The NewStandard ceased publishing on April 27, 2007.

Privatization, Corruption Mar Iraqâ€TMs Recovery, New Report Finds

by Chris Shumway

Adding to the chorus of organizations condemning the nonmilitary aspects of Washington’s policy toward occupied Iraq, a German group looks at precisely how that policy became a disservice to the future of Iraq.

Mar. 22, 2005 – Nearly two years after the fall of Saddam Hussein, according to findings issued last week by an international corruption watchdog, the reconstruction of Iraq’s dilapidated infrastructure and the revitalization of its economy are becoming models of cronyism, bribery and irresponsible privatization.

An annual report on "Global Corruption" produced by Berlin-based Transparency International (TI) sharply criticizes the US for mismanaging Iraq’s oil revenues and for using faulty procedures for awarding reconstruction contracts. The report also criticizes efforts to rapidly privatize Iraqi assets and industries as a means of reducing the country’s debt. TI warns that unless immediate corrective measures are taken, Iraq’s reconstruction could become "the biggest corruption scandal in history."

Citing experiences with sudden privatization in the former Soviet Union, the report says efforts by the Bush administration to sell off Iraq’s state-owned enterprises without first establishing conditions of openness and governmental accountability are likely to "result in widespread corruption."

The process of privatizing Iraq’s industries and assets was rapidly and unilaterally initiated last year under a series of orders issued by L. Paul Bremer, head of the former US-led Coalition Provisional Authority, which managed Iraq prior to the installation of the interim government.

Privatization will likely continue unabated as a condition of an agreement last December between the Iraqi government and representatives of nineteen global economic powers - the Paris Club. As reported by The NewStandard at the time, under the deal, much of Iraq’s debt accrued under Saddam was dissolved while the rest was scheduled for relief by the International Monetary Fund (IMF). In return, Iraq’s government accepted a series of economic "structural adjustments" prescribed by the IMF, which typically include privatizing state industries and making drastic cuts in public services like health care and education.

The US has also been "a poor role model," according to TI, in "how to keep corrupt practices at bay," as exemplified by Washington’s "highly secretive" methods of awarding contracts for reconstruction projects in Iraq, which TI said lend themselves to cronyism.

The authors of the report also cited the wastefulness of so-called "cost-plus" contracts, which promise to pay the contractor’s incurred expenses plus a pre-determined percentage added as guaranteed profits. Coveted cost-plus deals were unfairly awarded to favored companies such as Halliburton, the report concluded.

The report also notes the alleged taking of kickbacks by US contractors from companies seeking subcontracts.

The TI assessment does not specifically refer to the testimony of a former CPA advisor who told Congress in February that large amounts of US cash were regularly handed to Iraqi ministries and American contractors. On one occasion, officials handed $2 million in shrink-wrapped $100 bills to a representative from Custer Battles, a US mercenary firm, without properly accounting for the cash award, according to testimony and photographic evidence provided to lawmakers by former CPA employee Frank Willis.

Officials in the US-installed Iraqi interim government also come under fire from TI for, among other things, corruption involving the distribution of food rations and other consumer goods. "Corruption thrives in a context of confusion and change," the report said, suggesting that such context has defined Iraq in the immediate post-Saddam era.

TI’s report says that in addition to wasting money, corruption like that practiced in Iraq reduces the quality of reconstruction projects and often has a damaging effect on the environment.

Waste and inefficiency attributed to corruption may also be a big factor in the overall sluggishness of the rebuilding effort. Although the US Congress has appropriated a total of $20.9 billion -- $18.4 billion of it in 2003 -- for such purposes, officials have pledged just $13.4 billion and actually disbursed only $5 billion, according to February figures provided by the State Department. Much of the money designated for rebuilding has also been diverted to other ventures. Electricity and water treatment projects in Iraq -- two of the country’s biggest needs -- were slowed last September when the State Department re-allocated $3.4 billion from civilian infrastructure improvements to security projects.

As a result, many Iraqis still suffer from shortages of power, water and food. Electricity is on for about one-third of each day in Baghdad, with reported power output just recently reaching prewar levels of 4,400 megawatts per day, according to the Christian Science Monitor. Iraqis also had to wait nearly two days to buy gasoline this winter due to low oil production caused by the country’s aging petroleum infrastructure and frequent attacks by insurgents on pipelines and refineries.

Adding to the misery for many is a catastrophic official unemployment rate of 48 percent, according to Iraq’s Ministry of Labor and Social Affairs, which many Iraqis estimate is actually much higher. Data posted on the Iraq Project and Contracting Office’s (IPCO) web site shows that, as of March 16, only 41,450 Iraqis, out of a workforce of 7 million, were employed in infrastructure reconstruction projects. That number falls short of a promise made last year by then-CPA chief Bremer, who publicly promised in March 2004 that 50,000 Iraqis would be working on rebuilding efforts by June 2004.

Although IPCO reports that reconstruction has picked up since the January elections, evidence of past corruption and the ongoing lack of transparency worry the authors of TI’s report. They recommend that US and Iraqi authorities, along with representatives from international companies, adopt and enforce minimum standards for public procurement, including transparency, competitive bidding practices and the blacklisting of companies involved in bribery.

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The NewStandard ceased publishing on April 27, 2007.


Chris Shumway is a contributing journalist.

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