VOL. XLVI
No 41
IRAQ RECONSTRUCTION
IRW Criticizes Lack Of Transparency Of Development Fund For Iraq
Iraq Revenue Watch (IRW), the body established by George Soros’ Open Society Institute to monitor the use of Iraqi funds by the US-led Coalition Provisional Authority (CPA), has criticized the lack of transparency of the Development Fund for Iraq (DFI). The IRW’s analysis and recommendations are laid out in a report – Transparency of Iraq’s Finances – to be published on the group’s website (www.iraqrevenuewatch.org). The DFI was established at the beginning of July (See MEES, 7 July for CPA regulations and MEES commentary) as the “primary source of financing for humanitarian aid and reconstruction in Iraq,” says IRW. It receives all of the proceeds of export sales of Iraqi oil except for 5% which goes to the United Nations Compensation Commission (UNCC). The fund also received $1bn from unencumbered funds in accounts established under UN resolution 986 (1995). In addition, the fund received frozen Iraqi assets held abroad and will take charge of whatever cash is left in the UN oil-for-food program at the end of November. This latter figure is expected to be around $10bn (MEES, 2 June).
“Yet the Fund’s initial promise of becoming an example of transparency, good governance, and civic participation continues to be overshadowed by opacity, exclusion, and lack of disclosure,” says IRW. The International Advisory and Monitoring Board (IAMB) – composed of representatives of the UN Security Council, the International Bank for Reconstruction and Development (IBRD), the IMF, and the Arab Fund for Economic and Social Development (AFESD) – for example, which is mandated by the UN to monitor and advise on disbursements, has yet to be established. “Instead,” says IRW, “DFI expenditures have been managed by a Program Review Board (PRB) comprised of CPA appointees, only one of whom is Iraqi.”
Up until now, DFI funds have been used to fund Iraqi public salaries, compensation to Iraqi families for loss of members by actions of Coalition Forces and the day-to-day functioning of the Iraq Governing Council and Ministries. The delay in establishing the IAMB to monitor this process is due to negotiations between the IAMB’s potential members and the CPA over the extent of the body’s mandate, says IRW. “IAMB members have agreed on revised terms that were presented to Administrator Bremer by the Secretary General in late September 2003. As of early October, Administrator Bremer has still not established the board; he is seeking the power to approve IAMB audits – a demand that international institutions view as an unacceptable check on their independence,” concludes the report.
The IRW report focuses primarily on the issue of oversight of the DFI’s funds and the failure to include Iraqis in the process of fiscal oversight. The presence of only one Iraqi (Minister of Finance Kamal al-Kilani) on the PRB’s 11-member board is insufficient, and even he is considered by many Iraqis as a pro-US outsider. Furthermore, the Iraqi Planning and Oil Ministries, which are supposed to be involved in economic policy making, do not have representation on the PRB. The report also charges the US Department of Defense, the Office of Management and Budget and other agencies within the Bush Administration with refusing to disclose basic information about large purchase contracts and DFI expenditures in Iraq. The charges echo the comments of US Representative Henry Waxman (D-Calif) in a recent letter to Joshua Bolton, Director of the Office of Management and Budget (MEES, 6 October).
International Skepticism
The lack of transparency and oversight is a serious issue which fuels international skepticism about the way in which the CPA is conducting affairs in Iraq, says IRW. According to the report, one Security Council diplomat “predicts that absolutely no money will flow into the DFI from the international community unless there is a sudden change in CPA attitudes and practices regarding transparent management.” This could have serious repercussions for the forthcoming donor conference in Madrid on 23-24 October. The creation of a separate UN-managed Iraq trust fund for non-coalition foreign aid could create “significant complications for any eventual interim Iraqi administration attempting to make already difficult financial decisions.” It could also cement the continuing split between the US and the international community over how to deal with Iraq.
The IRW therefore urges the relevant authorities to improve the transparency of the DFI and PRB; to establish the IAMB; and empower Iraqis to participate in the fiscal oversight of their country. With respect to the DFI and the PRB, the report recommends that DFI information should be made more accessible, that all PRB activities should be published and that voting be expanded and greater financial control be given to Iraqis. As for the IAMB, the report urges that the CPA to give the board the power to pro-actively monitor transparency compliance; clarify whose interests the board represents; plan for a smooth transition to a representative Iraqi government; clarify the selection of new IAMB members; give the IAMB tender oversight; and specify its reporting requirements.