Tuesday, August 05, 2008

Priming the Oil Pump of Prosperity

Declining violence and increasing oil production have combined to put a lot of fresh cash in the hands of the Iraqi government. As expected, Iraq has begun to head in the right direction. Economic improvement can be counted on to follow the arrival of democracy and capitalism, which are now two of Iraq's guiding principles.

High oil prices giving Iraq up to $79 billion in surplus cash

Published: August 5, 2008

The soaring price of oil will leave the Iraqi government with a cumulative budget surplus of as much as $79 billion by the end of this year, a U.S. oversight agency has concluded in an analysis released Tuesday.

The unspent windfall, which covers surpluses from oil sales from 2005 through 2008, appears likely to put a new focus on the approximately $48 billion in U.S. taxpayer money devoted to rebuilding Iraq since the U.S.-led invasion.

The report from the oversight agency, the Government Accountability Office, estimates that Iraqi oil revenue from 2005 through the end of this year will amount to at least $156 billion. And in an odd financial twist, large amounts of that surplus money is sitting in a U.S. bank in New York - nearly $10 billion at the end of 2007, with more expected this year, when the accountability office estimates a skyrocketing surplus.

The report was requested by two senior senators, Carl Levin, Democrat of Michigan, and John Warner, Republican of Virginia, who were quick to express strong dissatisfaction Tuesday over the contrast between U.S. spending on reconstruction and the weak record of spending by Iraq itself, in spite of the colossal surpluses.

The senators pointed out in a statement that in 2007, for example, Iraq actually spent only 28 percent of its $12 billion dollar reconstruction budget, according to the report by the accountability office.

Even that number could overstate the success rate in most of Iraq, as $2 billion of the spending took place in relatively peaceful confines of the northern Kurdish region.

"The Iraqi government now has tens of billions of dollars at its disposal to fund large-scale reconstruction projects," Levin, who is chairman of the Senate Armed Services Committee, said in the statement.

"It is inexcusable for U.S. taxpayers to continue to foot the bill for projects the Iraqis are fully capable of funding themselves. We should not be paying for Iraqi projects, while Iraqi oil revenues continue to pile up in the bank," Levin said.

Like many statistical measures from Iraq, the ones in the report issued Tuesday are likely to be used to support diametrically opposite positions on how much the United States should continue spending in Iraq and how long its forces should stay in the country, Ryan Alexander, president of Taxpayers for Common Sense in Washington, said.

The figures could be used to argue that because the Iraqi ministries still do not have the capacity to spend their own money, further assistance from the United States is called for, Alexander said.

Or, the huge oil revenue surpluses could be seen as proof that Iraq has the resources to solve its own problems if it would only use the money.

But one finding that may raise questions all around is the enormous pileup of cash in the Federal Reserve Bank of New York, as well as several Iraqi banks, Alexander said. The money in New York is a legacy of a system set up to handle Iraqi oil revenue when the country had no capacity to do so on its own.

The purpose of the money was to rebuild Iraq, not draw interest in a bank, Alexander said. "I don't know what function that serves right now. In my mind it raises another set of questions - which is, 'Who's minding the store?"' she said.

"There may have been people who said this is going to be harder than you think, this is going to take a long time, but nobody said what we should do is collect a lot of money and let it sit there," Alexander said.

The overall estimates of Iraqi surpluses would come down somewhat if the Iraqi Parliament passed stalled legislation that included a $22 billion supplemental budget for 2008. As of Tuesday, that bill had not been passed, as it is mired in wider negotiations over provincial elections and several other contentious issues being debated among Iraqi political leaders.


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