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Cash crunch slows Iraq reconstruction

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A poster of Saddam Hussein at a Baghdad refinery in 1998. Reconstruction plans face obstacles.

A poster of Saddam Hussein at a Baghdad refinery in 1998. Reconstruction plans face obstacles.

Jockel Finck, Associated Press

BAGHDAD — The reconstruction of Iraq, Bush administration officials predicted before the war, will pay for itself.

But hopes of using Iraq's own oil and resources to fund the rebuilding were contingent on an ideal of postwar peace and security. Instead, a serious budget crunch, combined with a vicious circle of violence, sabotage and economic instability is slowing reconstruction plans.

Many potential donor nations are shying away from getting involved. As international aid groups pull personnel out in the wake of the U.N. bombing, less foreign money is being pumped into the local economy. And, significantly, oil revenues aren't flowing as expected. A coalition official says that war damage and sabotage have stanched the flow to just $2.3 billion per year, down from an earlier estimate of $3.4 billion.

The cash shortfall means that here in Baghdad, officials are already seeing reconstruction and development projects — including electricity, gas and water facilities — put on hold because they do not have the funds to start work.

"There are substantial needs not met by this money," says a coalition official, who asked not to be named. Paul Bremer, the top U.S. civilian official in Iraq, has been warning officials in Washington that this year's budget will fall short "somewhere in the neighborhood of $3.5 billion" and has warned that "tens of billions" more will be needed.

But the administration's congressional critics say they will demand a fuller accounting of postwar operations, and a clear picture of the administration's vision for achieving success in Iraq, before appropriating more money.

Officials here say that some basic infrastructure severely damaged during or since the war — as well as utilities neglected under the old regime — is expected to remain unrepaired. These include utilities, leaving many Iraqis with worse standards of living than they had under Saddam Hussein.

When college students across the country go back to school in a few weeks, many can expect to find university campuses that have not recovered from the looting and destruction that followed the Iraqi regime's downfall.

The future offers no immediate fiscal relief for the coalition. Iraq's budget for 2004, according to an internal document provided by an official in the Coalition Provisional Authority (CPA), "has inadequate funds for security, electrical, water, sewage, irrigation, housing, education, health, (and) agriculture." For many middle and working-class Iraqis, basic services like electricity, safe highways and a living wage have disappeared. In frustration, many Iraqis say, some of those struggling people are joining the resistance movements.

Bloodshed, including bombings at the U.N. headquarters and the Jordanian embassy here last month, are keeping investors and even small businesses away. "If you cannot get money to fix security, electricity and infrastructure problems, that will prevent small businesses from wanting to come here to start up, and it keeps foreign investment out," the CPA official explains. "How can I run a business if I don't have a guarantee of security?"

Already, the terrorism that Washington once accused Iraq of supporting abroad is now plaguing Iraq at home — and grounding what the Bush administration thought would be a solid take-off for the postwar economy.

Now, the U.N., nongovernmental organizations and other major groups like the Red Cross are scaling back their operations in Iraq after the bombing of the U.N. headquarters, representing a withdrawal of foreign cash and demand for services that would have been pumped into Iraq.

With several tens of billions of dollars more needed, according to Bremer, the United States will need its allies to help foot the bill. A donor conference, to that end, will be held near the end of October. But it is already proving difficult to get countries to foot the reconstruction bill for a war that many of them opposed outright.

The United States is now forced to turn to countries it dismissed six months ago as part of "Old Europe" to help pay for the new Iraq.