Sunday, January 15, 2006

'Marshall Plan' For Iraq Fades

Once the $18.6 billion for reconstruction is spent, the nation might have to rely on private investment. 'No pain, no gain,' a U.S. official says.
By Doug Smith and Borzou Daragahi, Times Staff Writers
Los Angeles Times
January 15, 2006

BAGHDAD — After more than 2 1/2 years of sputtering reconstruction work, the United States' "Marshall Plan" to rebuild this war-torn country is drawing to a close this year with much of its promise unmet and no plans to extend its funding.

The $18.6 billion approved by Congress in 2003 will be spent by the end of this year, officials here say. Foreign governments have given only a fraction of the billions they pledged two years ago.

With the country still a shambles, U.S. officials are promoting a tough-love vision of reconstruction that puts the burden on the Iraqi people.

"The world is a competitive place," Tom Delare, economics counselor at the U.S. Embassy, said this month during a news briefing. "You have to convince the investor that it is worth his while to put his money in your community."

An embassy spokeswoman later said that the Bush administration was not abandoning the Iraqi reconstruction effort. It "remains committed to helping build Iraq and continues to assess needs on the ground," she said. No decisions on future funding requests have been made, she said.

But embassy and reconstruction officials outlined a program of private investment and fiscal belt-tightening by the new Iraqi government as the long-term solution to the country's woes, even if that causes short-term suffering for Iraq's people.

"No pain, no gain," Andy Wylegala, whose job at the embassy is to help Americans do business in Iraq, said at the same briefing. "It's a very difficult procedure to pass through. But when I look from my side, I see it as a long-term, very favorable development."

After touring Baghdad early this month, Sen. Jack Reed (D-R.I.) questioned the new direction.

"I think we're fooling ourselves if we think we can simply just pass this on to the Iraqi people immediately or to the international community," Reed said. "We've got to continue our efforts…. That requires money."

Iraq's new government will embrace market policies, but it still needs more help with reconstruction, said Movad Ubaidi, deputy chief of the newly elected National Assembly's economics committee.

"If these donations were spent, the American government is asked to give more so that Iraq can recover from the damage it suffered," Ubaidi said.

But the commander of the U.S. Army Corps of Engineers in Iraq, Gen. William H. McCoy, said at a recent briefing that the last of 3,100 reconstruction projects would soon be awarded, and almost all would be completed before the year ends.

"We were never intending to rebuild Iraq," McCoy said. "We were providing enough funds to jump-start the reconstruction effort in this country."

Although U.S. officials say the projects have given a needed jolt to the economy, most Iraqis have seen little effect in their lives.

"If they say they have spent money, where is it?" asked Salah Qaragholi, 30, a barber in the poor neighborhood called Zafraniya. "Where are the projects? The electricity is only four hours a day."

Baghdad's roads are an obstacle course of barriers, potholes and debris. Many government and office buildings are either still gutted or strung with webs of electrical wire connecting to generators that run 12 hours on good days. A brown haze fouls the air and pools of sewage overflow dot the streets.

The U.S. Embassy credits the reconstruction effort with restoring sewage treatment to more than 7.7 million Iraqis, opening 21 berths at the Umm al Qasr port, building nearly 600 miles of freeways and primary roads, and developing three new international airports: at Basra in the south, and Irbil and Sulaymaniya in the north.

It says 124,000 Iraqis are employed under reconstruction and military contracts.

But from its inception, the program has been troubled by contracting scandals and rising security costs that have drained as much as a quarter of the funding.

Some completed projects were destroyed by insurgents or damaged by poor operation.

McCoy conceded that the Army Corps had overreached in Baghdad's Sadr City neighborhood.

"The initial strategy was, 'Let's put some big capital investment here so that we can improve their water, their electricity, their sewage treatment quickly.' " McCoy said. "Over the course of time, we saw that those, while important, weren't helping us quickly."

Instead, he said, the Army Corps is now placing 27 compact water units around the community that will dispense drinking water.

State Department officials say the program's overall success is evident in increases in employment, imports and gross domestic product, which has climbed above $1,000 per capita for the first time since the 2003 invasion.

"In spite of difficulties and shortfalls, it is an undeniable reality that huge progress has been made in the last 2 1/2 years, both on the physical infrastructure and the mercantile infrastructure," Wylegala, the embassy official, said at the briefing.

But declaring victory on the economic front hardly makes sense while American troops are still needed to maintain security in Iraq, said Frederick D. Barton, who tracks Iraqi reconstruction at the Center for Strategic and International Studies in Washington.

"It sounds a bit like another 'mission accomplished' moment," Barton said, referring to President Bush's premature declaration of the end of combat after Saddam Hussein's regime was toppled.

"They just don't want to give any more money for this," Barton said.

With public support for the U.S. presence in Iraq weakening, a new reconstruction package probably would face an even tougher sell in Congress than in 2003, when the Bush administration had a tough time winning over conservative Republicans.

To rally support then, L. Paul Bremer III, the head of the coalition occupation authority, coined the comparison to the Marshall Plan, saying Iraq needed the kind of assistance that lifted Germany out of the rubble of World War II to prevent it from sinking into economic despair and extremism.

Although the Bush administration has not said that it intends to let the program end, a senior U.S. official told The Times that the decision was "pretty much taken."

He said Bush had not decided how much money to request for other purposes in Iraq, and said that some in the administration were pressing for substantial sums.

Such programs could include police training, economic and governance development, humanitarian relief and small development projects, an embassy official said.

But without new reconstruction funds, the large projects to repair electrical, water and transportation systems would be dependent on a trickle of aid that has been coming from among the 40 other countries who made pledges at a 2003 donor conference in Madrid.

An internal State Department accounting obtained by The Times indicates that only about 30% of those pledges has been received. In a speech to a veterans group Monday, Bush pressed those nations to pay "as quickly as possible."

Japan, the largest donor, has paid less than half of the nearly $5 billion it pledged, according to the report.

Two of Iraq's neighbors, Saudi Arabia and Kuwait, have given less than 10% of their combined pledge of $1 billion, the report shows, and Spain, Britain, South Korea, the United Arab Emirates, Italy and Canada owe more than $100 million apiece.

State Department officials would not comment on the report, but the senior official said the U.S. was applying pressure on the other nations to come through, especially the oil-rich Persian Gulf states.

"We will be urging them more and more pointedly," the official said. "They are the beneficiaries of a huge oil price windfall. This is their neighborhood. Their security is at stake. They can have disagreements with us on how we're carrying out our security policies, but they serve everyone's interests."

It isn't unusual for countries to not keep promises made at highly publicized conferences, foreign policy experts say, and often the pledges come with terms.

Asked by The Times about its pledge, the Japanese government said it had already disbursed almost all the "grant aid" it pledged, and that the $3.5 billion outstanding was for loans to be given through 2007.

"Yen loan projects take a long time to set up," said Akira Chiba, a spokesman for the Foreign Ministry in Tokyo.

The Spanish government gave a detailed list of projects it had funded, including schools and hospitals, but with much more going to humanitarian aid and assistance to Iraq's central bank. It said it was on target to complete its spending.

"We still have two years," a source in the Spanish Foreign Ministry said.

Officials in Baghdad say that far more important than all the aid is the debt restructuring agreement reached in December with the International Monetary Fund that will forgive as much as 80% of the $120 billion that Iraq owes.

"This removes the terrible crushing burden on the Iraqi economy," Delare, the embassy economic counselor, said at the briefing.

Delare said both the U.S. and world financial markets would be pressing the new Iraqi government to embark on a crash course of economic restructuring.

It would include privatizing companies that were run by Hussein's socialist regime, getting rid of employees who aren't needed, tackling the corruption that pervades the economy on "a grand scale," and ending subsidies.

"We believe the Iraqi population does not understand the true cost of subsidies," Delare said. "They do not understand that that these are monies that they don't see, monies that don't benefit them and monies that for the most part go to the benefit of the few or corrupt society in general."

Staff writers Bruce Wallace in Tokyo, Saif Rasheed in Baghdad and Paul Richter in Washington and special correspondent Cristina Mateo-Yanguas in Madrid contributed to this report.

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