Iraq: Potential Post-War Foreign Aid Issues

Iraq: Potential Post-War Foreign Aid Issues

Order Code RS21454
March 6, 2003
CRS Report for Congress
Received through the CRS Web
Iraq: Potential Post-War Foreign Aid Issues
nae redacted
Specialist in Foreign Affairs
Foreign Affairs, Defense, and Trade Division
Summary
Following a possible war in Iraq, the United States would be likely to launch a
program of foreign assistance there to help reconstruct the country. This report
considers the amount of aid potentially required, how long it might be needed, and the
purposes to which it might be put, among other issues. It will not be updated.
If military action is necessary, the United States and our allies will help the Iraqi
people rebuild their economy, and create the institutions of liberty in a unified Iraq at
peace with its neighbors.
President George W. Bush (October 7, 2002)
However difficult the looming military confrontation with Iraq may appear, any post-
war role of the United States in that country could be as challenging and important to
achieving U.S. objectives. Whether U.S. objectives are pacification of the country,
establishing democratic government, launching the country on a path to economic growth,
or insuring that Iraq becomes a constructive force in the region, the United States, as it has
elsewhere, may call on one or more elements of its foreign assistance program to help
achieve its aims. To help prepare for the use of aid, a post-war planning office was
established on January 20 by a presidential directive. The Office of Reconstruction and
Humanitarian Assistance, although located in the Defense Department, is staffed by
officials from agencies throughout the government. For further, more recent, information,
see CRS Report RL31833, Iraq: Recent Developments in Humanitarian and
Reconstruction Assistance. For more on the politics of Iraq, see CRS Report RL31339,
Iraq: U.S. Regime Change Efforts and the Iraqi Opposition.
In the past, Congress has often used its authorizing and appropriations authorities to
influence U.S. foreign policy direction and behavior. An Iraq Freedom Support Act,
along the lines of authorizations for aid to the former Soviet Union or more recently to
Afghanistan, while not necessarily needed to support the provision of assistance, is a
possible vehicle Congress might use to express its preferences on the shape of a post-war
Iraq. Foreign aid appropriations – initially in a possible FY2003 supplemental – might
establish any level of U.S. aid and uses to which it is put.
Congressional Research Service ˜ The Library of Congress

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Potential Types and Purposes of Assistance
U.S. assistance would in large part depend on the requirements of a post-war
situation – the level of physical damage and human casualties resulting from the military
confrontation, the movement of refugees, and the possible outbreak of disease. The level
and breadth of humanitarian assistance would especially hinge on such circumstances.
Long-term reconstruction requirements would be strongly affected by the length of the
war; the extent of destruction caused to oil production infrastructure; possible efforts of
groups, such as the Kurds, to achieve autonomy or independence; and the level of
cooperation provided by Iraqi citizens and government bureaucrats. Availability of oil
resources for reconstruction purposes and level of participation by other donors would
help determine any potential assistance needs facing the United States.
The shape of reconstruction aid would in large measure spring from still-forming
U.S. policy decisions. The Administration has indicated that, at least at the beginning, it
would rely on military rule. This would give the United States broad control over the
Iraqi government and economy until a progressive transition to Iraqi administration is
initiated.1 While responsibility for administering a post-war Iraq would fall to General
Tom Franks, Commander of U.S. Central Command, the Office of Reconstruction and
Humanitarian Assistance would be expected to produce plans for his use in filling that
role. At the same time, the Office would implement U.S. assistance efforts in Iraq.
Initially, as head of the Office, retired Army Lt. Gen. Jay M. Garner, would direct
humanitarian efforts. An American civilian is expected to direct any subsequent
reconstruction efforts.2
These policymakers might draw on a menu of assistance programs provided by other
government organizations. Economic aid through the Agency for International
Development (USAID), food aid through USAID and the Agriculture Department,
commercial aid through the Overseas Private Investment Corporation and the Export-
Import Bank, Peace Corps and State Department exchange programs, and World Bank
loans are among possible sources of U.S.-supported assistance. These and other types of
aid have been used in reconstruction efforts at one point or another with varying degrees
of success. U.S. aid in Iraq might be used to meet the following objectives:
Urgent Humanitarian Needs. The U.N. has projected as many as 1.5 million
refugees could flee Iraq, 2 million people might be left homeless inside the country, 10
million might require food aid, and half the population might lose access to water during
a war.3 Food and medical aid, and provision of refugee camps would address some of
these immediate post-war concerns. The United States has already made available more
than $82 million to support early U.S. preparations for delivery of humanitarian aid,
1 Colin Powell, Interview with Spanish TV, February 20, 2003. Undersecretary of State for
Political Affairs Marc Grossman, Testimony to Senate Foreign Relations Committee, February
11, 2003.
2 Undersecretary of Defense Douglas Feith, Testimony to Senate Foreign Relations Committee,
February 11, 2003.
3 “Iraq war could put 10 million in need of aid, U.N. Reports,” Washington Post, January 7, 2003.

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including stockpiling of supplies in strategic locations.4 The World Food Program is
expected to play a significant role utilizing the existing Iraqi oil-for-food distribution
network.5 The U.N. has warned of the need to raise $90 million for its own humanitarian
operations in the war zone. (See CRS Report RL31814, Humanitarian Issues in Post-War
Iraq: An Overview for Congress.)
Democratization. Efforts to support the development of democracy in Iraq would
likely receive substantial attention. According to Defense Secretary Rumsfeld (February
14, 2003), “the goal would not be to impose an American style template on Iraq, but
rather to create conditions where Iraqis can form a government in their own unique way.”
Officials have stated that the United States would not immediately recognize an Iraqi
provisional government, but would utilize a U.S.-appointed “consultative council” of
Iraqis to provide advice.6 Pro-Saddam elements in government would be removed (a
process being referred to as “de-Baathification”) and Iraqi commissions would be formed
to address rule of law, including institution of an independent judiciary and writing a new
constitution. Aid might be further used to revamp the electoral process; encourage
independent media; and strengthen civil society, including the role of minority
communities.
Economic Reform and Growth. Although lifting of long-standing sanctions
that restricted Iraqi exports and foreign investment may stimulate economic growth, aid
programs might also address current Iraqi government policies that retard economic
development. Advice and credit can be provided to fledgling private sector business.
Loan guaranties and risk insurance can encourage trade and U.S. foreign investment.
Economic infrastructure – roads, bridges, ports, telecommunications – may require repair
and upgrading.
Provision of Health and Human Services. The past ten years have seen a
serious decline in Iraqi health indicators, including increases in infant mortality and lack
of potable water. The quality of health care, sanitation, housing, and social safety nets can
be improved through expert advice, training, and provision of medical supplies.
Assistance in this sector is often viewed as an important means to reach the majority of
people directly, help cushion the impact of difficult policy reforms, and, in the occupation
scenario, might gain increased public acceptance.
Other Possible Goals. If Saddam Hussein were to destroy oil wells during a war,
large-scale financial assistance might be required to restore them. Aid could address
Iraq’s current dependence on external food imports through agricultural programs. Any
use of biological or chemical weapons could require a serious and costly health and
environmental mitigation effort. Educational programs could be used to increase the
appreciation for democratic processes and, through exchanges, build a better
understanding of the United States.
4 Andrew Natsios, Briefing, U.S. Department of State, February 25, 2003.
5 “U.S. military lays out post-war Iraq plan”, Washington Post, February 12, 2003.
6 “Full U.S. control planned for Iraq”, Washington Post, February 21, 2003.

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Issues for Congress
Cost of the Aid Program. The cost of any aid program for Iraq would depend
on the scope of U.S. objectives and the damage incurred in the war. Any amount
currently mentioned in the press or by officials is highly speculative. A review of recent
reconstruction programs in other countries suggests a wide range of potential costs to the
United States. In addition to differing goals, variations depend on relative size of
population, economy, and geography as well as longevity of the program and participation
by other donors. U.S. contributions to Kosovo from 1999 to 2001 reached $316 million
out of a total donor program of $2.1 billion. Since the war in Afghanistan in late 2001,
U.S. assistance has already reached $558 million, and needs assessments suggest a
minimum total cost of $15 billion over ten years from all donors.7 (See CRS Report
RL31759, Reconstruction Assistance in Afghanistan: Goals, Priorities, and Issues for
Congress.)
Iraq may require more aid than these examples if the United States intends a long-
term nation-building exercise. One analyst, reviewing a variety of predictions, suggests
a cost of between $30 and $105 billion over ten years for full reconstruction. He further
estimates humanitarian aid at between $1 and $10 billion.8 UNDP Administrator Mark
Malloch Brown has predicted that reconstruction costs could total $30 billion in the first
two and a half years.9 At a February 11 Senate Foreign Relations hearing, Administration
officials reportedly “declined repeatedly to discuss cost estimates...asserting that too much
remains unknown.”10
Although this report focuses on foreign aid to Iraq, there may be other associated
foreign aid demands in the event of a war. One additional area is the amount that might
be provided to nearby countries to cover their presumed losses as a result of trade and
other disruptions. Thus far, Israel is seeking $4 billion in military and economic
assistance and $8 billion in loan guaranties above normal aid levels. Jordan has
reportedly been promised $1 billion and Turkey has been offered $5 billion in grants and
$10 billion in guarantees.11
7 Office for SouthEast Europe, Donor Pledges to Kosovo, May 2002. “Donors receive estimates
of Afghanistan’s reconstruction ahead of Tokyo Conference”, UNDP Press Release, January 15,
2002.
8 On the low end, the reconstruction figure is based on a 1991 U.N. estimate of the cost of
bringing Iraq back to prewar condition, and, on the high end, it is based on a Marshall Plan-like
nation-building effort, applying Marshall Plan-expenditure per capita to Iraq. Both high and low-
end humanitarian figures extrapolate from experience in Bosnia, and depend on length of time
crisis continues and number of people affected. William D. Nordhaus, “The Economic
Consequences of a War with Iraq” in War in Iraq: Costs, Consequences, and Alternatives,
American Academy of Arts & Sciences, 2002, p. 66-67.
9 “UN estimates rebuilding Iraq will cost 30 billion,” New York Times, January 31, 2003.
10 Washington Post, February 12, 2003, p. A21.
11 “U.S. hears Israel’s plan for billions in arms aid”, Washington Times, January 7, 2003; “Jordan
to get $1 billion in U.S. aid”, Defense News, January 20, 2003; “Aid to Turkey bends Bush’s
tough line”, Washington Post, February 21, 2003.

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Who Will Pay for Assistance? To the United States, the cost of post-war aid
would be considerably higher if few other donors contribute. Given resistance of major
aid donors France and Germany thus far to support military action and their perhaps
related failure thus far to contribute to a U.N. emergency fund for potential Iraqi war
humanitarian relief, it is possible that the United States would be required to provide the
bulk of reconstruction assistance. That might be the case especially if a U.S. military
occupation did not leave many opportunities for other donors to influence events within
Iraq. Should the United States be joined by few other donors, the impact on the U.S.
fiscal deficit or the rest of the U.S. foreign aid budget could become issues. Funds
diverted to Iraq might negatively affect priority concerns elsewhere.
Some have proposed that Iraqi oil be used to pay for development and/or an
occupation regime. U.N. holdings under the oil-for-food program, some suggest, might
also be drawn upon to pay for reconstruction needs.12 The Administration has stated that
a priority would be restoring and increasing the amount of Iraqi oil production in order
to “support the Iraqi people’s needs” (indicating that oil would be used primarily for
reconstruction and not for the administration of the U.S. occupation).13 One analyst has
pointed out that large additional claims on Iraqi oil reserves – debt arrears, infrastructure
repair, and domestic fuel use, for example – would leave little money for many
occupation and reconstruction requirements.14 Others have stated that, due to the decrepit
condition of the industry, it may take some years to substantially increase the flow of oil.
Some believe, however, that the expectation of future Iraqi oil wealth may be enough by
itself to encourage significant official and private sector lending for reconstruction.
Other donors may contribute to total aid costs. However, in similar crises, the aid
pledges of key donors have been slow to materialize. Congressional concerns regarding
the failure of key European donors to promptly provide assistance in Kosovo led to a
legislative prohibition restricting U.S. contributions to 15% of total donor funding.
Although donor coordination is often attempted, the type and purpose of aid provided by
other donors is out of U.S. hands; other bilateral and multilateral donors have their own
agendas.
Program Longevity. No official prediction has been made regarding the length
of a U.S. aid commitment. The Administration has indicated that the United States is
committed to stay in Iraq as long as necessary, “but not one day more”.15 The length of
any aid program, a factor in determining costs, would depend on the nature of overall U.S.
intentions. Based on previous experiences, some have questioned the American
commitment to long-term “nation-building”.16 Others argue that U.S. nation-building in
Iraq could be expected to be more hands-on and intensive than in other developing
nations, largely because many believe that the initial expenditure of military and political
12 “War’s aftermath would be challenge”, Steven Hunt, Associated Press, January 30, 2003;
“Multibillion aid plan for West to win the peace”, London Times, February 4, 2003; “U.S. plans
interim military role in postwar Iraq”, Washington Post, January 17, 2003.
13 Douglas Feith, February 11, 2003, testimony, Senate Foreign Relations Committee.
14 William D. Nordhaus, The Economic Consequences of a War with Iraq, p. 67.
15 President Bush, speech to American Enterprise Institute, February 26, 2003.
16 “Bush backs into nation building”, Washington Post, February 26, 2003.

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capital would require that the Administration work hard to prevent an unsuccessful
outcome.
Security Concerns and Role of Military. There would likely be many
obstacles in the path of a successful aid program in Iraq. Perhaps the most important of
these is a lack of security. Although some aid groups work in countries in conflict,
neither grassroots organizations like the Peace Corps nor many of the non-governmental
organizations (NGOs) that implement aid programs are prepared to enter an unsafe
country. Experience in Afghanistan has already demonstrated that long-term
reconstruction may be severely limited in geographic scope and impact if programs are
not able to function in a secure environment. Part of the Administration’s rationale for
bringing humanitarian and reconstruction aid coordination under the wing of the Pentagon
is to link the aid officials to security providers and information.
The current Administration plan for Iraq is that military commanders, assisted by
civilian disaster assistance response teams (DART), will be responsible for food
distribution in the early stages. Afghanistan raises another cautionary note. There, driven
by the need to show positive results from the ousting of the Taliban, the U.S. military has
been employed in reconstruction activities outside of the secured capital of Kabul. But
this has raised the concern that local citizens will not be able to distinguish between
military personnel and civilian development advisors, putting the latter at greater risk.
Implementation and Coordination Concerns. Officials in the Pentagon’s
Office of Reconstruction and Humanitarian Assistance – civilians apparently in charge
of any necessary humanitarian relief, reconstruction, and civil administration – could face
a flood of critical decisions in coming months regarding the shape and implementation
of development projects. The relative priority to be given the aid objectives noted earlier,
coordination with U.N. and NGO humanitarian and development efforts, and the security
concerns noted above are among the many issues they may confront. Aid officials may
also play a role in dealing with such concerns as the drafting of a new constitution, the
role of exile Iraqis, and the vetting of personnel in the government and in aid projects to
insure that Saddam allies were removed. However, these are issues that would also
deeply interest the military government, and the lines of responsibility between it and the
aid coordination operation are not clear.
More than a dozen U.S. agencies are likely to participate in reconstruction efforts,
making coordination of assistance a particularly desirable goal. Choosing an aid
coordinator may be helpful, but experience in the former Soviet Union suggests that it
alone is insufficient, and, in the Iraq situation, the unusual lead aid role of the Pentagon,
more commonly played by the Department of State in other situations, might further
complicate the coordinator’s task. Any coordinator could need strong executive and
congressional support allowing his office sufficient authority to make final decisions with
regard to interagency disputes. Strong coordination may be critical at all levels of the
implementation process – within sectors (democracy, economic growth, etc.) and within
and among agencies.

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