U.S. officials defend Iraq against attack — from the GAO

BAGHDAD — Iraq might be running a budget surplus but that doesn't mean it should spend it, U.S. officials said Tuesday, arguing that the Iraqi government's finances are too fragile for it to pay a greater share of its security costs.

The Obama administration's comments came in response to a new U.S. government study that found that Iraq had a surplus of $52.1 billion at the end of 2009, including $11.8 billion available to be spent.

The study by the Government Accountability Office, the investigative arm of Congress, provided ammunition to lawmakers who've argued that the U.S. shouldn't run up its own budget deficit to bankroll the Pentagon's military training mission in Iraq. The study concluded, "Iraq has the potential to further contribute toward its security needs, even as it addresses other competing priorities."

The Obama administration, which has asked Congress to approve $2 billion for training and equipping Iraqi military and police in the 2011 fiscal year, said carrying out the GAO recommendation could put Iraq at financial risk and jeopardize U.S. interests in a country where it's spent, by the report's calculation, $642 billion in military operations since 2003.

U.S. officials in Iraq said that the country's budget — as much as 90 percent of which comes from oil revenues — remains vulnerable to oil price shocks and that its surplus is largely the result of the government being unable to spend as much as it had planned on reconstruction projects.

As security conditions have improved, Iraq is pumping more money into building roads, power plants, schools and hospitals. Coupled with projected deficits and slightly lower than expected oil production this year, U.S. officials in Iraq said, the surplus will evaporate in 2011.

"They are going into the red now," said Kenneth Fairfax, an economic affairs counselor at the U.S. Embassy in Baghdad. "We're no longer in this period of budget surpluses. It's actual deficits that are coming up."

The U.S. military is changing its role in Iraq — the fewer than 50,000 remaining American troops have shifted from a purely combat mission to one focused on training and advising Iraqi security forces — although that often means accompanying the Iraqis on operations. Meanwhile, the Obama administration faces heat for growing federal budget deficits. The Congressional Budget Office reported last month that the deficit would reach $1.3 trillion this year, one of the highest levels in decades.

Sen. Carl Levin, a Michigan Democrat who chairs the Senate Armed Services Committee, has argued that the administration's request should be cut in half, to $1 billion, because Iraq has enough oil revenues to pay for its own security requirements.

Meanwhile, the GAO report found, the Iraqi Defense and Interior ministries didn't spend about $10 billion that had been budgeted to them — a quarter of their budget — from 2005 to 2009. The report blamed the ministries' cumbersome bureaucracies and weak procurement capacity.

The Pentagon, in a letter to the GAO disputing its findings, said that the budgets for the Defense and Interior ministries together accounted for 14 percent of the country's total economy in 2010. The report said that the ministries are now allocating more than 90 percent of their funds.

While the Obama administration has frequently pointed to Iraq's oil sector as the country's future financial safety net, production is increasing slowly, and there are too few oil transmission points for the government to raise its spending dramatically.

"We think with the investment of the international oil companies, and new projects coming online . . . we are going to see that eventually, but it's probably not going to happen this year or next year," said Brig. Gen. Jeffrey Buchanan, a U.S. military spokesman.

U.S. officials also argued that Iraq also needs to maintain its cash reserves to cushion it against oil price fluctuations. A $10 per barrel change in the world price of oil would translate to a $7 billion change in Iraqi government revenues, Fairfax estimated.

"We have a long-term, enduring civilian cooperation with Iraq," Fairfax said. "If the cost of attempting to have them spend more money next year puts them at financial risk in the future . . . that is not a position that is in our interest to put them in."

U.S. officials didn't dispute the majority of the GAO study, which also said that the Iraqi government needed to improve its financial reporting and accounting. The study's authors said they couldn't specify how much of the surplus already had been allocated partly due to limitations at Iraq's Finance Ministry, which was damaged by conflict and lost some employees to deadly attacks.

The ministry has missed deadlines to complete a detailed report of its finances under an agreement with the International Monetary Fund. U.S. officials said that report would be submitted within days and offer a fuller picture of how much cash the government has on hand.


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