IRAQ: Corruption and Mismanagement Create Economic Catastrophe

APRIL 7, 2005 - For 13 years, Iraqis were subjected to the most comprehensive international sanctions regime ever created. They were not permitted to sell or to purchase anything on the international markets, their businesses crumbled, infrastructure rotted and families starved. The only reprieve to this incredible suffering was the United Nations' Oil-for-Food programme, which was entirely financed by the Iraqi people themselves. At the time, many complained that the programme was being used as means to continue the repression of the Iraqi people, and that its administration was corrupt, but this fell on deaf ears. As a result of this desperate situation, many argued that the only way to improve the situation was for a clean break, and so some who would have otherwise voiced opposition viewed the American invasion in 2003 with tacit approval. The war was indeed a breaking point, but who would have thought that the situation would deteriorate even further under American rule?

Incredible as it may seem, in the past two years, Iraq's economic situation has worsened, living standards have declined, and poverty as well as child malnutrition have increased. According to a number of non-governmental organisations in Iraq, the unemployment rate could be as high as 65 per cent, a figure that is not disputed by the Central Statistics Bureau in Baghdad. In addition, the World Food Programme estimates that one in four Iraqis survive on food rations that are distributed by the Ministry of Trade, while 2.6 million Iraqis are so poor that they are forced to resell part of their rations in order to buy basic necessities such as medicine. Meanwhile, according to the UN Human Rights Commission Report and the Oslo-based Fafo Institute for Applied Social Science, child malnutrition rates have doubled to almost eight per cent since the fall of Saddam Hussein's regime. Finally, because of the decrepit state of the country's infrastructure, millions of Iraqis have to do without clean drinking water for days, this at a time when an equal number have access to electricity for only four hours a day, and sometimes have to line up for an entire day in order to purchase gas for their cars.

Although the Iraqi government is partly to blame for the economic mismanagement that the country has had to suffer, the international community also has its share of responsibility in the matter. Indeed, despite the fact that international donors loudly announced the donation of billions of dollars towards Iraq's reconstruction effort, only a small percentage of these funds were actually disbursed, while a large proportion of the funds that were actually spent found their way to the pockets of corrupt officials. By way of example, although the United States had promised $12 billion for vital reconstruction projects in Iraq, by the end of 2004, only about $2 billion of that amount had actually been spent. The Iraqi government has sought to make up for the shortfall by reducing subsidies and has even announced plans to phase out the food ration that so many of the country's poor depend on to survive. In what has now become a well-known statement, Paul Wolfowitz, one of the architects of the invasion in 2003 and the new president of the World Bank, claimed that Iraq would be able to finance its own reconstruction. What he failed to mention is that this would only be possible if the government decided to let its people starve.

Meanwhile a number of independent reports have highlighted the high levels of corruption that are prevalent in the country today. Transparency International has said that if urgent measures are not taken, Iraq will become the "biggest corruption scandal in history". Corruption exists at all levels, with corrupt public servants selling items such as stolen medicines, medical equipment and oil on the black market. In addition, an audit carried out by KPMG for the International Advisory and Monitoring Board that was published in July 2004 reported that oil revenues were being mismanaged. The audit cited " [w]eaknesses in controls over oil extraction", " [c]ontrol weaknesses in the administration of resources handled by the [Coalition Provisional Authority]", "[i]nadequate controls identified at Iraqi spending ministries", "deviation from tendering procedures, and inadequate contract monitoring by the CPA relating to payments on behalf of the Iraqi ministries". In addition, in perhaps the most stunning report issued thus far, the US inspector-general for Iraq reconstruction published a report at the start of 2005 in which it was revealed that in the 14 months that the CPA ruled Iraq, $8.8 billion of its budget simply vanished. This begs the question: if the occupation authorities cannot protect their own budget and stop their funds from being stolen, what have they done with Iraq's monies?

In fact, corruption is just one of the factors that explain the current state of the economy. The failure to rehabilitate the oil industry is another major factor. Historically, Iraqi oil production peaked at 3.5 million barrels per day in the late 1970s and began declining as soon as Saddam took power. However, in the period immediately preceding the war in 2003, production rates had stabilised at 2.5 million barrels. In the first few months after the war, occupation and American officials issued optimistic forecasts, according to which production rates would surpass the pre-war levels within a short period of time. Their optimism has ebbed somewhat since then, after the results of chronic corruption, under-funding and sabotage became clear. The country's 2004 budget indicated that production rates during that year were at an average of 1.5 million barrels per day, and that they were expected to reach 1.8 million in 2005. However, shipping sources revealed that in the past two months Iraq exported an average of 1.46 million barrels per day. Government and occupation officials are unhappy with these figures, which have prompted them to contradict them with their predictions. Indeed, on 22 December, 2004, the Iraqi finance minister claimed that "we expect to reach 3.5 million [per day], maybe by the end of 2005."

In an effort to ensure higher production rates, US forces have been subjecting Iraqi staff at southern oil terminals to violent treatment. Employees staged a walkout at the end of last March in protest, which prompted a panic amongst certain officials. The US has no shortage of enemies in Iraq, some of which have decided that the best way to ensure the failure of the occupation is to destroy the country's oil infrastructure. Attacks have continued unabated, as a result of which exports from Kirkuk through Turkey have been mostly idle for the past two years. Repairs to the main pipeline were completed on 28 March, 2005 but it was blown up on the very next day. The government has decided to mobilise a part of the army in order to secure sections of the pipeline, but these efforts have been a complete failure as guards confess to being terrified of insurgents and typically evacuate their posts as soon as an attack is launched.

The crisis in the oil industry has compounded the lack of funds that are being devoted to reconstruction projects, which means that living standards will remain at their pitifully low level. At the end of last March, Public Works Minister Nasrin Barwari announced that although Iraq needs to spend $255 million every year in order to meet needs for drinking water, her ministry only received $100 million since 2003. The effect is hard to imagine: Iraqis simply do not have regular access to drinking water. Even the middle class, and even those that live in Baghdad's most affluent neighbourhoods often have their water supplies cut unexpectedly and have to wait days for them to be restored. Some Baghdad residents have resorted to boring unauthorised wells in the middle of the city, which has led to hundreds of cases of poisoning and stomach diseases. There have even been reports of cholera outbreaks in the southern city of Basra. Ever the optimist, Barwari has made another appeal to international donors in order to make up the difference, but judging from their past performance, it seems unlikely at best that the needs of the Iraqi people will be satisfied.

Perhaps most importantly for most Iraqis, rehabilitation of the electricity sector has been wholly unsatisfactory. Iraqi engineers often boast that despite the incredible onslaught that was launched against their country's infrastructure in the war in 1991, in which almost nothing was spared from devastation, they were nevertheless able to reinstate the electricity supply within months. The situation today is a pitiful joke in comparison. In the period immediately preceding the 2003 war, Iraq's electricity network produced on average 95,000 MWh, which was not enough to service the entire country but it was at least a reasonably high and stable supply. Between November 2004 and the end of January 2005, the network was only able to muster an average of 80,000 MWh, and sometimes dropped to less than 50,000 MWh. The result has been severe blackouts throughout the country, leaving some families with access to electricity for less than four hours a day.

Instead of resolving this catastrophe through permanent rehabilitation of the country's grid, temporary solutions such as purchasing power from Iraq's neighbours are opted for. This practice was commenced in 2003 shortly after the war and was at the time considered to be a temporary measure. However, since then Iraq has continued to purchase power from Syria, Jordan, Turkey, Iran, Kuwait and negotiations are ongoing at the moment for Egyptian power to be supplied through Jordan. Also, on 27 March, 2005, the Iraqi Ministry of Electricity entered into separate agreements that will actually increase the provision of power from Iran by 34 per cent and from Turkey by more than 300 per cent. The result is that Iraq has quietly become dependent on energy imports, when it should in fact be exporting power.

Government and occupation officials often blame sabotage for the never-ending shortages, although ministry officials quietly admit that the principle problem is in fact under-funding. Indeed, in September 2004, $3.4 billion that were originally destined for power and water projects were reshuffled to the security sector instead. At the beginning of March 2005, officials in the US Embassy in Baghdad tacitly regreted the lack of investment and expressed the view that new funds should put more focus on electricity before the start of the summer.

The problem however is more a question of attitude than of reshuffling funds from here to there. One cannot expect to achieve an honest result in the current circumstance, with all the corruption and dishonesty surrounding reconstruction in Iraq, and in relation to the country more generally. What is needed is a fundamental change in Baghdad that will allow for a truly representative government, in order to satisfy the immediate needs of an already exhausted people.

During the 18th and 19th centuries, much of the world's poor clamoured and rose up in violent revolution on many occasions as a result of food, and more particularly, bread shortages. Today, electricity is the basic necessity that people can no longer afford to live without. Without electricity, there can be no communications, no healthcare system, no learning and no industry. There may still yet be time to remedy Iraq's economic catastrophe, but if nothing is done soon, it is difficult to imagine that the Iraqi people will forgive their current rulers or their occupiers.

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