Order Code RL31833
Iraq: Reconstruction Assistance
Updated November 14, 2008
Curt Tarnoff
Specialist in Foreign Affairs
Foreign Affairs, Defense, and Trade Division

---

Iraq: Reconstruction Assistance
Summary
A large-scale assistance program has been undertaken by the United States in
Iraq since mid-2003. To date, nearly $49 billion has been appropriated for Iraq
reconstruction. Most recently, in June 2008, Congress approved over $4 billion for
Iraq reconstruction in an FY2008/2009 supplemental appropriations bill, H.R. 2642
(P.L. 110-252).
Contributions pledged by other donors at the October 2003 Madrid donor
conference and in subsequent meetings have amounted to roughly $17 billion in
grants and loans.
On June 28, 2004, the entity implementing assistance programs, the Coalition
Provisional Authority (CPA), dissolved, and sovereignty was returned to Iraq. U.N.
Security Council Resolution 1546 of June 8, 2004, returned control of assets held in
the Development Fund for Iraq to the government of Iraq. U.S. economic assistance
is now provided through the U.S. embassy, while security aid is chiefly managed by
the Pentagon.
A significant number of reconstruction activities on the ground are completed
or ongoing, but security concerns have slowed progress and added considerable
expense to these efforts. Reconstruction programs have included 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.
Reconstruction priorities and funding mechanisms have changed over time. The
Iraq Relief and Reconstruction Fund (IRRF), the main U.S. assistance account in the
first few years, is no longer available, and most large-scale infrastructure programs
are no longer funded. However, many small-scale, targeted community-level
infrastructure efforts are funded under the Commander’s Emergency Response
Program (CERP) and the Economic Support Fund (ESF). The key emphases of the
aid program are the training of Iraqi forces and programs assisting the development
of Iraqi governing capacities and supporting the work of the Provincial
Reconstruction Teams (PRTs).
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.

---

Contents
Most Recent Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Funding for Reconstruction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
U.S. Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
FY2008 Consolidated Appropriations . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Second FY2008 and FY2009 Supplemental Appropriations . . . . . . . . . 5
FY2009 Regular Appropriations Request and Congressional Action . . 7
Defense Authorization for FY2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Oil Revenue, Corruption, and the Iraqi Capital Budget . . . . . . . . . . . . . . . . . 8
Iraqi Corruption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Iraqi Capital Budget . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Iraqi Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Other Donors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Iraq Trust Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
United Nations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
International Compact for Iraq . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
U.S. Assistance Policy and Program Structure . . . . . . . . . . . . . . . . . . . . . . . . . . 15
U.S. Reconstruction Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Reconstruction Programs and Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Reconstruction Programs: 2003-2006 . . . . . . . . . . . . . . . . . . . . . . . . . 17
Current Reconstruction Priorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Infrastructure Sustainability and Asset Transfer . . . . . . . . . . . . . . . . . 20
Capacity Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Provincial Reconstruction Teams (PRTs) . . . . . . . . . . . . . . . . . . . . . . 22
The Role of Iraqi Private Sector in Reconstruction and DOD
Business Task Force . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
CERP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Accountability, Waste, and Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Assessments of Reconstruction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
List of Tables
Table 1. U.S. Assistance to Iraq . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

---

Iraq: Reconstruction Assistance
Most Recent Developments
On October 14, 2008, the Duncan Hunter National Defense Authorization Act
for FY2009 was signed into law (S. 3001, P.L. 110-417). It bans the use of ISFF
funds for infrastructure projects and restricts the use of the CERP for this purpose by
setting a maximum limit on project cost at $2 million.
On September 30, 2008, FY2009 regular appropriations funding was provided
under the terms of a continuing resolution (H.R. 2638/P.L. 110-329) that allows
foreign aid spending at the level provided in the FY2008 Consolidated
Appropriations Act (P.L. 110-161). The resolution expires on March 6, 2009. The
FY2008 regular appropriations provided no economic aid for Iraq, with the exception
of some humanitarian assistance. Most economic and security assistance for Iraq has
been provided to date under emergency supplemental legislation.
On July 16, 2008, the House State/Foreign Operations Subcommittee approved
its FY2009 bill. It provides no funding for Iraq. On July 17, the Senate
Appropriations Committee reported S. 3288 (S.Rept. 110-425), its version of the
FY2009 State/Foreign Operations bill, recommending $75 million in ESF and $25
million in INCLE funds for Iraq, $275 below the combined request for these
accounts.
In June 2008, Congress approved H.R. 2642 (P.L. 110-252, signed June 30,
2008), an FY2008 and FY2009 emergency supplemental appropriations bill,
providing $4.3 billion in Iraq reconstruction assistance.
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, will likely be scrutinized closely
in the 111th Congress. This report describes recent developments in this assistance
effort and key issues of potential interest to Congress.2
1 U.N. Security Council Resolution 1483, May 22, 2003.
2 For detailed discussion of the Iraq political situation, see CRS Report RL31339, Iraq:
(continued...)

---

CRS-2
Funding for Reconstruction
Several “spigots” have been available to fund Iraq reconstruction during the
period from 2003 to the present. 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
Over the years, U.S. assistance to Iraq has been provided through multiple
appropriations accounts (see Table 1 for funding levels). In the first several years
of the U.S. effort in Iraq, the bulk of U.S. assistance was provided through a specially
created Iraq Relief and Reconstruction Fund (IRRF), placed under the direct control
of the President, supporting aid efforts in a wide range of sectors, including water and
sanitation, electricity, oil production, training and equipping of Iraqi security forces,
education, democracy, and rule of law. The Fund, established in the April 2003
FY2003 Emergency Supplemental (P.L. 108-11, H.R. 1559/H.Rept. 108-76) and
replenished in the November 2003 FY2004 Emergency Supplemental (P.L. 108-106,
H.R. 3289/H.Rept. 108-337), eventually totaled nearly $21 billion.
A new DOD account, the Iraq Security Forces Fund (ISFF), supporting the
training and equipping of Iraqi security forces, was set up under the May 2005
FY2005 emergency supplemental (P.L. 109-13, H.R. 1268/H.Rept. 109-72).
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, was 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 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.”
Another DOD account, the Commander’s Emergency Response Program
(CERP), has provided immediate reconstruction and humanitarian assistance at the
local level to support the work of U.S. military commanders. More recently, a
Business Task Force, attempting to rehabilitate state-owned enterprises to stimulate
2 (...continued)
Post-Saddam Governance and Security, by Kenneth Katzman.

---

CRS-3
the Iraqi economy and increase employment, has been funded out of the DOD Iraq
Freedom Fund account.
By FY2006, the Economic Support Fund (ESF) account had replaced the IRRF
as the main spigot of U.S. economic aid, provided in support of a wide variety of
economic development and governance efforts, but not funding the large-scale
infrastructure programs or the security forces training that characterized much of the
IRRF. ESF, in particular, is a key component of the so-called “surge” initiative,
announced in January 2007. It largely funds the programs implemented by the
Provincial Reconstruction Teams (PRTs), such as improvements to community
infrastructure, job training, vocational education, and micro-loans, and supports
programs at the national level, including Ministerial capacity development,
agriculture and private sector reform, and strengthening of the judicial process and
democratization efforts. Under the FY2007 Supplemental (P.L. 110-28), all ESF,
including previously unobligated funds, was 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 could be waived by the
President. The reports were submitted as required, and the President released $1.7
billion in ESF through waivers issued on July 12 and September 28, 2007.
In addition to ESF, the International Narcotics and Law Enforcement account
(INCLE) has supported “rule of law” efforts, the Democracy Fund supports a range
of democratization and civil society efforts, and the Treasury Department Technical
Assistance program offers experts on financial issues to the government of Iraq.
More recently, humanitarian refugee and displaced persons concerns have been
addressed by increased funding for the Migration and Refugee (MRA) and
International Disaster Assistance (IDA) accounts.
Most funding for Iraq reconstruction has been appropriated under emergency
supplemental appropriations legislation, because it is “off-budget” and does not
compete with other aid priorities in the regular aid bill. Efforts to “regularize” the
economic assistance program for Iraq by requesting funds in the traditional annual
foreign operations appropriations bill have met with limited success. The first such
effort, in 2005 for the FY2006 foreign operations bill (P.L. 109-102, H.R. 3057), saw
only $60.4 million (after rescission) provided of a $414 million request, because
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. Iraq programs received an allocation of only $176.3
million of an $734 million FY2007 regular foreign operations request as a
consequence of the 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), which
only set funding levels for major aid accounts. In December 2007, Congress rejected
almost all of the regular FY2008 request for Iraq (see below).

---

CRS-4
Table 1. U.S. Assistance to Iraq
(appropriations in $ millions)
2008
Consolidated
Regular
(Reg & 1st
2nd 2008
Enacted Total
2009
Fiscal Year
2003
2004
2005
2006
2007
Supp)
Supp
2009 Supp
2003-2009
(request)
Iraq Relief and Reconstruction Fund (IRRF)
2,475.0
18,389.0e
—
10.0a
—
—
—
—
20,874.0
—
Economic Support Fund (ESF)
—
—
—
1,535.4
1,620.8d 15.0
424.0
102.5
3,697.7
300.0
Democracy Fund
—
—
—
—
250.0
—
75.0
—
325.0
—
INCLE (Int’l Narcotics & Law Enforcement)
—
—
—
91.4
170.0
—
85.0
— c
346.4
75.0
IFTA (Treasury Dept. Tech Asst.)
—
—
—
13.0
2.8
—
—
—
15.8
—
MRA (Migration & Refugee Asst.)
—
—
—
—
65.0
149.5
30.0c
141.0c
385.5
—
NADR (Nonprolif, Anti-Terror, De-mining)
—
—
3.6
—
19.4
16.0
—
4.5
43.5
20.0
IMET (Int’l Mil. Ed & Training Program )
—
1.2
—
—
1.1
—
—
—
2.3
2.0
IDA (Int’l Disaster Assistance)
—
—
—
7.9
50.0
80.0
—
45.0c
182.9
—
Other USAID Funds
469.9
—
—
—
—
—
—
—
469.9
—
Total 150 Account
2,944.9
18,390.2
3.6 1,657.7
2,179.1
260.5
614.0
293.0
26,343.0
397.0
DOD - Iraq Security Forces Fund (ISFF)
—
— 5,391.0
3,007.0
5,542.3
1,500.0
1,500.0
1,000.0
17,940.3
—
DOD - Iraq Army
51.2
—
210.0b
—
—
—
—
—
261.2
—
DOD - CERP
—
140.0
718.0
708.0
750.4
370.0
875.0
—
3,561.4
—
DOD - Oil Repair
802.0
—
—
—
—
—
—
—
802.0
—
DOD - Iraq Freedom Fund - Business Support
—
—
—
—
50.0
—
50.0
—
100.0
—
Total 050 Account
853.2
140.0
6,319.0
3,715.0
6,342.7
1,870.0
2,425.0
1,000.0
22,664.9
—
Total U.S. Reconstruction Assistance
3,798.1
18,530.2
6,322.6
5,372.7
8,521.8
2,130.5
3,039.0
1,293.0
48,977.9
397.0
Sources: State Department FY2009 Foreign Operations Congressional Budget Justification; SIGIR Report to Congress, July 30, 2008; and CRS calculations.
Notes: The 150 account encompasses International Affairs spending and is mostly appropriated in the State/Foreign Operations bill. The 050 account is Defense appropriations. This
table does not contain agency operational costs, including CPA, State Department, and PRTs, except where these are embedded in the larger reconstruction accounts. Estimated costs
to date are an additional $3.0-$4.0 billion.
a. Transfer from ESF.
b. Transfer from ISFF to reimburse Army for previous Iraqi training expenses.
c. The appropriation includes an unspecified amount for Iraq. If there was a specific request, assumes request level will be met.
d. Original appropriation was $1,574 million. State Department rescinded $76 million in 2008.
e. Original appropriation was $18,439 million. $50 million was rescinded in 2008 by P.L. 110-252.

---

CRS-5
FY2008 Consolidated Appropriations. On February 5, 2007, the
Administration sent to Congress two budget requests for Iraq reconstruction funding.
First, it requested $391.8 million in regular FY2008 State/Foreign Operations
appropriations — mostly $298 million in ESF and $75.8 million in INCLE. Second,
the Administration issued a request for an FY2008 “Global War on Terror”
emergency supplemental. The emergency request for Iraq reconstruction, as later
revised on October 22, 2007, totaled $4.9 billion, including $3 billion under the ISFF,
$1.2 billion in combined Afghanistan/Iraq CERP funds, $797 million in ESF, and
$159 million in INCLE.
Both House (H.Rept. 110-197) and Senate-approved (S.Rept. 110-128) versions
of the regular FY2008 State/Foreign Operations appropriations (H.R. 2764) rejected
most economic (as opposed to security) aid to Iraq. These views were carried into
the final version of H.R. 2764, which became the vehicle for the omnibus
Consolidated Appropriations Act (P.L. 110-161, signed into law on December 26,
2007). The act included regular FY2008 funding as well as a first tranche of the
FY2008 emergency supplemental appropriations. With a few discrete exceptions,
Congress, in section 699K, specifically rejected almost all regular or supplemental
economic assistance to Iraq provided under the State/Foreign Operations part of the
bill (Division J). It approved efforts to fund humanitarian demining ($16 million in
regular NADR funds) and assist refugees and internally displaced persons (allocated
to date from the larger supplemental MRA and IDA accounts are $149.5 million and
$80 million, respectively), provided $5 million (before imposition of a .81% across-
the-board rescission) in ESF for the Marla Ruzicka War Victims Fund and $10
million (pre-rescission) in ESF for the rescue of Iraqi scholars.
Congress did provide a significant portion of the Administration emergency
supplemental request made for Defense appropriations. It appropriated half ($1.5
billion) of the request for the Iraq Security Forces Fund and nearly half of the total
CERP request (of which $370 million has been allocated to Iraq).
In the end, the Consolidated Appropriations Act provided about 40% of the total
$5.3 billion combined FY2008 regular and emergency Iraq reconstruction request.
More than 88% of the total appropriation is DOD assistance. U.S. funding for PRT
operations and programs and a wide range of other economic aid programs were left
to rely on previously appropriated funds until a second tranche of the FY2008 request
could be considered.
Second FY2008 and FY2009 Supplemental Appropriations.
Outstanding from the FY2008 supplemental request was roughly $2.9 billion in Iraq
reconstruction assistance, of which $986 million was for foreign operations economic
assistance. The outstanding FY2008 foreign operations request was for three
accounts — $797 million in ESF, $159 million in INCLE, and $30 million in MRA.
The outstanding DOD request — nearly $2.0 billion — was for the training and
equipping of Iraqi security forces ($1.5 billion under the ISFF), for development
programs delivered under the CERP (Iraq could expect at least half of the $719
million still outstanding for both Iraq and Afghanistan), and for the Task Force to
Improve Business and Stability Operations in Iraq ($100 million under the Iraq
Freedom Fund account).

---

CRS-6
On May 2, 2008, the Administration issued a request for FY2009 emergency
supplemental funding. The request included $398.8 million for foreign operations
reconstruction — $212.8 million in ESF, $141 million in MRA, and $45 million in
IDA accounts. The DOD appropriations reconstruction request included $2 billion
for the ISFF, $1.7 billion for the CERP in Iraq and Afghanistan, of which at least half
would go to Iraq, and $50 million for the Business Task Force. Both DOD and
Foreign Operations portions of the FY2009 emergency request were considered by
Congress at the same time as the second FY2008 supplemental.
Outstanding FY2008 supplemental funds included operational costs (not
counted in the reconstruction aid total or the table) for staffing and administering
reconstruction programs: $679 million for PRTs. The new FY2009 supplemental
request included funding for PRT operations (an unspecified portion of a total $921
million Embassy/PRT request), $23.6 million for USAID operational expenses, and
$15 million for the Special Inspector General for Iraq Reconstruction (SIGIR).
The final version of the FY2008/2009 supplemental appropriations bill, H.R.
2642 (P.L. 110-252, signed June 30, 2008), approved by the House on June 19 and
by the Senate on June 26, 2008, provided $4.2 billion in Iraq reconstruction
assistance, compared to a combined Administration request of $4.9 billion. (For a
full discussion of House and Senate action on the supplemental, see CRS Report
RL34451, FY2008 Spring Supplemental Appropriations and FY2009 Bridge
Appropriations for Military Operations, International Affairs, and Other Purposes
(P.L. 110-252.)
On the Foreign Operations side, Congress provided a total FY2008/2009
supplemental appropriation of about $907 million, compared to the request of $1.4
billion. Of this amount, $526.5 million is ESF funding. Judging by the allocations
made by the Appropriations Committees for the ESF, there will be a shift in the
direction of the economic aid program favoring more local-level assistance programs.
Of this amount, at least $414 million would be targeted to provincial and local
community activities, rather than programs supporting the national government. PRT
programs would get $174 million. Related community-based programs, the
Community Stabilization Program (CSP) and the Community Action Program
(CAP), would receive $132.5 million and $107.5 million respectively. The bill
withholds half of the (CSP) appropriation until the State Department certifies that
USAID is implementing the Inspector General’s recommendations addressing
concerns about a possible misuse of funds.
Provincial economic growth, including microcredit and agriculture, would get
$25 million. The only significant national-level effort, the National Capacity
Development program, would receive $70 million, a cut of $178 million from the
request. Another request for a nationally-based effort, $70 million for the provision
of infrastructure security protection, was cut entirely. The proposed enterprise fund
would also not be funded. The bill withholds the $10 million approved for funding
infrastructure maintenance (cut by $124 million) until the Department of State
certifies that Iraq has entered into and begun to implement an asset transfer
agreement, including an Iraqi agreement to maintain U.S.-funded infrastructure.

---

CRS-7
Democracy assistance, requested under ESF, is being provided under the
Democracy Fund account at $75 million, and is expected to be implemented through
the National Endowment for Democracy (NED) and other NGOs. The FY2008
INCLE Iraq program funding, at $85 million, was cut substantially, by $74 million,
from the request, and no prison construction funding was included. The bill releases
no more than 40% of rule of law (INCLE) funding until the State Department reports
that an anti-corruption strategy has been developed and is being implemented by the
Iraq government.
The legislation withholds all PRT operating expenses and program funds until
the State Department reports on a strategy for winding down and closing out the
PRTs, on the costs of the PRT program, expenses, security, and any Iraq contribution,
and on the future costs and placement of U.S. consulates in Iraq.
Because operational funds for the PRTs are blended with those of the Embassy
and USAID operating expenses are provided for both Iraq and Afghanistan, it is not
possible to say with certainty whether the full request was met by the legislation. The
bill does provide the SIGIR with $2.5 million and $36.5 million for FY2008 and
FY2009, respectively.
Reflecting recent indications that Members of both parties desired to see the
Iraqi government pay a greater share of the costs of reconstruction, the Act contains
a measure that would require most economic reconstruction funds to be matched by
Iraqi obligations on a dollar-for-dollar basis. The exceptions are for democracy and
human rights programs, the USAID Community Action Program and other NGO-
assisted programs, humanitarian demining, refugee and displaced persons assistance.
The Secretary of State must submit a report by end of September 2008 with amounts
obligated and expended by the government of Iraq. It is not clear from the bill
language whether the match would have to be made project-by-project or whether
total Iraqi funding for reconstruction in general would suffice to permit continued
U.S. assistance at the same level. If the latter, the provision might not affect U.S.
funding significantly as, in the past year, Iraqi obligations for security and economic
reconstruction have approached the U.S. contribution and will likely surpass it in
2008.
The Senate explanatory language on the legislation from May 19 and made
applicable to P.L. 110-252 by section 8004 directs the Secretary of Defense to
develop procedures for an equal cost sharing for all reconstruction projects funded
under DOD appropriations at amounts greater than $750,000. The new process must
begin on October 1, 2008.
FY2009 Regular Appropriations Request and Congressional Action.
On February 4, 2008, the Bush Administration submitted its FY2009 regular
appropriations request, providing $397 million for Iraq reconstruction under foreign
operations and, as is usually the case, making no request under the regular DOD
appropriations. Of the requested amount, $300 million is for ESF, $75 million for
INCLE (rule of law), and $20 million for NADR (mostly demining).
On July 16, 2008, the House State/Foreign Operations Subcommittee approved
its FY2009 bill. It provides no funding for Iraq. On July 17, the full Senate

---

CRS-8
Appropriations Committee reported S. 3288 (S.Rept. 110-425), its version of the
FY2009 State/Foreign Operations bill, recommending $75 million in ESF and $25
million in INCLE funds for Iraq, $275 below the combined request for these
accounts. A recommended NADR account amount for Iraq was not specified.
On September 30, 2008, FY2009 regular appropriations funding was provided
under the terms of a continuing resolution (H.R. 2638/P.L. 110-329) that allows
foreign aid spending at the level provided in the FY2008 Consolidated
Appropriations Act (P.L. 110-161). The resolution expires on March 6, 2009. The
FY2008 regular appropriations provided no economic aid for Iraq, with the exception
of some humanitarian assistance.
Defense Authorization for FY2009. On October 14, 2008, the Duncan
Hunter National Defense Authorization Act for FY2009 was signed into law (S.
3001, P.L. 110-417). It contains several provisions of importance to the
reconstruction of Iraq. The most significant provision (sec. 1508) bans the use of
ISFF funds for infrastructure projects. A large proportion of IRRF security funding
and ISFF funds has gone to the construction of training facilities, border forts, police
stations, and the like. The congressional view in approving this measure is that the
Iraqis should now provide such infrastructure from their own resources. In another
effort to limit the use of U.S. funds for infrastructure, the Act (sec. 1214) restricts the
use of the CERP by setting a maximum limit on project cost at $2 million; anything
over $1 million must be certified by the Secretary of Defense as an urgent
humanitarian or reconstruction requirement. The legislation also authorizes (sec.
1501) only half of the Administration’s FY2009 ISFF request, providing only the $1
billion already approved in the FY2008/2009 supplemental approved in June 2008.
Oil Revenue, Corruption, and the Iraqi Capital Budget
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.”3 Although, until
recently, they have been insufficient in view of Iraq’s enormous needs, oil revenues
have been an important element in reconstruction funding. The May 22, 2003, U.N.
Resolution 1483 which ended sanctions permitted the occupying coalition to use oil
reserves for more long-term reconstruction purposes. The resolution shifted
responsibility for oil profits and their disbursal from the U.N. to the United States and
its allies by establishing a Development Fund for Iraq (DFI) held by the Central Bank
of Iraq and into which oil profits and other Iraqi assets would be deposited.4
3 Press briefing by Ari Fleisher, White House, February 18, 2003; Sec. 1506 Report to
Congress, July 14, 2003, p. 4.
4 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.

---

CRS-9
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 accounted for more than 94% of the Iraqi government revenue
in 2007. 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, and the CPA target of 2.8-
3.0 million barrels/day (MBD) by end of 2004 was not met. In September 2004, rates
of production reached a peak of 2.67 MBD compared with an estimated pre-war rate
of 2.5 MBD, but rates fell after that and for much of the past few years stood at
around 2.0 MBD. Production grew during 2007, and although pipeline disruptions
have periodically cut the rate, in mid-November 2008, the rate was 2.4 MBD. The
Iraqi government goal for 2008 is 2.2 MBD.5
Due to slow rates of expenditure (see below) and increased worldwide oil
prices, Iraqi revenues have far exceeded expectations. According to an August 2008
GAO report, the Iraqi government had a budget surplus of about $29 billion from
2005 to 2007. GAO anticipated a surplus of between $38.2 billion and $50.3 billion
for 2008.6
Until the past two years, payment for operating budget expenses and a variety
of government social programs limited the amount of oil revenue left for
reconstruction. Fuel and food subsidies as well as support for state-owned
enterprises have accounted for as much as $11 billion annually. Because these
practices divert funds from needed reconstruction, Administration officials since
2003 have repeatedly pressured the Iraqi 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 roughly $1.06 a
gallon. Fuel subsidies, reportedly, have been mostly eliminated.7 In response to
rising commodity prices, the government of Iraq announced that in 2008 the monthly
food rations would be halved and recipient numbers reduced.8
5 Department of State, Iraq Weekly Status Report, November 12, 2008, p. 16.
6 GAO, Iraqi Revenues, Expenditures, and Surplus, GAO-08-1031, August 2008.
7 Government of Iraq, International Compact Annual Review, June 16, 2008, p. 33; 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.
8 Department of State, Iraq Weekly Status Report, January 3, 2008, p. 10.

---

CRS-10
Iraqi Corruption. A further concern regarding the amount of oil income
available for reconstruction is the extent of corruption and mismanagement in the
Iraqi government. A 2006 audit of the DFI found that controls over export earnings
were ineffective and funds improperly accounted for by government staff. The
Comptroller General of the GAO has also suggested that there is “massive
corruption” in the Oil Ministry, and the head of Iraq’s Commission on Public
Integrity estimates that corruption has cost the government up to $18 billion. Iraq
ranks third from the bottom on Transparency International’s corruption index.9
A recent SIGIR project inspection report provides one example of how
corruption affects Iraqi-funded reconstruction efforts, even those managed by the
United States. A contract to refurbish three schools, managed by the U.S. military
under the CERP program but funded by the Iraqi government, had to be closed and
efforts instituted to find another contractor when the original Iraqi contractor reported
that he had refused multiple bribe solicitations by Iraqi government representatives.
His refusal was met with threats against him and his family, and he asked to be
released from the contract obligation. Schools that were to be ready by end of July
2008 were therefore not completed by the time the review was conducted in mid-
September.10
A variety of U.S. assistance programs attempt to address the corruption issue.
Among these are provision of staff training and equipment to the Commission on
Public Integrity, the key national anti-corruption organization, similar assistance to
each Ministry Inspector General office, and most rule of law efforts that seek to
strengthen the judicial system. On March 11, 2008, the U.S. Embassy announced the
appointment of Ambassador Lawrence Benedict as Coordinator for Anti-Corruption
Initiatives. In the past, the SIGIR has found fault with management of the Embassy
anti-corruption effort — only 2 of 12 recommendations made by the SIGIR in July
2006 had been fully implemented a year later. However, in a January 2008 report,
the SIGIR noted that the Embassy had taken steps to implement all its concerns, and
a July 2008 report found 5 of the 12 recommendations now fully addressed.11
Iraqi Capital Budget. As the U.S. economic assistance program has
dwindled in size, the importance of Iraqi-owned funds available for large-scale
infrastructure has increased significantly. However, Iraqi ministries have had
difficulty spending their budget for capital projects such as roads, schools, and oil
9 Transparency International, 2007 Global Corruption Perception Index, September 2007;
“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; “Iraqi Judge
Says Maliki’s Government Shields Officials Accused of Corruption,” New York Times,
October 5, 2007; “Nonstop Theft and Bribery Stagger Iraq, New York Times, December 2,
2007; “Iraq Insurgency Runs on Stolen Oil Profits,” New York Times, March 16, 2008.
10 SIGIR, Al Quds, Al Mualameen, Al Faoo Schools Sustainment Assessment, PA-08-149 to
08-151, October 29, 2008.
11 SIGIR, U.S. Anticorruption Efforts in Iraq: Sustained Management Commitment is a Key
to Success, 08-008, January 24, 2008; SIGIR, Progress Made in Implementing Revised
Management Plan, 08-016, April 24, 2008; SIGIR, U.S. and Iraq Take Actions But Much
Remains to be Done, 08-023, July 29, 2008.

---

CRS-11
production. According to U.S. officials, only about 23% of the 2006 capital budget
of about $6.2 billion was spent in that year, and only 3% of a $3.5 billion capital
budget available to the Oil Ministry was spent in 2006. Funds not spent in 2006 were
being utilized in 2007, delaying expenditure of 2007 capital funds, and, later, 2008.
Among the reasons offered for this situation has been a rapid turnover in personnel,
security concerns preventing construction, a lack of personnel skilled in contracting
and managing projects, and a fear by government employees of being accused of
corrupt practices. The latter concern led the Finance Minister in January 2008 to call
for the abolition of the Commission on Public Integrity, a key public watchdog
group.12
Complementing the Administration’s new strategy for Iraq, the Iraqi
government approved a 2007 budget containing $10.1 billion for capital investment,
of which $2.1 billion was expected to go to provincial governments. The 2007 Iraq
budget also included $2.4 billion for investments in oil production and another $3
billion for the construction of new oil refineries to reduce oil product imports.
The allocation and expenditure of the 2007 Iraqi capital budget was one of the
18 benchmarks assessed under section 1314 of the FY2007 Supplemental. In
September 2007, the Administration found progress on this factor to be satisfactory.
In January 2008, however, the GAO found the data on which the Administration
based its reports of 2007 improvements in budget execution to be subject to dispute,
and indicated that actual expenditures may be significantly lower than reported. The
State Department disputed the GAO view.13
There appears to be confusion in the presentation and definition of data by
various agencies, which more recent data has done little to alleviate. For instance,
while a March 2008 DOD report (page 9) noted that 45% of Iraq’s 2007 capital
budget was “spent” through October 2007, a June 2008 GAO report said that total
capital spending rose from 23% in 2006 to 28% in 2007. Often in reporting on the
Iraqi ability to utilize its resources, there is little distinction made between
commitment of funding and spending of those funds. Despite the discrepancies in
reported data, it appears that some improvement has been made in Iraq’s ability to
utilize its resources, especially in view of the significant annual growth in the budget
that must be executed. According to DOD, the Iraqi government spent 118% more
on capital projects in the first five months of 2008 than in the same period in the
preceding year.14
12 “Oil Revenues are in the Billions, but Iraq is Failing to Spend Them,” New York Times;
and SIGIR, Report to Congress, July 30, 2007, p. 5; “Iraqi Finance Minister Warns of
Iranian-U.S. Escalation,” Al-Hayat in BBC Monitoring Int’l Reports, January 23, 2008.
13 GAO, Iraq Reconstruction: Better Data Needed to Assess Iraq’s Budget Execution,
January 2008, GAO-08-153; White House, Benchmark Assessment Report, September 14,
2007, p. 27; “State Dept. Official Disputes Iraq Report,” Washington Post, January 17,
2008.
14 DOD, Measuring Stability and Security in Iraq, September 2008 Report to Congress, p.
9; June 2008 Report to Congress, p. 10; March 2008 Report to Congress, p. vi, 9; GAO,
Progress Report: Some Gains Made, Updated Strategy Needed, 08-837, June 2008, p. 43.
(continued...)

---

CRS-12
Both U.S. Embassy and PRT assistance are partly aimed at helping ministries
and local government, respectively, develop the capacity to efficiently utilize these
Iraqi-owned resources (see “Capacity Development” section below). According to
U.S. officials, since 2007, the government of Iraq has taken significant steps to
facilitate execution of its capital budget, including formation of a senior-level task
force, establishment of new procedures such as revised procurement regulations, and
additional training. In 2008, a number of ministries and governors have been
permitted to enter into contracts at much higher levels than previously and a central
contracts committee has been replaced with a more decentralized system.
The second FY2008 supplemental appropriations requires that Iraq match U.S.
economic aid appropriations on a dollar-for-dollar basis. Although the Iraqi
government budget, on paper, has provided funding for capital investments
equivalent to the U.S. reconstruction effort in some sectors, its expenditures to date
have not matched those of the United States. According to the GAO, the United
States spent about $23.2 billion on four critical sectors — security, oil, electricity,
and water — from FY2003 through June 2008, 70% of its total allocation of $33.4
billion in these sectors. Iraq, however, spent 14%, $3.9 billion, of its total $28 billion
allocation for these same sectors from 2005 through 2008.15
With rising oil revenue, the Iraqi government 2008 budget, originally approved
at $49.9 billion, $13.1 billion of which was for capital projects, was amended in July
2008. Although announced at $72 billion, of which $21 billion was for capital
projects, it has subsequently been lowered to $67 billion, due to the fall in oil prices.
Nonetheless, it is clear that the Iraqi 2008 budget for items that parallel U.S. funding
for both security and economic reconstruction activities has grown to surpass, on
paper, the U.S. contribution. If Iraqi capacities are better addressed and corruption
restrained, obligations and/or expenditures could match or exceed it.
Iraqi Debt
At the time of the invasion, Iraq’s debt, both public and private, was estimated
at $125 billion. Current total debt is estimated at $74 billion.16
Since 2003, 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
14 (...continued)
15 GAO, Iraqi Revenues, Expenditures, and Surplus, GAO-08-1031, August 2008, p.17.
16 Based on Paris Club data. Does not include $29 billion in unpaid Gulf War reparations.
International Monetary Fund, Iraq: Use of Fund Resources — Request for Emergency Post-
Conflict Assistance, September 24, 2004. SIGIR, Report to Congress, App. M-4.

---

CRS-13
than to forgive it, arguing that, as an oil rich country, Iraq could afford someday to
pay its debts.17
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
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 has borne about $69 billion in other
bilateral debt (mostly to Gulf States countries) and more than $21 billion in
commercial debt. Of the latter, most claims have been resolved. In May 2007, four
nations offered to forgive nearly $21 billion of Iraqi bilateral debt as part of their
participation in the International Compact with Iraq. Negotiations with Saudi Arabia
to forgive 80% of Iraq’s estimated $15 billion debt reportedly broke down in
September.18 In July 2008, the United Arab Emirates announced it would forgive all
$3.6 billion in Iraqi debt.19
Other Donors
To date, according to the SIGIR, more than 40 non-U.S. donors have offered
about $17.0 billion in economic reconstruction funds to Iraq.20 Of this reconstruction
assistance, grant aid promised by other donors totals about $5.3 billion. These
include $1.6 billion by Japan, $832 million by the United Kingdom, $214 million by
Spain, $920 million by the European Commission, $200 million by South Korea, and
$350 million by Italy. Much of the grant assistance has been provided as a
contribution to the IRFFI (see below). Of the nearly $12 billion offered in loans,
about $3.2 billion have been provided, including by Japan ($2.1 billion), the World
Bank ($399 million), and the IMF ($744 million).
17 “G-7 Agrees That Iraq Needs Help with Debt,” Washington Post, April 13, 2003;
“Restructuring, Not Forgiveness,” Financial Times, April 15, 2003.
18 Department of Defense, Measuring Stability and Security in Iraq, March 2008, p. 9;
SIGIR, Report to Congress, April 30, 2008, App. M. See CRS Report RL33376, Iraq’s
Debt Relief: Procedure and Potential Implications for International Debt Relief, by Martin
A. Weiss, for further details.
19 Department of State, Weekly Status Report, July 8, 2008, p. 22.
20 SIGIR, Report to Congress, October 30, 2008, p. H-1. Most of these pledges were made
at the Madrid Donor Conference held in October 2003. In addition, 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. U.N. Office for the Coordination of
Humanitarian Affairs, Total Humanitarian Assistance for Iraq Crisis 2003. April 5, 2004.

---

CRS-14
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
grant aid it pledged and has developed projects for use of $2.1 billion of a $3.5
billion concessional loan pledge. Among other things, it has provided significant
funding for electrical power station rehabilitation, water treatment units and tankers,
medical equipment, and firetrucks and police vehicles. 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 provided an Emergency Post-conflict
Assistance package in 2004 and continues to offer a roughly $744 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.21
Iraq Trust Fund. During much of the U.S. occupation, donors had been
reluctant to contribute to reconstruction because they had no say in where the funds
were to be allocated.22 To deal with this concern, a multi-donor trust fund, the
International Reconstruction Fund Facility for Iraq (IRFFI), was established on
December 11, 2003. 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 July 2008, 25 donors had deposited about $1.9 billion in the Facility. Among
other activities, the World Bank Fund ($497 million committed) has financed
textbooks, school rehabilitation, and water and sanitation infrastructure, and has
provided hundreds of Iraqi civil servants with management training. The UNDG
Fund ($1.4 billion committed) is supporting a wide range of projects, most to be
implemented by the Iraqi government.23
United Nations. Despite the devastating bombing of its Baghdad compound
in 2003, the U.N. has played a major role in Iraq reconstruction. The U.N has been
largely responsible for providing assistance and guidance to promote 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. Subsequently, the U.N. helped with the constitution-writing process, the
constitutional referendum, and the December 2005 parliamentary election. The U.N.
21 IMF, Iraq Financial Position in Fund as of September 30, 2007, [http://www.imf.org];
World Bank, World Bank Operations in Iraq, as of September 30, 2007.
22 “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.
23 IRFFI website, [http://www.irffi.org].

---

CRS-15
is currently assisting in organizing provincial elections expected in January 2009.
With Trust Fund support, the development organizations within the United Nations
are actively working on dozens of projects. U.N. Security Council Resolution 1830,
approved August 7, 2008, extended the U.N. Mission for Iraq (UNAMI) another year.
In the same month, the UN and Iraq agreed on an Assistance Strategy for the period
2008-2010, the first one of its kind since the 1990s. The number of U.N.
international staff in Iraq itself has grown significantly since 2006; in September
2008 there were about 354, as well as about 420 local staff.24
International Compact for 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 have pledged funds and, in return, Iraq has promised 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 $700 million in non-U.S. grant
and loans commitments (included in the above donor totals) and $21 billion in debt
relief are estimated to be associated with the Compact.25
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.26
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 some of 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 Embassy’s
Office of Provincial Affairs is in charge of the PRTs.
24 “Security Council Approves a Broader U.N. Mandate in Iraq to Seek Reconciliation,” New
York Times, August 11, 2007; “New U.N. Envoy in Iraq Sets Out Strategy to Revive Hopes
Crushed in 2003 Attack,” New York Times, December 3, 2007; “U.N. to Help Organize Iraqi
Elections Set for October,” New York Times, February 15, 2008; UNAMI Focus, September
2008, p. 4.
25 Ambassador David Satterfield, Department of State briefing on April 30, 2007; SIGIR,
Report to Congress, July 30, 2007, p. 131.
26 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.”

---

CRS-16
The Project and Contracting Office (PCO), formerly the CPA’s Program
Management Office (PMO), is run by the Army Corps of Engineers, Gulf Region
Division (GRD), headed by Brig. Gen. Jeffrey J. Dorko.27 The GRD-PCO has been
chiefly responsible for the more than $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 General Odierno, as commander of the multinational forces in Iraq. He also serves
as principal military adviser to the U.S. ambassador. 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.28
A third major U.S. actor in the implementation of the aid program is the U.S.
Agency for International Development (USAID). Responsible for more than $5.2
billion of assistance to date, USAID manages a wide range of economic, social, and
political development programs. Its programs have included a multi-faceted, large-
scale construction project and most activities related to public health, agricultural
development, basic and higher education, civil society, local governance,
democratization, and policy reform.
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
SIGIR issued his first report to Congress regarding his audits and investigations on
March 30, 2004, and has reported quarterly since then.29
The SIGIR’s scope of authority originally encompassed only the IRRF, although
the SIGIR has responded to specific congressional and executive branch requests to
27 The PCO and IRMO were established by the May 11, 2004 NSPD. See GRD-PCO website
at [http://www.rebuilding-iraq.net].
28 “Aid to Iraq Ministries to Shift to Pentagon,” Washington Post, September 26, 2005.
29 See [http://www.sigir.mil/] for reports and audits.

---

CRS-17
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. The FY2008 Defense Authorization (H.R. 4986,
P.L. 110-181), signed into law on January 28, 2008, broadens the authority of the
SIGIR to include all reconstruction programs from all accounts and all years.
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 Programs and Issues
Reconstruction Programs: 2003-2006. Most funding during the first
several years of the U.S. assistance program came from the Iraq Relief and
Reconstruction Fund (IRRF). The nearly $21 billion provided through that account
supported the entire range of economic and security programs. Although FY2004
IRRF funding levels were initially established in 10 categories of assistance,
reconstruction priorities changed over time and allocations mirrored shifting events
on the ground. For example, in November 2003, 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. Although
these and later reallocations were pragmatic responses to new events on the ground,
their cumulative impact was to divert funds from previously planned programs. As
a result, water and sanitation projects were cut by half (from $4.3 billion to $2.1
billion), and electric power programs lost a quarter of their original funding (from
$5.6 to $4.2 billion). In the end, nearly a quarter of the IRRF ($5 billion) has gone
to the training and equipping of Iraqi security forces, nearly half (roughly $10 billion)
to economic infrastructure — the construction of water, oil, electric, and other
facilities — and another quarter to a range of more traditional assistance in health,
education, policy reform, and other areas.
These reconstruction programs have shown mixed results.30 There have been
many positive outputs. Among achievements of the U.S. reconstruction program,
more than 1,200 security facilities — police stations, border forts, fire stations,
courts, etc. — were completed. Nearly a half-million police and military security
30 SIGIR, Report to Congress, October 30, 2008 and previous reports; Department of State,
2207 Report to Congress, July 2008.

---

CRS-18
forces have been trained and equipped. As of October 23, 2008, security
responsibility for 12 of the 18 provinces has been handed over to the Iraqi authorities.
Health facilities have been rehabilitated and equipped, health care providers trained,
and medical services such as immunizations provided. The deepwater port at Umm
Qasr was restored, as were 96 of 98 railway stations, two international airports, and
three regional ones. Local governance has been strengthened through establishment
of councils and community associations. More than 6,000 grassroots projects have
been conducted through USAID grants provided to more than 1,450 community
action groups. Voter education, training of election monitors, and related activities
contributed to three successful elections in 2005. Technical experts continue to
provide advice to government agencies regarding adoption of budgetary and
management reforms. About 6,716 schools were rehabilitated and 60,000 teachers
trained. Irrigation systems were rehabilitated, 68 veterinary clinics reconstructed, and
83,500 date palm offshoots planted. Agricultural extension agents have been trained
and agribusiness supported. Credit has been provided to micro and small business.
U.S.-funded projects have added 2,500 megawatts (MW) to Iraq’s generating
capacity. Water and sanitation sector assistance has provided clean water to 6.7
million people and sanitation to 5.1 million. As noted earlier, oil production, largely
stagnant in the first few years, has risen to near pre-war levels.
Yet, along with the accomplishments have come less than satisfactory outcomes.
In the critical sectors of electric power and oil production, outputs were less than
originally envisioned.31 Many health-related construction projects experienced
considerable delays, and contracts won by U.S. firms had to be revoked and re-
awarded to Iraqis, including 12 of 20 refurbished hospitals. Only 91 of a planned 142
new clinics will be completed with U.S. funding. Further, the Basrah Children’s
Hospital has had significant cost overruns. Although the airports and seaport have
shown considerable activity, only a tiny percentage of Iraqi trains run because of
security concerns, but numbers have been improving in recent months. Despite
democratization efforts, halting progress has been made on achieving national
reconciliation, including amending the Iraqi constitution, and holding long-promised
local elections.
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. While the U.S. water and sanitation contribution has been significant,
the International Committee of the Red Cross estimates that more than 40% of Iraqis
do not have access to clean water. Despite U.S. efforts in the health sector, Oxfam
31 Before the war, electric power was 4,500 MW and, until recently, capacity fell well below
this level despite an early goal of reaching 6,000 MW. However, by the 3rd quarter of 2007,
it had increased to around 4,550 MW, a post-war record. In the 3rd quarter of 2008 it was
4,919 MW. In Baghdad, Iraqis receive fewer hours of electricity than before the war
(averaging about 17 hours in early November); elsewhere they receive more than previously
(about 15 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. The GAO estimates that an infrastructure investment of $27 billion
is required to meet demand. See oil section of this report for history of that sector. Glenn
Zorpette, “Keeping Iraq in the Dark,” New York Times, March 11, 2008.

---

CRS-19
reports that 90% of Iraq’s 180 hospitals lack basic medical and surgical supplies.32
U.S. transport assistance is said to have repaired only 8 bridges of 1,156 in poor
condition or destroyed. 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 (see security section). A more peaceful environment in the past year has set the
stage for noteworthy improvements in the electric and oil sectors.
Current Reconstruction Priorities. As of the end of September 2006,
IRRF funds were no longer available for obligation, and most large-scale
infrastructure programs, which chiefly characterized IRRF economic efforts, are no
longer funded by the United States (although there are a number of exceptions — a
new Amara surgical hospital is being funded with ESF funds, the CERP increasingly
funds larger projects, targeted neighborhood-oriented infrastructure projects and
sustainment of completed infrastructure projects continue, and, until an October 2008
prohibition was imposed, the ISFF supported construction of security-related
facilities).33 The major elements of current assistance are as follows:
! Military-Security Assistance. More than four-fifths of total
FY2008 regular and supplemental reconstruction appropriations are
applied to 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). There are 27 PRTs, including 13
embedded with combat battalions (ePRTs) 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).
32 State Department, Iraq Weekly Status Report, November 5, 2008, p. 14; Oxfam, Rising
to the Humanitarian Challenge in Iraq, July 30, 2007, p. 3 and 11.
33 According to the SIGIR, most of the “unobligated” FY2003 IRRF funds were used to
reimburse the Department of State for reconstruction costs incurred prior to the
appropriation. (SIGIR, Report to Congress, October 31, 2007, p. 61.) According to the
Department of State, $402 million of the remaining “un-obligated” FY2004 IRRF funds
were considered “expired” and can only be used for claims and adjustments related to
existing IRRF-funded contracts. (2207 Report to Congress, October 2007, p. 1.) $50 million
of this total was rescinded under P.L. 110-252.

---

CRS-20
! 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.
Finally, there has been increasing attention paid to humanitarian needs.
! Humanitarian Aid. The Migration and Refugee Assistance (MRA)
and International Disaster Assistance (IDA) accounts address the
problems of a refugee and internally displaced persons population
amounting to more than 4.6 million.
Security, sustainability, PRTs, governance, and humanitarian needs constituted the
key features of the Administration budget reconstruction aid requests for FY2008 and
FY2009.
Infrastructure Sustainability and Asset Transfer. A s
l a r ge - s c al e
construction projects — power plants, water and sanitation systems, oil facilities, etc.
— have been completed, there has been 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 SIGIR “sustainment reviews” that suggested
projects transferred to Iraqi control are not being adequately maintained. For
instance, a July 2007 assessment found that two Baghdad region power station units
that had been rehabilitated with U.S. funds were not operational, largely because of
insufficiently maintained equipment.34
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 facilities and insuring sufficient funds are available
for repairs and equipment replacement following project completion. At the Ministry
level, the United States is assisting development of policies and laws conducive to
efficient use and maintenance of infrastructure.
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 use of biometrics, 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.35
The long-term responsibility for sustainability, however, lies with the Iraqi
government. Although a “principal objective” of the U.S. infrastructure construction
34 SIGIR, Report to Congress, April 30, 2007, p. 147; SIGIR, Report to Congress, July 30,
2007, p. 7; SIGIR, Project Assessment 07-103, Doura Power Station Units 5 and 6, July 18,
2007.
35 State Department, 2207 Report to Congress, January 2008, p. III6-9.

---

CRS-21
program has always been the “swift transition of the reconstruction effort to Iraqi
management and control,” the SIGIR found in July 2007 that the Iraqi government
had not accepted any U.S. project transfers since July 2006. As of May 31, 2007,
2,363 projects valued at $5.3 billion awaited transfer. According to the SIGIR, the
U.S. government in some cases has continued to fund maintenance of projects
pending acceptance by Iraq.36 A SIGIR report in April 2008 found that only limited
progress had been made in establishing an asset transfer process, and that current
planning included only IRRF projects and excluded more than $2 billion in ESF,
ISFF, and CERP projects.37 In July 2008, the SIGIR noted the continued lack of a
definitive asset transfer agreement — many facilities were being transferred
unilaterally without formal Iraqi government acceptance — and was preparing to
conduct a review of the process.38 P.L. 110-225 withholds $10 million in
infrastructure maintenance funding until the Department of State certifies that Iraq
has entered into and begun to implement an asset transfer agreement, including an
agreement to maintain U.S.-funded infrastructure.
Capacity Development. Much effort and assistance has gone into improving
the capabilities of government ministries, including equipping and training personnel
at all levels of service, and situating U.S. advisers in every ministry. 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 essential elements of an
effective Iraqi government. As noted earlier, both the national Government of Iraq
and provincial governments have had difficulty implementing capital budgets. U.S.
programs, including institution of 18 Provincial Procurement Assistance Teams,
several Procurement Assistance Centers (two in Baghdad and one in Erbil), and a
range of training programs in public administration, appear to have led to
improvement over the previous year’s performance in this regard, although the extent
of that improvement has been subject to some dispute (see “Oil Revenue and Iraqi
Capital Budget” section).39
In 2005 and 2006, the SIGIR highlighted problems with U.S. implementation
and coordination of capacity development programs, pointing out that, as there was
no single organization responsible for the reconstruction effort, the capacity building
program had gone without an integrated plan providing coordination and priorities
to the multiple organizations responsible for it. These points were reiterated in an
October 2007 GAO report on the effort. Perhaps responding to the SIGIR’s
concerns, in early 2007, the newly appointed Coordinator for Economic Transition
began leading an Embassy Budget Execution Initiative. This initiative established
36 Iraq Reconstruction Pre-Proposal Conference Briefing Slide Show, DOD, January 21,
2004; SIGIR, Transferring Iraq Relief and Reconstruction Fund Capital Projects to the
Government of Iraq, Audit 07-004, July 25, 2007.
37 SIGIR, Transferring Reconstruction Projects to the Government of Iraq, 08-017, April
2008.
38 SIGIR, Report to Congress, July 30, 2008, p. 4.
39 GAO, Better Data Needed to Assess Iraq’s Budget Execution, 08-153, January 2008, p.
15-19.

---

CRS-22
an interagency task force to coordinate U.S. activities, including those of USAID and
the U.S. senior consultants assigned to each ministry. The GAO findings suggested
that this and parallel efforts had not resolved coordination issues and that only in late
2007 had U.S. officials begun to develop a capacity development strategy.40
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). There are
two types of PRTs in Iraq — the original PRTs and embedded PRTs.41 In each case,
the military provides protection to U.S. civilian officials and development specialists,
allowing them access to parts of Iraq that otherwise would not be possible. The
PRTs are now a major purveyor of U.S. reconstruction aid — responsible for over
$1 billion in FY2006 and FY2007 ESF funds — and a key element in the President’s
new strategy for Iraq.
The first PRTs were made up of Embassy, PCO, USAID, military, and other
U.S. agency staff, between 35 and 100 members in each, with the State Department
as leader. There are currently 14 of these PRTs. Three are British, Italian, and South
Korean-led, respectively.42
Embedded PRTs — called ePRTs — are structured differently than their
predecessors. They are embedded in Brigade Combat Teams with the Brigade
Commander acting as leader. Most have 8 to 12 personnel. They were created as
part of the January 2007 surge strategy, which also saw an increase in U.S. forces.
In essence, the strategy envisions that, as U.S. and Iraqi military forces work to clear
and hold an area, ePRT staff will 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. They play a major role in reconciling tribal,
municipal, district, and provincial government entities. Of the 13 ePRTs — nine are
in Baghdad, three in Anbar, one in northern Babylon, one in southern Diyala, and one
is in Wasit province.43
While the new ePRTs are more focused on establishing stability, the other PRTs
emphasize improvement of local governance. They work together with local
community and Iraqi government representatives — forming Provincial
Reconstruction Development Councils (PRDCs) — to identify projects that can be
40 SIGIR, Status of Ministerial Capacity Development in Iraq, Audit 06-045, January 30,
2007; SIGIR, Report to Congress, July 30, 2007, pp. 61-66; SIGIR, Report to Congress,
October 31, 2007, pp. 101-105; GAO, U.S. Ministry Capacity Development Efforts Need an
Overall Integrated Strategy to Guide Efforts and Manage Risk, GAO-08-117, October 2007.
41 There are also four Provincial Support Teams (PSTs), much smaller teams that reside on
a military forward operating base and provide advice to provincial officials as needed.
These are being converted to PRTs or blended into existing PRTs.
42 SIGIR, Review of the Effectiveness of the Provincial Reconstruction Team Program in
Iraq, 07-015, October 18, 2007; 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.
43 SIGIR, Report to Congress, July 30, 2007, pp. 53-60; SIGIR, Status of the Provincial
Reconstruction Team Program Expansion in Iraq, Audit 07-014, July 25, 2007.

---

CRS-23
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.44
At the disposal of all PRTs is a tool-box of projects that can be implemented at
the grass-roots level. PRDC-identified projects tend to be focused on infrastructure
— road and bridges, water and sanitation, schools, and health clinics — and usually
are finished in one year. Although the Embassy must approve them, PRDC projects
generally are implemented by the Army Corps of Engineers. In August 2007, a new
Quick Response Fund (QRF) that mimics the flexibility of the CERP in funding local
community projects was made available to the PRTs. They support local
government, NGOs, and small businesses.
In addition to economic projects directly handled by the PRTs, USAID runs
several programs, often in conjunction with the PRTs, that address local-level
concerns. 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, although apparently provided independently, Commander’s Emergency
Response Program (CERP) funding 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.
One problem with these multiple assistance programs is that they are
implemented by different agencies, with different funding sources, and different
authorities, raising concerns regarding coordination of program coherence. Among
other criticisms of the PRTs are that they lack clear lines of authority, agreed
missions, and measurable objectives.45
Security constraints may have negatively affected PRT performance, especially
in its first years. One reason there had been limited grassroots development work in
the provinces up to the creation of the PRTs in 2005 is the lack of security. Although
originally reluctant to divert the necessary manpower from its other responsibilities,
the Department of Defense finally agreed to provide protection to the PRTs and a
Memorandum of Understanding to this effect was signed in November 2006.
44 Robert Perito, Embedded Provincial Reconstruction Teams, U.S. Institute of Peace
Briefing.
45 U.S. House of Representatives, Committee on Armed Services, Subcommittee on
Oversight and Investigations, Agency Stovepipes vs Strategic Agility: Lessons We Need to
Learn from Provincial Reconstruction Teams in Iraq and Afghanistan, April 2008.

---

CRS-24
However, according to an October 2006 SIGIR report, minimum “movement” by
PRT personnel required three armored vehicles and eight “shooters.” Normal
business was, therefore, difficult. The SIGIR reported that many PRT members
could not regularly meet with local government officials to carry out their capacity-
building chores.46 Further, a former PRT diplomat who left in January 2007
suggested that local Iraqis were too intimidated to meet with U.S. staff and that
training sessions had been cancelled due to security concerns.47 In January 2007
congressional testimony, however, Secretary Rice indicated that civilian staff were
able to meet regularly with local government personnel, and Ambassador Satterfield
claimed in February 2007 that the SIGIR’s views on this issue did not reflect current
reality. But a March 2007 article based on PRT foreign service officer reports
indicated that the security problem had persisted.48 The October 2007 SIGIR report
continued to find that PRT performance was impeded by security concerns, and its
draft version even recommended that personnel be reassigned to better functioning
PRTs until security improved. According to the SIGIR, the Embassy and military
promised new efforts to ensure that PRTs were not hindered by lack of appropriate
security.49
The March 2007 article mentioned above also raised the concern that security
obstacles facing PRTs might increase as U.S. troops protecting PRT staff hand
responsibility for security over to Iraqi forces. In September 2007 testimony to
Congress, a SIGIR official noted that there was little coordination between the PRTs
and U.S. military in those cases where security has been handed to the Iraqis. As a
result, the official suggested that U.S. civilians would be unable to move about freely
and, consequently, PRTs might be unable to function in those areas where the U.S.
military steps down.50 Whether the ePRTs are to be dissolved or redeployed
elsewhere following the draw-down on “surge” forces is not yet apparent. The
FY2008/2009 supplemental withheld all PRT operating expenses and program funds
until the State Department reported on a strategy for winding down and closing out
the PRTs. That strategy, issued on September 7, 2008, reportedly envisions that the
mission currently carried out by PRTs will evolve into a traditional USAID program
at some point.51
46 SIGIR, Status of the Provincial Reconstruction Team Program in Iraq, 06-034, October
29, 2006.
47 “Ex-Envoy Says Iraq Rebuilding Plan Won’t Work,” Reuters, February 17, 2007.
48 “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.
49 SIGIR, Review of the Effectiveness..., October 18, 2007, p. x.
50 Shawn Dorman, “Iraq PRTs: Pins on a Map,” Foreign Service Journal, March 2007;
Testimony of Ginger Cruz, Deputy SIGIR, to House Armed Services Committee, Subcomm.
on Oversight, September 5, 2007.
51 SIGIR, Report to Congress, October 20, 2008, p. 9.

---

CRS-25
As of July 2008, there were about 450 U.S. agency personnel in the PRTs,
counting temporary government employees and contractors.52 Up to mid-2008, the
availability of qualified U.S. government civilian staff had been a concern. 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, city management, business
development, and agricultural advisers were not being fully met. That situation
continued as the ePRTs were established. About 104 of the new ePRT posts were
temporarily occupied by military personnel or civilians until State was able to recruit
sufficient numbers of skilled individuals. Those recruited in specialized skills are
mostly contract personnel, because such skills are not typically available from either
the State or USAID foreign service. According to the October 2007 SIGIR report,
many PRTs at the time were at half-capacity, there was a mismatch of skills to
requirements, and there were only 29 bilingual Arabic-speaking cultural advisers.53
The Role of Iraqi Private Sector in Reconstruction and DOD
Business Task Force. One facet of the U.S. reconstruction effort has been an
attempt to encourage economic growth and decrease unemployment by trying to
utilize Iraqis 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
under 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.54
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.55 Consequently, many bridge and road projects were then implemented
directly with the Ministry of Construction, with estimated savings of between 30%
52 But not counting local staff amounting to about 260. The U.S. agency staff, including
contractors, encompasses 230 deployed by the State Department, 95 by USAID, 90 by DOD,
20 by USDA, 10 by Justice, and 5 by the Commerce Department. GAO, Provincial
Reconstruction Teams in Afghanistan and Iraq, 09-86R, October 1, 2008.
53 SIGIR, Report to Congress, October 30, 2007, p. 87; “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.
54 Stuart Bowen, Testimony to House Foreign Operations Appropriations Subcommittee,
September 7, 2005.
55 BNA, Inc., Federal Contracts Report, January 11, 2005.

---

CRS-26
and 40%.56 As some U.S. contractors were shown to perform inadequate work, they
were replaced by Iraqi contractors. Unfortunately, increasing the use of Iraqi
contractors may have unintentionally increased opportunities for the diversion of U.S.
assistance for corrupt purposes.
While hundreds of Iraqi firms were working on U.S.-funded reconstruction
projects at one time, these numbers have fallen significantly as construction projects
have been completed. CERP and USAID Community Action Program grants are
often designed to directly employ large numbers of Iraqis, many at the village level.
About 118,691 Iraqis were reported to be employed under all U.S.-funded projects
in early November 2008.57
In the past year, U.S. defense officials, seeking to create employment
opportunities for Iraqi citizens, have begun a number of activities to stimulate
business development. To support this effort — entitled the Task Force to Improve
Business and Stability Operations — Congress approved $50 million in the FY2007
supplemental and has approved an additional $50 million under the DOD Iraq
Freedom Fund account in the second tranche of the FY2008 supplemental. The
SIGIR reports that another $80 million has been provided through other funding
spigots in the past two years.
About $50 million of the funds are being used to rehabilitate some of the
roughly 240 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. Roughly 34 factories have been started-up
or had production increased: among them, one producing Iraqi uniforms, another
armored vehicles, and another household ceramic bathware for domestic Iraqi
consumption. Funds are used to purchase production equipment and raw materials,
to repair equipment, to train managers, and to establish a supply chain, among other
things.
A further Task Force effort directs U.S. military contracts to Iraqi business —
$200 million worth each month to over 3,900 private sector businesses, according to
the DOD. The Task Force also seeks international investment in the enterprises with
a view to eventual privatization. It claims $1 billion in such investment to date. It
also promotes investment in new enterprises and claims $1 billion has been attracted
to this endeavor. The Task Force claims credit for facilitating a recent contract for
construction of a new hotel in Baghdad. The Task Force has further sought to
encourage the development of the private banking system, promoting formation of
a consortium of these banks and assisting the adoption of electronic funds transfers.58
56 Ambassador Jeffrey, Testimony to House Foreign Operations Subcommittee, September
7, 2005. Department of State, 2207 Report to Congress, October 2005, p. 3.
57 Department of State, Iraq Weekly Status Report, November 5, 2008, p. 20.
58 SIGIR, Report to Congress, October 30, 2008, p. 75; SIGIR, Information on a Special
Department of Defense Program to Foster Economic Recovery in Iraq, 08-024, July 29,
(continued...)

---

CRS-27
Skepticism had been expressed regarding the DOD program when it was
launched. About 100,000 jobs have reportedly been created versus the original DOD
employment goal of 150,000 jobs in 140 restarted factories by September 2008.
Some have suggested that, unless well-managed, investments in SOEs might provide
opportunities for corruption and political manipulation.59 DOD officials attributed
early program problems to a lack of enthusiasm by U.S. companies, the Iraqi
consumer’s preference for imported goods, the lack of electricity, and the uncertain
political and security environment.60
CERP. Drawn from DFI and Department of Defense funds rather than IRRF
or ESF appropriations, the Commander’s Emergency Response Program (CERP)
contributes to the reconstruction effort by providing U.S. military commanders on the
ground with “walking around money” intended to win hearts and minds throughout
Iraq. Up to now, a total of about $4.1 billion — $548 million in CPA-provided Iraqi
funds and about $3.6 billion in U.S. DOD appropriations — has been made available
for this purpose. In April 2008, the Iraqi government allocated $300 million to
establish an Iraqi CERP to be managed by the U.S. military.
In addition to the dolls, tee shirts, sheep, and other items reportedly provided to
win popular support, the CERP supports a wide variety of reconstruction activities
at the local level, from provision of micro-grants to businesses to digging wells to
painting schools, provided in the form of small grants.61 CERP also funds
infrastructure efforts, such as repair or provision of electric generators and
construction of water and sewer systems, roads, and schools. Commanders identify
local needs and dispense aid with few bureaucratic encumbrances. Major
subordinate commanders have authority to approve grants up to $500,000. The
grants have been credited with helping the military better exercise their security
missions, while at the same time meeting immediate neighborhood development
needs, often much more quickly than equivalent efforts of the civilian reconstruction
program. In addition to reconstruction, CERP funds are used for compensation
payments to the families of killed or injured Iraqis.62 The CERP has also been used
to pay the salaries of the so-called Sons of Iraq (formerly known as the Concerned
58 (...continued)
2008; DOD, Measuring Stability and Security in Iraq, December 2007, p.10 and June 2008,
p. 12-13; 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; Paul Brinkley, “Restoring Hope,” Military Review, March-April 2008.
59 SIGIR, Report to Congress, April 2008, p. 132; 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.
60 “U.S. Falters in Bid to Boost Iraqi Business,” Washington Post, August 24, 2007; SIGIR,
Report to Congress, October 30, 2007, p. 95; “In Iraq, One Man’s Mission Impossible,”
CNNMoney.com, September 4, 2007.
61 “Money as a Weapon,” Washington Post, August 11, 2008.
62 SIGIR, Report to Congress, January 30, 2007, Appendix G.

---

CRS-28
Local Citizens); this effort accounts for more than one third of total FY2008 CERP
obligations. A transition of responsibility for the Sons of Iraq to the Iraqi
Government began on October 1, 2008.63
As the IRRF program has declined, the CERP program has grown as a major
spigot of U.S. aid in Iraq. From its beginnings as a small-scale village program —
the average grant in FY2004 was $67,000 — it is now the major source of U.S.
infrastructure construction aid with an average grant in FY2006 of $140,000. The
most recent SIGIR report, however, indicates that in FY2008 the number of large-
scale projects has declined. The 2009 Defense Authorization (P.L. 110-417, sec.
1214) sets the maximum cost of CERP projects at $2 million unless waived by the
Secretary of Defense, and requires certification of any project over $1 million as an
urgent need.
The SIGIR and others have raised some concerns regarding the CERP, most
derived from the essentially different security and reconstruction objectives of
military and civilian efforts, respectively. Among the SIGIR’s concerns is that there
is no mechanism to measure the outputs and outcomes of CERP projects. Secondly,
the high turnover of military personnel in Iraq means that there is little continuity in
management and oversight of the projects. Third, little weight has been given to the
handing-over of projects to Iraqis and insuring their sustainability. Other observers
have noted that civil affairs officers and others allocating CERP grants are not
development specialists and have been provided little or no training on the selection
and management of reconstruction activities. The program’s early rationale — that
the military were the only ones able to conduct small-scale reconstruction in places
where civilian U.S. officials and NGO aid personnel were unable to go — appears
less strong now that civilian ePRT personnel are embedded in combat battalions.
Further, the October 2007 SIGIR report on the PRTs points to cases where the use
of CERP funds to meet local needs conflicted with PRT efforts to make local
government assume responsibility for provision of local services and work with the
provincial and national government, instead of the U.S. military, to address
problems.64
Security. The successful conduct of reconstruction work is contingent on an
environment of order and stability. Although in the past year there has been a
lessening of violence, the cumulative effect on the reconstruction effort of years of
continued instability has been manifold.
Implementation of reconstruction projects was hindered. Security threats
prevented PRT personnel from communicating directly with local governments,
construction workers from appearing at their jobs, and project managers from
63 State Department, Iraq Weekly Status Report, November 12, 2008, p. 8.
64 SIGIR, Commander’s Emergency Response Program in Iraq Funds Many Large-Scale
Projects, 08-006, January 2008; SIGIR, Review of the Effectiveness of the Provincial
Reconstruction Team Program in Iraq, 07-015, October 18, 2007, pp. 23-24; GAO, Military
Operations: Actions Needed to Better Guide Project Selection for CERP, GAO-08-746R,
June 23, 2008.

---

CRS-29
monitoring project work.65 Completed reconstruction projects and pre-existing
infrastructure were destroyed. For instance, in June 2007, eight of the twelve 400-
kV transmission lines were out of service, greatly reducing the electricity supply to
Baghdad. Major pipelines were 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 during a two year period from
2005-2006.66
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 — 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 meant that infrastructure programs could
accomplish less than originally anticipated.67
Fearing for their safety, many aid implementors were withdrawn from the
country, with U.N. and some bilateral aid donors forced to run programs from Jordan
or Kuwait utilizing Iraqi personnel to the extent possible.68 With implementors not
able to meet with local people and design and monitor projects as they would in other
countries, the quality of aid has likely been negatively affected. The pool of foreign
expertise available to offer technical assistance has been restricted to those few
willing to endure the country’s hardships. U.S. agency personnel stay only a short
time (usually one year) and therefore institutional knowledge is not maintained.
Among the 2.4 million Iraqis who have fled the country are professionals necessary
to successful reconstruction. In 2006, more than 300 teachers and Ministry of
Education staff were killed. Since 2003, an estimated 8,000 doctors fled the country,
thereby hindering the ability to open new health facilities. Notable signs of the
decrease in violence in the past year are reports of the return of many foreign aid staff
and the reappearance of 800 Iraqi doctors.69
65 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.
66 SIGIR, Report to Congress, August, 2007, pp. 69, 77; “Militias Seize Control of Grid,”
New York Times, August 23, 2007; “Iraq Insurgents Starve Capital of Electricity,” New York
Times, December 19, 2006; “Report Details Oil Industry Losses,” Washington Post,
September 29, 2006.
67 SIGIR, Fact Sheet in Major Contractors’ Security Costs, 06-044, January 30, 2007.
68 “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.
69 Department of State, Iraq Weekly Status Report, September 10, 2008, p. 13; Oxfam
International, Rising to the Humanitarian Challenge in Iraq, July 30, 2007, p. 11; SIGIR,
Report to Congress, October 30, 2007, pp. 127-128; International Committee of the Red
Cross, Iraq: No Let-up in the Humanitarian Crisis, March 2008; “Civilian Death Toll
(continued...)

---

CRS-30
There are two elements in the effort to provide the security that might allow
political and economic reconstruction to take hold — U.S. and coalition
peacekeeping forces and the training of Iraqi security forces to replace them. The
number of U.S. troops is currently roughly 146,000. There are also about 6,400
troops from 19 other nations.70
About $23 billion in U.S. appropriations has been aimed at building Iraqi
security forces. According to the State Department, in late September 2008, there
were 292,672 trained conventional Iraqi police and Ministry of Interior forces and
261,043 army and other defense forces.71
During the first four years of the U.S. presence in Iraq, 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 threatened U.S.
plans to increase security using Iraqi personnel.72 The September 2007 Jones
Commission report called for the breakup and reconstitution of the police due to the
high level of corruption and sectarianism, although U.S. commanders believe this
step is unnecessary because of progress made in weeding out inappropriate
personnel.73
In June 2008, the DOD stated that 67% of all formed Iraqi Army combat units
are able to plan and execute operations with “minimal or no assistance.” It reports
“continued progress” since then. U.S. military officials point to a lack of logistical
capabilities on the part of the Iraqi military as a major challenge.74
69 (...continued)
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.
70 Iraq Index, Brookings Institution, [http://www.brookings.edu/iraqindex], November 6,
2008, p. 26.
71 Department of State, Iraq Weekly Status Report, November 12, 2008.
72 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.
73 White House, Benchmark Assessment Report, p. 24; General James L. Jones, Chairman,
The Report of the Independent Commission on the Security Forces of Iraq, September 6,
2007, p. 20; “U.S. Commanders Say Iraqi Police Can Be Reformed,” Washington Post,
December 11, 2007.
74 See CRS Report RL34387, Operation Iraqi Freedom: Strategies, Approaches, Results,
and Issues for Congress, by Catherine Dale; DOD, Measuring Stability and Security in
Iraq, June 2008 Report to Congress, p. 38; DOD, Measuring, September 2008 Report to
Congress, p. iv, 37.

---

CRS-31
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 November 2003 of an Inspector General for the CPA, now called the Special
Inspector General for Iraq Reconstruction (SIGIR). To date, the SIGIR has issued
129 audits and 131 project assessments, and it has conducted 96 limited onsite
inspections as well as dozens of investigations of possible criminal activity.75 It
should be noted that many sectors and projects have not yet been subject to program
audits or project assessments, including many traditional assistance programs such
as those in democracy, governance, education, agriculture, and economic growth
sectors. The expansion of SIGIR authority beyond the IRRF will likely facilitate
increased oversight of the ESF and ISFF accounts that now compose the majority of
U.S. assistance to Iraq.
Some of the most egregious examples of misconduct found to date appear to
center on the CPA’s use of Iraqi funds during the year-long occupation. For instance,
a January 2005 SIGIR audit found that the CPA “provided less than adequate
controls” for $8.8 billion of DFI resources it moved through Iraqi ministries. An
April 2005 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.76
While some investigations of reconstruction programs utilizing U.S.-
appropriated funds have raised the possibility of criminal activity, many more have
produced evidence of poor project implementation and questionable management and
oversight of projects, a large proportion of these the responsibility of the Army Corps
of Engineers which runs the Embassy’s 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.
Bechtel, the project contractor, was removed and the project will be
75 See SIGIR website, [http://www.sigir.mil/], for audit reports to date. SIGIR, Report to
Congress, October 30, 2008, Section 4.
76 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; Control of
Cash Provided to South-Central Iraq, Audit Report No. 05-006, April 30, 2005; “5 Indicted
in Probe of Iraq Deals,” Washington Post, February 8, 2007.

---

CRS-32
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.77
! In September 2006, the SIGIR reported that the Baghdad Police
College, a $75 million construction project implemented by Parsons,
was riddled with deficiencies, including improperly fabricated
wastewater plumbing which poses a health and structural hazard.
Press reports in November 2007 indicate that the problems have still
not been fixed by the contractor, despite promises made to
Congress.78 The Mosul police headquarters, constructed by an Iraqi
contractor at a cost of approximately $1 million, is similarly
troubled.79
! A $218 million first responders network was ineffective —
communication was not possible between the three established zones
of the system and Iraqi citizens could not call in to request
emergency assistance, among other problems.80
! 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.81
! A project to run 16 oil pipelines under the Tigris River failed amidst
warnings from a geologist that the subsoil was not conducive to
drilling, demonstrating a lack of appropriate oversight by the Army
Corps of Engineers. Nearly $76 million in DFI funds were wasted.82
! An examination of Task Force Shield, a program to train and
manage an oil and electricity infrastructure protection force, found
77 SIGIR, Audit 06-026, July 2006; “U.S. Neglect Found in Long-Delayed Iraq Hospital
Project,” Washington Post, July 29, 2006.
78 SIGIR, Project Assessment-06-078.1 and 06-079.1, September 27, 2006; “Heralded Iraq
Police Academy a ‘Disaster’,” Washington Post, September 28, 2006; “Baghdad’s Police
Academy Remains in Poor Condition, Despite a Repair Pledge,” New York Times,
November 6, 2007.
79 “U.S. Agency Cites Flaws in Another Iraqi Construction Project,” New York Times,
October 12, 2006.
80 SIGIR, Audit 06-020, July 2006.
81 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.
82 SIGIR, Project Assessment SA-2005-001, in Report to Congress, January 30, 2006, pp.
73-75; “Rebuilding of Iraqi Oil Pipeline as Disaster Waiting to Happen,” New York Times,
April 25, 2006.

---

CRS-33
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 purchased.83
! 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.84
! 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.)85
! 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 (INL) and State Office
of Acquisition Management provided poor contract administration.86
! A 2007 SIGIR financial review of the State Department’s DynCorp
contract for training Iraqi police could not be completed, because
documents were in disarray, invoices had not been validated, and
INL did not know what it received for the $1.2 billion in
expenditures.87
83 SIGIR, Audit 06-009, April 2006; “In Shadows, Armed Groups Propel Iraq Toward
Chaos,” New York Times, May 24, 2006.
84 SIGIR, Audit 06-028, October 2006; “Idle Contractors Add Millions to Iraq Rebuilding,”
New York Times, October 25, 2006.
85 SIGIR, Audit 06-033, October 2006. “Black-Market Weapon Prices Surge in Iraq Chaos,”
New York Times, December 10, 2006.
86 SIGIR, Audit 06-029, January 2007. An April 2008 review of INL progress in meeting
SIGIR recommendations arising from the earlier audit found that a concerted effort was
being made to implement them. SIGIR, Audit 08-014, April 2008.
87 SIGIR, Audit 07-016, October 19, 2007. See above footnote re April 2008 review of INL.

---

CRS-34
! A more than $38 million project to provide a new accounting system
for the Iraq Ministry of Finance has been of limited use and has been
suspended pending clarification of Iraqi government support for the
effort.88
! A 2007 DOD IG audit of $5.2 billion in the Iraq Security Forces
Fund found a lack of proper accountability for $1 billion in
equipment purchase contracts.89
! A 2008 assessment of the $270 million Nassriya water treatment
plant was producing water at one fifth its intended capacity, because
the Iraqi government had failed over a four-year period to meet its
promises to provide permanent power, repair leaks in the
distribution system, and provide qualified staff to operate the
facility.90
! A 2008 audit of the USAID Community Stabilization Program
found potential fraud ranging from $6.7 to $8.4 million in on district
of Baghdad, including possible diversion of funds to militia
activities by means of overpriced trash collection contracts as well
as phantom workers for cleanup campaigns. The project was
suspended in that district.91
! Two July 2008 audits demonstrate the level of waste incurred by
contract terminations, usually due to poor planning and cost
estimates. In one case, $6.9 million was wasted when water-supply
project task orders were terminated at the 60% design stage due to
lack of funds. In the other, $142 million was spent on task orders for
fire station and police training facilities that were terminated.92
! A 2008 audit of the $98 million Fallujah Waste Water Treatment
System found a system costing three times the original estimate, but
serving only one third the homes originally planned. In addition, the
original U.S. plan to provide a system requiring little power and
maintenance was rejected by the Iraqi Public Works Ministry
because it was for “third-world countries.” The new system requires
thousands of gallons of fuel per day, provision of which there is no
88 SIGIR, Audit 08-001, October 23, 2007.
89 Department of Defense Inspector General, Management of the Iraq Security Forces Fund
in Southwest Asia — Phase III, November 30, 2007, Report No. D-2008-026.
90 SIGIR, Sustainment Assessment, 07-116, April 28, 2008.
91 USAID Inspector General, Audit of USAID/Iraq’s Community Stabilization Program, E-
267-08-001-P, March 18, 2008.
92 SIGIR, Audit 08-018, July 2008; SIGIR, Audit 08-019, July 2008.

---

CRS-35
commitment from the Ministry, raising the possibility that the U.S.
effort has been wasted.93
Assessments of Reconstruction
Dozens of reports and articles published during the past five years have sought
to analyze, criticize, and recommend action regarding the progress of reconstruction
aid.94 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, seek to improve
future outcomes.
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 it
difficult for interest groups and the news media to produce the kind of expert and
anecdotal reports they publish about other places. Most project assessments,
therefore, have come from various U.S. government auditors.95 Even these, however,
appear constrained by security in the number of site-visits they are able to undertake
to review project results. The SIGIR conducted some assessments by aerial imagery
because of the risk to its personnel; while investigating for its April 2008 report on
the Nassriya Water Treatment Plant, on-site inspections were limited to 30 minutes
each. Government Accountability Office (GAO) investigators were not even able to
visit Iraq while preparing a 2005 report on water and sanitation programs.96
93 SIGIR, Project Assessment 08-144 to 08-148, October 27, 2008.
94 Among the most notable 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
et al., 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, 2007, 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; SIGIR, Iraq Reconstruction: Lessons in Program and Project
Management, March 2007; and Glenn Zorpette, “Re-engineering Iraq,” IEEE Spectrum,
February 2006, available at [http://www.spectrum.ieee.org/feb06/2831].
95 For a list of audits and inspections from all agencies, see SIGIR, Report to Congress, July
30, 2008, Appendices J, K, N and O.
96 SIGIR, Report to Congress, July 30, 2005, pp. 60-66; 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.

---

CRS-36
Some observers have suggested that one problem with assessing the progress
of economic reconstruction is that there is no “big picture” overview; by comparison,
more comprehensive end-result assessments of security assistance appear to be
regularly conducted by DOD.97 Responsible government agencies provide
information regarding how many infrastructure projects are being started and
completed — amounts of kilowatt hours produced and oil pumped — 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, employment, and other requirements is being
met by the expenditure of billions of dollars in U.S. resources — not to mention Iraqi
and other donor resources — targeted at these needs. When such data have been
gathered, they suggest that the needs are not being addressed to the extent required.
For example, the GAO has estimated that it will take $50 billion in infrastructure
investments to meet needs in the electricity and oil production sectors alone.98
The extent to which specific Iraqi needs are met is one way of assessing an
assistance program. The extent to which U.S. policy objectives have been met is
another. With the exception of a brief moment when what some would call an
idealistic Administration appears to have sought to transform Iraq into a modern
Western nation, the purpose of the U.S. assistance program has at the very least been
to create a minimal level of stability in which a minimally functioning Iraq could take
care of its own affairs. The strategies to accomplish this end have changed over time.
While the strategy governing security assistance shifted from classroom military
training to ever greater levels of cooperative U.S.-Iraqi troop operations, the strategy
for economic assistance has moved from the construction of large-scale
infrastructure, which chiefly characterized the period from 2004 through 2006, to
technical assistance provided to encourage ministerial and local government
capacities to manage and administer their own programs, small-scale employment
initiatives, and hundreds of community-based projects meant to supplement and
supplant the stabilization activities of the U.S. and Iraqi security forces.
97 Although observers may not agree on the meaning of what they find. In three assessments
of the effort to train and equip Iraqi security forces released in September 2007, somewhat
differing perspectives emerged. While the White House Benchmarks report found much
progress in the development and operation of the Iraqi security forces — from growth in size
to assumption of lead roles and independent planning — it also found the increase in the
number of Iraqi security forces being capable of operating independently of U.S. troops to
be unsatisfactory. The GAO, pointing out that the number of independent units declined
between March and July 2007, bluntly chose to describe the objective as not being met.
And the Iraqi Security Forces Independent Assessment Commission led by General James
Jones found that, while the Iraqi Army is capable of taking over an increasing amount of
day-to-day combat responsibilities, the Iraqi forces would be unable “to fulfill their essential
security responsibilities independently over the next 12-18 months.” White House,
Benchmarks Assessment Report, September 14, 2007; GAO, Iraqi Government Has Not Met
Most Legislative Security and Economic Benchmarks, GAO-07-1230T, September 7, 2007;
General James L. Jones, Chairman, The Report of the Independent Commission on the
Security Forces of Iraq, September 6, 2007, p. 8.
98 “Iraq Far From U.S. Goals for Energy,” Washington Post, September 2, 2007.

---

CRS-37
The impact of these economic aid efforts, many underway on a smaller scale
since 2003, is much more difficult to weigh than for the infrastructure programs. The
seemingly most accessible potential measurement of success for the effort to enhance
ministerial and local government capacities has been the rate of contracting and
expenditure of capital investment — budget execution. In September 2007, the
Administration touted a much improved level of budget execution over the previous
year. However, a January 2008 GAO report suggested that figures employed to make
that judgment were flawed and that the level of spending could not be established
with then-current conflicting data.99 New data suggest an incremental improvement
in Iraqi budget execution capabilities, but the picture remains fuzzy.
99 GAO, Iraq Reconstruction: Better Data Needed to Assess Iraq’s Budget Execution,
January 2008, GAO-08-153.

---