63 On August 18, a federal judge overturned the verdict and fine
on the disputed grounds that the CPA was not an entity of the U.S. government, but
rather an internationally-run body.64
Apart from possible criminal activity, there have been many questions raised
regarding evidence of poor project implementation and the quality of management
and oversight of projects, the majority of these the responsibility of the Army Corps
of Engineers which runs the Embassy Project and Contracting Office. SIGIR
auditors and project assessment teams with engineering, audit, and investigative
experience have traveled to major U.S.-funded IRRF project sites to see if work is
being performed properly. Although most conclude that projects were either carried
out as intended or point out correctable quality control and structural deficiencies, the
SIGIR has found some projects to be especially problematic, including the following:
! The Basrah Children’s Hospital, expected to cost $50 million, will
run to at least $98 million and nearly a year behind schedule.
61 “Army to Pay Halliburton Unit Most Costs Disputed by Audit, New York Times, February
27, 2006; “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]. In
December 2005, the IAMB called on the United States to “seek resolution” with the Iraqi
government — possibly make repayment — on up to $208 million of the Iraqi funds that
went to KBR for work questioned by the DCAA. “U.S. Owes $208 Million to Iraq, U.N.
Audit Finds,” Washington Post, November 6, 2005.
62 Crowe Chizek and Company, Updated Report of Agreed-Upon Procedures Regarding the
Settlement Between USACE and KBR, November 16, 2006; “Cost of Taking Fuel to Iraq is
Questioned in New Audit, New York Times, November 7, 2006.
63 “Contractor Bilked U.S. on Iraq Work,” Washington Post, March 10, 2006.
64 “Verdict Against Iraq Contractor Overturned,” Washington Post, August 19, 2006.

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CRS-27
Bechtel, the project contractor, has been removed and the project
will be completed using local contractors. USAID, the agency
responsible, failed to report the cost and delays, in part because it
had only one contracting officer and one technical officer to oversee
20 projects worth $1.4 billion.65
! The Baghdad Police College, a $75 million construction project
implemented by Parsons, is riddled with deficiencies, including
improperly fabricated wastewater plumbing which poses a health
and structural hazard.66 The Mosul police headquarters, constructed
by an Iraqi contractor at a cost of nearly $1 million, is similarly
troubled.67
! A $218 million first responders network is ineffective —
communication is not possible between the three established zones
of the system and Iraqi citizens cannot call in to request emergency
assistance, among other problems.68
! After the expenditure of $186 million, only 6 of 150 planned
primary health care centers to be constructed by Parsons were
completed and only 14 more were expected to be finished. A
contract was awarded to Iraqi firms to complete 121 partially
constructed centers.69
! An October 2005 assessment of five electrical substations was
positive for the substations themselves, but found that installation of
distribution lines to the end users, part of the original plan, had to be
eliminated (presumably due to funding reallocations) and, therefore,
the benefits of the new substations would not be derived until the
Ministry of Electricity could perform the work. All five substations
were connected to transmission lines by end November 2006,
although they were operating at 36% capacity pending connection to
upstream substations.70
! A project to run 16 oil pipelines under the Tigris River failed amidst
warnings from a geologist that the subsoil was not conducive to
65 SIGIR, Audit 06-026, July 2006; “U.S. Neglect Found in Long-Delayed Iraq Hospital
Project,” Washington Post, July 29, 2006.
66 SIGIR, Project Assessment-06-078.1 and 06-079.1, September 27, 2006; “Heralded Iraq
Police Academy a ‘Disaster’, Washington Post, September 28, 2006.
67 “U.S. Agency Cites Flaws in Another Iraqi Construction Project,” New York Times,
October 12, 2006.
68 SIGIR, Audit 06-020, July 2006.
69 SIGIR, Audit 06-011, April 2006; SIGIR, Report to Congress, October 30, 2006, p. 78;
“In a Dispute, Army Cancels Rebuilding Contract in Iraq,” New York Times, May 13, 2006.
70 SIGIR, Project Assessments PA-05-05 to 09, in Report to Congress, October 30, 2005,
p. 53; SIGIR, Report to Congress, January 20, 2007, p. 195-198.

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drilling, demonstrating a lack of appropriate oversight by the Army
Corps of Engineers. Nearly $76 million in DFI funds were wasted.71
! An examination of Task Force Shield, a program to train and
manage an oil and electricity infrastructure protection force, found
it had been unsuccessful after the expenditure of $147 million. In
part, this outcome was due to the absence of a clear management
structure for the various U.S. agencies involved. Further, auditors,
reportedly, could not determine how many Iraqis were trained or
how many weapons were purchase.72
! An audit of “design-build” contracts that characterize many of the
infrastructure projects found very high administrative costs in some
cases. About 55% of KBR work on the RIO project and 43% of a
Parsons oil project were consumed by overhead costs. Security is
likely one factor in the high level of overhead found here, and
enforced idleness while awaiting government direction to begin
work is another. However, the audit also found inadequate
accounting and billing systems to capture administrative costs in
four of five contracts examined.73
! Roughly 370,000 weapons purchased with $133 million in IRRF
funds for the use of Iraqi security forces were not accompanied by
spare parts or technical repair manuals, and were not registered to
insure accountability. (Some of these weapons have reportedly
made their way to the black market.)74
! A DynCorp project to provide services to international police
trainers spent nearly $44 million on a residential camp that was not
used (including an Olympic-size swimming pool that was
unauthorized) and about $36 million for weapons that cannot be
accounted for. The audit found the State Department Bureau for
International Narcotics and Law Enforcement and State Office of
Acquisition Management provided poor contract administration.75
The Development Fund for Iraq (DFI). Many questions have been raised
regarding the CPA’s use and monitoring of DFI funds. Although the funds were
71 SIGIR, Project Assessment SA-2005-001, in Report to Congress, January 30, 2006, p. 73-
75; “Rebuilding of Iraqi Oil Pipeline as Disaster Waiting to Happen,” New York Times,
April 25, 2006.
72 SIGIR, Audit 06-009, April 2006; “In Shadows, Armed Groups Propel Iraq Toward
Chaos,” New York Times, May 24, 2006.
73 SIGIR, Audit 06-028, October 2006; “Idle Contractors Add Millions to Iraq Rebuilding,”
New York Times, October 25, 2006.
74 SIGIR, Audit 06-033, October 2006. “Black-Market Weapon Prices Surge in Iraq Chaos,”
New York Times, December 10, 2006.
75 SIGIR, Audit 06-029, January 2007.

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CRS-29
derived from Iraqi, mostly oil, resources, under Security Council Resolution 1483
(May 2003) the CPA had complete control over them during the occupation and
responsibility under international law to insure they were used appropriately. To
prioritize and recommend how DFI resources were used, the CPA established a
Program Review Board in June 2003. 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 detail 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 (mostly the RIO project noted above).76
Security Council Resolution 1483 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.”77 Soon after, 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. In March 2004, the IAMB recommended installation of a metering system for
oil extraction to prevent diversion (still not implemented), and criticized the use of
non-competitive bidding for contracts funded by the DFI.78
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
funded by the DFI. Subsequent audits highlighted multiple financial irregularities.79
A representative on the IAMB accused the Administration of withholding
information on non-competitive contracts, and repeated requests to U.S. agencies for
76 “$1.9 Billion of Iraq’s Money Goes to U.S. Contractors,” Washington Post, August 4,
2004.
77 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.
78 The IAMB’s mandate was extended to December 31, 2007, under U.N. Security Council
Resolution 1723. 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.
79 KPMG Audit dated June 29, 2004, available online 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.

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information on sole-sourced contracts funded by the DFI were not answered.80 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, too, were critical of the contrast between the slow spending of U.S.
funds and the rapid draw-down of the DFI.81
A January 2005 audit by the 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.82 An April 2005
SIGIR audit 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. An October 2005 audit found that South-Central personnel could not
account for more than $20.5 million in Rapid Regional Response Program funds and
made $2.6 million in excessive payments. In late 2005, several U.S. citizens were
criminally charged with respect to the handling of these funds — and have since pled
guilty. In February 2007, five more were indicted.83
In early 2006, it was reported that an examination by the Army Joint Contracting
Command of 9,000 contracts supported by about $5.8 billion in Iraqi money has
shown a number of problems, including contracted projects that were not carried out
and a lack of supporting documents. As a result, roughly $230 million that was
withheld to finance the contracts reportedly will be returned to the Iraqi government
for use on reconstruction projects.84
80 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.
81 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.
82 According to IG Bowen, the Iraq Commission on Public Integrity is investigating $1.5
billion that may have gone missing in the Ministry of Defense. “Special Inspector General
Stuart Bowen,” Washington Post, November 9, 2005.
83 Among other things, the SIGIR found a $500,000 contract in Karbala that was not carried
out, a $1 million grant for training librarians that was not delivered, and a half constructed
$7.3 million police academy. “Guilty Plea in Iraq Bid-Rigging,” Washington Post, February
2, 2006; “U.S. Accuses Pair of Rigging Iraq Contracts,” Washington Post, November 18,
2005; “2nd Army Officer Charged in Iraq Rebuilding Scandal,” New York Times, December
16, 2005; Management of Rapid Regional Response Program Grants in South-Central Iraq,
Report No. 05-015, October 25, 2005; 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,
available at SIGIR website [http://www.sigir.mil]; “5 Indicted in Probe of Iraq Deals,”
Washington Post, February 8, 2007.
84 “Auditors Find Widespread Waste and Unfinished Work in Iraqi Rebuilding Contracts,”
(continued...)

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CRS-31
Assessments of Reconstruction
There have been dozens of reports and articles during the past three years that
have sought to analyze, criticize, and recommend action regarding the progress of
reconstruction aid.85 Many focus on the history of the aid program with a view
toward explaining the current state of affairs. Others, like the Iraq Study Group
report (see below), seek to improve future outcomes. See the appendix for a
collection of many such criticisms.
Another category of assessments are reviews of specific projects, some findings
of which are noted in the previous section. 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.86 Even these, however, appear constrained by
security in the number of site-visits they are able to undertake to review project
results. The SIGIR is conducting some of its assessments by aerial imagery because
of the risk to its personnel. Government Accountability Office (GAO) investigators
were not even able to visit Iraq while preparing a 2005 report on water and sanitation
programs.87
84 (...continued)
New York Times, January 31, 2006.
85 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
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; Larry Diamond, Squandered Victory: The American
Occupation and the Bungled Effort to Bring Democracy to Iraq, Henry Holt, 2005; James
Fallows, “Why Iraq Has no Army,” The Atlantic Monthly, December 2005; Rajiv
Chandrasekaran, Imperial Life in the Emerald City: Inside Iraq’s Green Zone, Knopf, 2006;
and George Packer, The Assassins’ Gate: America in Iraq, Farrar, Straus and Giroux, 2005;
International Crisis Group, Reconstructing Iraq, September 2, 2004, available at
[http://www.crisisgroup.org/home/index.cfm?]; T. Christian Miller, Blood Money, Little,
Brown, and Company, 2006, and SIGIR, Iraq Reconstruction: Lessons in Program and
Project Management, March 2007.
86 For a list of audits and inspections from all agencies, see SIGIR, Report to Congress,
January 30, 2007, Appendices I, J, K, L.
87 SIGIR, Report to Congress, July 30, 2005, p. 60-66. For an assessment of several aspects
of reconstruction, see GAO, Rebuilding Iraq: Status of Funding and Reconstruction Efforts,
GAO-05-876, July 2005. Also, GAO, Rebuilding Iraq: U.S. Water and Sanitation Efforts
Need Improved Measures for Assessing Impact and Sustained Resources for Maintaining
Facilities, GAO-05-872, September 2005.

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An exception to the dearth of private sector accounts of specific project work
is a February 2006 report by a professional from the Institute of Electrical and
Electronics Engineers who appears to have been given unusual access to power
plants and officials in the electric power sector. In brief, the author highlights
reasons for the long-reported failure of assistance to bring electric power at least up
to pre-war standards. Among these are the specific targeting of electrical
infrastructure by insurgents, the lack of maintenance skills by Ministry of Electricity
workers, and management and personnel problems in the Iraqi government, made
worse by the presence of thousands of fictitious employees drawing paychecks. Less
well known reasons are the low levels of revenue flowing to the Ministry due to
limited use of electric metering and a low rate structure. U.S.-funded construction
is also directly faulted for poor planning, including a mismatch between the generator
technologies provided to Iraq and the fuel available to it. In one case, the best fuel
for the generators — natural gas — was being burned off at an oil field just across
the street from the power plant, and no effort had been made to capture it for use. The
assessment is a reminder that the provision of equipment alone is insufficient —
multiple factors must be addressed to bring significant improvements.88
Some observers have suggested that 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, schools, health care, electricity, and other
requirements is being met by the billions of dollars in U.S. resources — not to
mention Iraqi and other donor resources — targeted at these needs. When such data
has been gathered, mostly by the SIGIR, it suggests that the needs are much larger
than donor or other resources currently being made available.89
88 Glenn Zorpette, “Re-engineering Iraq,” IEEE Spectrum, February 2006, available at
[http://www.spectrum.ieee.org/feb06/2831].
89 Further, “measurements” provided by the Administration have been criticized as highly
selective. See Measuring Stability and Security in Iraq, Report to Congress in accordance
with DOD Appropriations Act 2006, May 2006; and Anthony H. Cordesman, The Quarterly
Report on “Measuring Stability and Security in Iraq”: Fact, Fallacy, and an Overall Grade
of “F”, Center for Strategic and International Studies, June 5, 2006.

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CRS-33
Appendix: Criticisms of Iraq Reconstruction
Included among the many suggestions of what has gone wrong in the Iraq
reconstruction effort from a wide range of sources are the following:
! Inadequate security. As noted earlier in this report, lack of a
secure environment in which to undertake reconstruction meant
delays in project implementation and completion; destruction of
completed projects; greatly increased costs which, in turn, drained
funding from other projects; and a loss of foreign expertise and local
participation that would have made projects more effective. Among
the reasons were a failure to anticipate post-invasion security needs
and the early decision of the CPA administrator to disband the Iraqi
military. Initially, security forces received hurried and insufficient
training.
! No prior planning. Planning for post-Iraq reconstruction was inept.
Military officials planned for a humanitarian crisis that never
happened. Moreover, accounts suggest that efforts to plan for
reconstruction were actively discouraged by the Pentagon leadership
lest it raise potential obstacles to U.S. invasion. The State
Department’s 2002 Future of Iraq Project, which utilized dozens of
Iraqi experts to anticipate post-war concerns, including the
possibility of widespread looting, was studiously ignored by DOD.
! Mismanaged transition to Iraqi governance. Many critics have
pointed to the slow pace of forming a publically approved Iraqi
authority which could have provided Iraqis with a sense of
ownership in the reconstruction and democratic process and
discouraged disorder. In the first six months, foreign aid workers
had no counterpart in the Iraqi ministries able to make decisions that
might advance reconstruction. CPA-imposed de-Baathification
disrupted the functioning of the Iraqi bureaucracy. Further, large-
scale reconstruction efforts were designed with little regard for Iraqi
views and were originally meant to be implemented by U.S.
contractors with Iraqis playing a secondary role.
! Discouraging a U.N. and International Role. The Administration
sought at first to keep control of post-war reconstruction in U.S.
hands, rather than internationalizing it as had been done in Kosovo
and Bosnia. Critics asserted that, had the U.N. been in a position of
greater responsibility, it would have deflected Iraqi criticism of the
United States, legitimized occupation policies, and encouraged
financial and peacekeeping participation by bilateral donors. Donors
were unresponsive to U.S. pleas for either military or financial
assistance, partly because they were not being offered a “seat at the
table” in determining the future of Iraq. The decision to exclude
some countries from competing for Iraq contracts, in the view of
many, further alienated potential international support.

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! Inadequate U.S. civilian administration. Early on, a British
official was quoted as saying of the CPA, “this is the single most
chaotic organization I have ever worked for.”90 The CPA was
understaffed, lacking experience and knowledge of the country, in
many cases with no background in assistance programs, and too
isolated from the Iraqi people (with headquarters in a former palace
and requiring a military bodyguard when they ventured outside).
The level of aid expertise improved under State Department
management, but security concerns continued to limit contact with
Iraqis and insufficient staff numbers negatively affected project
oversight as well as PRT implementation.
! Excessive Reliance on the U.S. Military. Although actual
reconstruction is inherently a civilian effort, in Iraq much of it was
implemented by military personnel. In January 2003, the President
placed sole authority for reconstruction in the hands of DOD, rather
than with development assistance or democracy experts at USAID
and State. In June 2004, after the State Department was given the
lead role, the Army continued to manage about $10 billion in
infrastructure projects, insuring a continued lack of coordination
between assistance entities. Utilizing the CERP program, military
civil affairs teams continue to influence reconstruction at the
grassroots level. Some assert that these are roles for which the
military had not been prepared — there is a long learning curve and
many mistakes were made — and which emphasize to the Iraqi
people the “occupation” character of the U.S. presence. Instead,
some critics suggested that a corps of civilian reconstruction
specialists should have been deployed around the country. As early
as July 2003, the Hamre Assessment Mission report recommended
that 18 provincial CPA offices be established with 20-30 civilian
staff in each.91 It was not until mid-2005, that the PRT program was
launched. Its spread was delayed by military reluctance to provide
security.
! Poor Accountability. As discussed earlier in this report, a number
of projects were poorly implemented. In some cases, funds may
have been misused. What unites many of these accounts, perhaps
most notably the CPA’s cavalier treatment of billions in Iraqi-owned
funds, is that they could have been prevented by more thorough
oversight by government managers.
! Ineffective Assistance. Measurable objectives in critical sectors,
such as oil production and electric power generation, were not met.
90 “America’s Rebuilding of Iraq Is in Chaos, Say British,” London Daily Telegraph, June
17, 2003.
91 John Hamre, and others. Iraq’s Post-Conflict Reconstruction: A Field Review and
Recommendations, July 17, 2003, page 5.

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CRS-35
But the full picture of the effectiveness of the reconstruction effort
in most sectors is clouded by the impact of instability and conflict.
! Inadequate Levels of Assistance. The high cost of conducting
reconstruction projects in Iraq: due to protective security spending
and large overhead costs — amounting in some cases to half of
project totals — meant that amounts appropriated for economic
reconstruction did not produce the equivalent in goods and services
that one would expect in other aid recipient countries. In short, less
bang for the buck. Further, funds originally intended for economic
reconstruction, particularly water and electricity programs, were
diverted to training of Iraqi security forces.
! Too Broadly Dispersed Assistance. The aid effort attempted to do
too much in too many sectors from health to electricity to
microenterprise to roads. As a result, too few resources were
scattered over too many projects to produce a significant impact in
any one of them. Assistance should have been concentrated more
intensively in key areas such as oil production and governance so
that Iraqi funds could have been generated and Iraqi managers could
spend them.
! Poor Contracting and Procurement Processes. The SIGIR has
looked at contracting actions from before the war through the CPA
to the present. Among other problems, it points to the failure to
involve contracting and procurement personnel in the planning
stages of post-conflict reconstruction operations, the lack of
emphasis given contracting for smaller projects, the use of sole-
source and limited competition contracting, and the failure to give
a single unified contracting entity the authority to coordinate all
contracting activity.92
92 SIGIR, Iraq Reconstruction: Lessons in Contracting and Procurement, July 2006.

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