Much of U.S. aid isn't directly helping Iraqis, analysts say

By Paul Richter
Los Angeles Times

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Another large chunk of the aid — contractors' profits and salaries for American and other foreign workers — winds up outside Iraq and doesn't help the Iraqi economy, according to analysts.

As a result, they and U.S. government officials said, less than half the aid in the Bush administration's reconstruction package will directly benefit Iraqis.

The administration, pointing to "unusually difficult" conditions, has acknowledged that security and other overhead in Iraq are large expenses, and is seeking congressional approval to divert $3.3 billion earmarked for reconstruction of Iraq's infrastructure into programs focused on Iraqi security forces.

Some government analysts said security costs might eat up half or more of the rebuilding aid. But private analysts estimated that as much as 75 percent of U.S. spending in the country provided no direct benefit for Iraqis.

"The central point is this money is not reaching the Iraqis," said Frederick Barton, co-director of the reconstruction-studies program at the Center for Strategic and International Studies, a Washington, D.C., think tank. Barton was a Clinton administration official in the U.S. Agency for International Development.

"We're spending a lot of money we believe is helping people and converting Iraq to a new kind of economy. That's where I think we're kidding ourselves," he said.

Barton and his organization estimate less than 30 percent of the money spent so far — and that includes more than $20 billion in Iraqi oil money, as well as a small portion of the $18.4 billion authorized last year by Congress — reaches Iraqis. Another 30 percent appears to be going to security, about 10 percent to U.S. overhead, 6 percent to contractor profits, and 12 percent to insurance and foreign workers' salaries. The rest, perhaps 15 percent, might be lost to corruption and mismanagement, they estimate.

One government analyst said the costs of security and lost property could be estimated with some precision, "and that gets you close to around 50 percent."

A senior official with the U.S. Embassy in Baghdad insisted that "Every dollar we are spending is going to benefit Iraqis," but said the security situation in Iraq had worsened.

"We're in an unusually difficult situation over there, and the costs of security are bigger now than when we started out the program," said the senior official, who did not want to be identified. "But the taxpayers and the Congress want us to do the job. They want us to protect our workers, and to complete these projects."
 
The government's situation stems from choices it made last year.

In most postwar redevelopment efforts, such as those in Bosnia-Herzegovina, Kosovo and Haiti, U.S. officials have focused on starting small-scale, locally staffed rebuilding projects, training police and other officials, and working to get government agencies and democratic institutions up and running.

Larger infrastructure projects came later, often financed by multinational lenders such as the World Bank.

But U.S. officials believed that far more was at stake in Iraq and wanted to make sure that the country became stable and successful.

First spending more than $20 billion generated by Iraqi oil exports, they launched a massive rebuilding program that often involved no-bid contracts with major companies, such as Bechtel and Halliburton, and drew a large number of foreign workers.

The program's goal was to provide Iraqis with an advanced utility-and-oil infrastructure. But in the short run, the program meant money was being funneled through U.S. and other foreign companies rather than Iraqi businesses, analysts pointed out. It also meant a lot of people and property to protect.

Huge projects "require them to use big international companies, and inevitably don't pump enough money into the local economy with the speed that's needed," said Larry Diamond, a Hoover Institution political scientist who was a senior adviser to the Coalition Provisional Authority in Iraq. "And of course the security situation has not allowed them to get much done."

James Dobbins, a U.S. diplomat who was President Bush's special envoy to Afghanistan, said beginning the reconstruction with infrastructure projects was "an aberration from the way we've approached post-conflict reconstruction over the last 60 years, including Germany and Japan."

Some companies operating in Iraq hire one security employee for each nonsecurity worker on their payroll. Security workers are often former military personnel who can earn as much as several hundred thousand dollars a year for the risk, five to six times what they would be earning in the United States, businesspeople said.

Insurance costs, which swing wildly from day to day for companies doing business in Iraq, are often 10 percent of a contract's value, a U.S. analyst estimated.

"Security and insurance have become central issues in trying to get anything done," said Anthony DeLuca, an executive of SBA, a company with several reconstruction contracts.

Experts said the government might have another big headache over costs because of language in many contracts that protected contractors against losses due to sabotage or theft.

It's not clear how far the government's liability will go, but some experts believe it could be substantial. "The government may have to write some big checks," one government expert said.