Thread: Archive Latest News - Think Tank - 01/01/08 - 14/04/08

Iraq oil cash not spent for reconstruction
Infrastructure collapse cited

Increased Iraqi oil revenues stemming from high prices and improved security are piling up in the Federal Reserve Bank of New York rather than being spent on needed reconstruction projects, a Washington Times study of Iraq's spending and revenue figures has shown.

U.S. officials and outside analysts blame the collapse of the country's political and physical infrastructure for Baghdad's failure to spend the money on projects considered vital to restoring stability in the country.

Out of $10 billion budgeted for capital projects in 2007, only 4.4 percent had been spent by August, according to official Iraqi figures reported this month by the U.S. Government Accountability Office (GAO). The report cited unofficial figures saying about 24 percent had been spent.

Meanwhile, some $6 billion to $7 billion from last year's budget is "being rolled over" and invested in U.S. treasuries, said Yahia Said, director of Iraq Revenue Watch, part of the private watchdog group Revenue Watch Institute.

"The government is broken," said Mr. Said, speaking by telephone from Baghdad. "The country's midlevel bureaucracy has either fled the country or been purged in de-Ba'athification, [and] a lot of ministers are politically appointed and not professional."

The result is that orders go out from the ministers in Baghdad, but there is no structure or staff at the middle level to carry out the instructions.

"It's like they lost the manual for driving the government," said Mr. Said, who is working to put that blueprint back together. "They lost the landing instructions for landing the airplane."

A quarterly report to be released today by Stuart W. Bowen Jr., the U.S. special inspector general for Iraq reconstruction, says rising production and high prices could produce a revenue windfall for Iraq this year, according to the Associated Press.

Iraq oil cash not spent for reconstruction

Oil production approaching prewar levels

Production levels finally are approaching prewar levels of 2.5 million barrels a day and might reach 2.8 million barrels a day by the end of the year, Iraqi Deputy Prime Minister Barham Salih told The Washington Times on the sidelines of the World Economic Forum in Davos, Switzerland.

Acknowledging the need to reform the bureaucracy, Mr. Salih said, "Some of us think we can do a lot better [on production] if we do adequate or proper management restructuring."

Oil prices, meanwhile, are expected to average $85 a barrel this year, well above the $57 estimated in the Iraqi budget.

However, the GAO expressed frustration in a report this month at its inability to get a handle on how these revenues are being spent.

"We cannot determine the extent to which Iraq has spent [budgeted capital] funds due to conflicting expenditure data," the report said.

It said the Bush administration, citing unofficial Iraqi data, reported in September that Iraq"s central government ministries had spent 24 percent of their 2007 capital projects budget as of July 15.

"However, this report is not consistent with Iraq"s official expenditure reports, which show that the central ministries had spent only 4.4 percent of their investment budget as of August 2007," it said.

U.S. and foreign officials told the GAO that weaknesses in Iraqi procurement, budgeting, and accounting procedures had stymied the completion of projects.

"For example, according to the State Department, Iraq"s Contracting Committee requires about a dozen signatures to approve projects exceeding $10 million, which slows the process," the GAO wrote.

Capital projects expenditure this year is expected to reach only $4.3 billion, less than half of the $10 billion spent in 2007, according to a GAO analysis of Iraqi government data provided by the U.S. Treasury.

Provincial governments, which had little or no control of their finances under Saddam Hussein, are struggling to spend the money they have under new budget systems, said Joseph Saloom, an adviser to David Satterfield, the senior adviser to Secretary of State Condoleezza Rice and coordinator for Iraq.

That budget system includes strict bidding rules and a process of committee approvals designed to prevent corruption, Mr. Saloom said.

But if a province needs a piece of specialized oil equipment, "often there are not three suppliers" who bid, so the process is cut short and the project cannot go forward, he said.

According to Mr. Said, the situation is slightly better on the local government level, partly because of U.S. forces who supply protection, logistics, resources and emergency funds.

"There is more [improvement] on the gras-roots level on the back of the surge," he said.

Reconstruction also has been hobbled by delays in getting the central government up and running. Although elections were held in January 2006, the government was not formed until May of that year.

Within that government, said Mr. Saloom, "most of the people had never been ministers before, they had never managed large budgets."

• John Zarocostas contributed to this report from Davos, Switzerland.

Iraq oil cash not spent for reconstruction

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Ex-minister warns of Iraq's economic ordeal

Iraq's former minister of planning has warned of Iraq's economic "ordeal," stressing the need for sound management of the accumulative cash surplus.

"Iraq has a cash reserve of more than $20 billion, which has boosted the value of the Iraqi dinar and its purchasing power, in addition to a large credit of over $10 billion by the Iraqi Development Fund," Former Minister Mahdi al-Hafiz, who is also a member of the parliamentary economic committee, indicated in a thorough study published by the Jordanian al-Ghad (Tomorrow) newspaper on Monday.

Hafiz highlighted the need to adopt a thoughtful strategic vision and setting up profitable programs with the aim of preserving the country's natural resources and ensuring a reliable source of income.

The study also called to reconsider the budget’s spending structure and rationalize the expenditure.

"Outlining the weaknesses in the current policy and the economic performance is a must to rectify all deficiencies and implement the required structural reforms," the study explained.

The study criticized Iraq's increasing dependence on oil export revenues as a main source of income. According to the 2008 budget, over 85% of Iraq's income is generated by oil exports, which the study said poses great risks to the economy in case of oil price fluctuations.

The minister also described the shortage of direct and indirect tax revenues as an indication of a lagging economy, but said that the mobile phone revenues are quite promising.

The study concluded by outlining some aspects, which Hafiz said must be carefully handled to sustain a healthy economy. Enforcing the rule of law and ending the presence of foreign troops in the country are the first priorities set by the study.

Ex-minister warns of Iraq's economic ordeal | Iraq Updates

Baghdad Stock Exchange affected by security situation more than international markets
With the continuation of manual dealings instead of electronic

Iraqi Stock Exchange and its brokers are affected by the latest news of violence and explosions in the country more than by economic factors that shook international financial markets this week.

The broker, Imad Shakir, said, "The situation in the Iraqi Market for Securities differs from its counterpart in any other market in the world. It is affected by local factors alone and not by what is happening in the international arena (...) we follow-up the security situation in Iraq accurately; the acts of violence and explosions often affect commercial traffic." He emphasized that the acts of violence do not encourage foreign investors, and the vast majority of them are Arabs, to speculate. Besides, explosions in Baghdad will affect the number of attendees who are mostly (investors and brokers) because they won't be able to get to the Market if security forces sealed off streets and deployed checkpoints everywhere.

Spokeswoman of the Iraqi Market for Securities, Jimmy Afham, said, "the market which opens on Sunday, Tuesday and Thursday is still using manual transactions, making them more vulnerable to acts of violence. We will move to electronic transactions after about two months, and then investors will be able to conclude trade deals without having to come to the Market which is located at Al-Karrada Asharqia in central Baghdad."

Afham said that the Iraqi Market's price index declined by one point, retreating to 34.96 during Tuesday's dealings due to purely domestic factors. She added, "some companies that had been stopped for reasons relating to the cessation of its activities or as a result of a penalty imposed on them, returned to the market at prices lower than previous years, and there are companies, like Karbala Company, distributed profits to their shareholders and this led to the fall of the companies' shares because their profits were supposed to be distributed late this year." Afham said that the volume of shares traded on Tuesday were more than 857 thousand shares valued at $ 1,239 billion dinars (1,022 million dollars).

The value of transactions in the market increases with reduced levels of violence in the country in general; in 2004, one year after the US-led invasion that toppled Saddam Hussein, the list of market comprised 80 companies with dealings valued 128 billion dinars and the index exceeded 64 points. But the index fell 45.6 points in 2005 and continued to decline reaching 25.2 points in 2006, when sectarian violence ravaged the country; however, the market index began recovering going up to 34.5 points the beginning of this year and then to about 35 points now.

94 companies are currently enlisted in the market where the volume of transactions reached about 434 billion dinars last year. The share of foreign investors and most of them are Arabs dealing in the market by phone from outside Iraq reached 4.5% of the total market transactions last year. Afham said, "as soon as we begin work with electronic transactions, these figures will increase and it will be much easier for foreign investors to deal in the market."

Baghdad Stock Exchange affected by security situation more than international markets | Iraq Updates

Finance reveals alternate documents at Central Bank

Finance Ministry revealed alternate documents of these that burned at fire in Central Bank last Monday, as initial investigations confirmed that the fire caused by short circuit while integrity committee at parliament decided forming operations room to observe the case.

Mohamed Hariri, Finance Minister office's director, said that the Central was very careful so it kept other versions of the documents in other place and it resumed its work since yesterday.

Hariri added that Iraqi reserves "$36b" kept in anti fire strongboxes.

Finance reveals alternate documents at Central Bank | Iraq Updates

$355,000 to rehabilitate al-Umara asphalt factory

Donor s have allocated 355 thousand dollars to rehabilitate Umara asphalt factory, as oil products Distribution Company started distributing the second dosage of white oil among citizens.

Factory director said in press statement that funds allocated to rehabilitate the factory has been distributed in tow payments first of which is 232 thousand dollars and the second is 123 thousand.

These funds would be invested in buying spare parts and prepare pebbles' sieves.

$355,000 to rehabilitate al-Umara asphalt factory | Iraq Updates

Shell eyes $2.5bn gas project in Iraq

Royal Dutch Shell is considering spending $2.5bn on a natural gas plant in southern Iraq to meet energy demand in the Middle East, reported Bloomberg.

The company met with Iraqi officials in The Hague last week to propose building a pipeline that would link the Basrah region to a new facility on the country's coast. Shell would also build a facility that could freeze 16 million cubic meters of gas a day and ship it to Kuwait and the UAE.

Shell eyes $2.5bn gas project in Iraq | Iraq Updates

Diwaniya local government signs contracts with local companies

The local government of Diwaniya signed contracts worth over 35 billion dinars ($28.7 million) with local governments to implement reconstruction projects under the provinces development plan, the governor of Diwaniya said on Wednesday.

"The local development of Diwaniya started in early 2008 signing 35 billion dinars worth of contracts to implement reconstruction projects under the provinces development plan and speeding up the reconstruction projects," Hamed al-Khudari told Aswat al-Iraq - Voices of Iraq - (VOI).

"All local, Arab and foreign companies were invited to implement the scheduled projects in the current year in Diwaniya," he added.

Iraq's finance ministry allocated 160 billion dinars (around $ 130 million) within provinces development budget for Diwaniya.

Diwaniya is 180 km southwest of Baghdad.

Diwaniya local government signs contracts with local companies | Iraq Updates

Mahdi Al Hafiz criticizing the Iraqi budget figures

Member of the parliament and former Iraqi planning minister, Mahdi Al-Hafiz, considered the omission of anything about foreign grants and aids in the new Iraqi budget "a significant gap."

Ministry of Finance was asked to submit a report on these aids, ways of exploiting them and how successful integrating them in projects on the local economy. He explained that the figures for the investment program projects, which were not attached to the budget of 2008, appeared to be "dumb" although they are $13 billion out of the $48 billion earmarked for the budget.

Al-Hafiz pointed out that the final accounts for the last four years were not submitted within the draft budget of the government, considering that a "serious issue" and that the Financial Control Office reserved the accounts of 2004 and placed at them at the disposal of the parliament and avoid the responsibility of approving them."

He thought it unlikely to acquittal the government and ministries unless the public is informed of the final accounts of the budget which did not contain any reference to fulfilling the obligations of the State about the remainder of the debts, both for the third and final part of reducing the debt of "Paris Club" or the debts owed to other countries (the Gulf states in particular). This gives the budget an incomplete picture of the foreign commitments through 2008, in addition to not solving the Kuwait war compensation with the United Nations to reduce or cancel them or even resort to international arbitration in the future.

He explained that the allocation of more than $ 3.3 billion to provinces for investment purposes and give the validity of their approval to governors, is a matter of concern for several reasons, mainly the lack of identification of the proposed projects and the absence of control and inspection of the federal government, in addition to the mistake of reducing allocations for the ration card which is of great importance for a large segment of society for this year.

Al-Hafiz said that the monetary policy of the State have caused great harm to the private sector because of reducing banking facilities and raise the level of interest rates to %20, which reflects the contradiction between the fiscal policy aimed at expansion and investment, and the one aimed at contraction.

Mahdi Al Hafiz criticizing the Iraqi budget figures | Iraq Updates

Barham Salih reveals content of Kurdistan Alliance Bloc Letter to Nuri al-Maliki

Concerning the Kurdistan Alliance Bloc’s letter directed to the Iraqi Prime Minister, Nuri al-Maliki, the Iraqi deputy prime minister, Barham Salih, said that “the Kurdistan Alliance Bloc did not refer to the concerns between Kurdistan region and the Iraqi federal ministries, but rather the letter reflects the general assessment of Iraq which was replied by the Iraqi prime minister. But I have not seen the reply as I participated in World Economic Forum in Davos.”

“I would like to assure everyone that the Kurdistan Alliance Bloc exerts serious efforts to bring the process of reform forward.”

“There is a national consensus, calling for correcting the situation; it is not possible the administration process of a country takes the path as Iraq does. Kurdistan Alliance Bloc’s priority is reformation within Nuri al-Maliki’s government not changing it, the deputy added in an interview with Sharq Alawsat newspaper.”

PUKmedia :: English - Barham Salih reveals content of Kurdistan Alliance Bloc Letter to Nuri al-Maliki