U.S. Officials Defend Iraq's Oil Surplus

Iraq's budget surplus may amount to $79 billion, according to a government report, fed largely by skyrocketing oil revenues. CBS

Iraq is paying for more of its own reconstruction but is still struggling to spend its multibillion-dollar surplus as it copes with a flood of oil revenue and a cumbersome approval process meant to curb corruption, U.S. officials said Wednesday.

Iraq could finish the year with as much as a $79 billion cumulative budget surplus as oil revenues add to leftover income the Iraqis still haven't spent on national rebuilding, according to a report by the Government Accountability Office made public Tuesday.

Despite many American critics wondering why the U.S. is still spending so much on Iraq's reconstruction, U.S. officials who work with the Iraqis on reconstruction defended Baghdad's financial contributions.

The officials said the Baghdad government has been increasing its capital spending by 30 percent to 35 percent each year since 2006 - although they added that both governments want to see the pace increased.
The Iraqi government is drafting plans for Iraqi-funded projects to include 1,000 new primary health care centers over the next 10 years, new airports and a major renovation project for downtown Baghdad, the American officials said.

They spoke on condition of anonymity because they did not want to comment on Iraqi government performance.

The officials said the United States has not begun any new reconstruction projects in Iraq since 2004 and that ongoing work is funded by money approved by Congress four years ago.

But many Iraqis - who lack adequate electricity, clean water and jobs - find it unfathomable their country is awash in oil dollars. Last year, it spent less than a third of the $12 billion budgeted for major projects such as electricity, housing and water.

Beyond the more than 4,000 American lives lost, the Iraq war has drained U.S. taxpayers of about $600 billion since 2003 - for everything from tanks and guns to armor to protect troops from roadside bombs, reports CBS News correspondent Chip Reid.
In Washington, senators renewed calls for Baghdad to pay more for its own reconstruction.

"We're being taken for fools by the Iraqi government that continues to take in American money to pay for their reconstruction," Sen. Carl Levin, D-Michigan, told CBS News.

Levin, who requested the report said one particularly egregious example of U.S. spending is $33 million for a planned hotel and retail complex at the Baghdad airport, reports Reid.

"Their excuse is they don't have a bureaucracy that's capable of writing checks," Levin told CBS News. "That's about as feeble an excuse, it would be laughable if it weren't so serious."

In the report, the GAO said Iraq had an estimated budget surplus of about $29 billion from 2005 to 2007 and could have an additional surplus of up to $50 billion this year.

More than 90 percent of that money comes from Iraq's booming oil business, reports Reid. The high price of oil, that causes so much pain in the U.S., is filling the coffers in Iraq.

From 2005 to 2007, Iraq brought in $90 billion in oil revenues, according the GAO report, but spent only around $6.7 billion on reconstruction.

While Iraq stockpiles money, U.S. taxpayers continue to bear the burden of rebuilding. So far, they've devoted about $48 billion dollars to the cause.

Nearly $10 billion of the estimated surplus is held by the Development Fund for Iraq at the Federal Reserve Bank of New York, according to the report. That fund was established by U.S.-led coalition authorities shortly after the 2003 overthrow of Saddam Hussein to hold Iraqi oil revenues and other state assets.

Every month, the government-owned State Oil Marketing Organization offers to sell Iraqi oil at an announced price. Oil companies interested in buying then request shipments. Preference is given to major international companies and those that have previously done business with Iraq.

Revenues are then deposited in the Development Fund account, which the Iraqi government has controlled since 2004. The Central Bank of Iraq is free to draw from the account, but the government decides how to spend the money. Other revenues are held by the Central Bank and Iraqi commercial banks.

The expected surplus is likely to be lower than $79 billion because parliament Wednesday approved legislation for a $21 billion supplemental budget for 2008.

Nevertheless, the GAO report faulted the government for holding back on spending plans.

"First ... (the) relative shortage of trained budgetary, procurement and other staff with the necessary technical skills is a factor limiting the Iraqi government's ability to plan and execute its capital spending," the GAO said, adding that a second problem is the government's weak accounting systems.

"Third ... violence and sectarian strife remain major obstacles to developing Iraqi government capacity," it said.

The report also estimated that this year Iraq could generate $67 billion to $79 billion in oil sales. Other U.S. officials previously had said they expected the oil windfall to be about $70 billion.

"This substantial increase in revenues offers the Iraqi government the potential to better finance its own security and economic needs," the GAO said.

But the U.S. officials said the influx of oil money had been difficult to manage, not only for Iraq but for other oil-producing countries.

Other problems cited by the officials included a cumbersome approval process - put in place to curb corruption - lack of expertise in the ministries and a shortage of Iraqi contractors capable of taking on major development projects.

Since 2005, the United States has funded a number of efforts to teach civilian and security ministries how to effectively execute their budgets.

The efforts included programs to advise and help Iraqi government employees develop the skills to plan programs and to effectively deliver government services such as electricity, water and security.

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