Sunday, October 14, 2007

Favorable trends in Iraq

October 14, 2007

Favorable trends in Iraq

Greg Richards
We are seeing favorable trends in a variety of figures of importance from Iraq:
  1. USAID puts out weekly progress reports on Iraq. If you click on the most recent report and scroll down several pages to Section 4 - Electricity Overview - you see something very interesting. Which is that electricity is finally on an upward trend and is now at a record post-war level. The trend is modest and the level is still much too low -- note the 7.1 hours of electricity from the grid in Baghdad, for instance -- but the year to year numbers are now positive. It appears that this may be a dividend from the harmony that we are starting to see in the Sunni provinces around Baghdad.
  2. If you scroll on further to Section 5 - Crude Oil Production - you see that production at about 2.3 million barrels per day is modestly above the goal of 2.1 million barrels. I.e., the insurgency is not able to shut off oil production, even if oil growth is modest.
  3. If you clock on the website for the Central Bank of Iraq (CBI), go to Key Statistics and scroll down to the bottom of the spreadsheet you see the table for inflation. At the beginning of this year, inflation was 66%. In the last three months - June, July, August - inflation declined: 46%, 30%, 20%
  4. With the high interest rate policy of the CBI, the value of the Iraqi dinar continues to improve. It has increased 11% this year against the dollar and 20% since last fall.
  5. The Iraq Stock Exchange is up 50% year-to-date and is holding its 30% surge of mid-summer.
We don't want to forget the estimated 2 million internal and 2 million external refugees in Iraq, nor the estimated 50% unemployment rate. However, in his interview on Charlie Rose, David Kilcullen observed that political progress in Iraq will be "alchemy" not "engineering" meaning that progress cannot be laid out in a mechanical fashion. To use a different image, progress in Iraq will very likely be a "jelling" of different components into a whole. I think this will be true of economic life in Iraq as well. To determine if this is happening, we need to monitor as many figures of merit as we can, such as the five points above.

Iraqi Dinar exchange rate stabilized for Ramadan holidays

Stop Fundamentalism, October 14 – The Iraqi Central Bank has frozen Iraqi Dinar’s exchange rate selling at 1232 per Dollar until next Thursday, October 18, said a bank spokesman, Friday.

The Iraqi Dinar exchange rate has held almost steady for past weeks, rising about 5 Dinars per Dollar since mid September.

The Iraqi Central Bank runs a daily auction from Sunday through Thursday every week; however, the auction will not take place this week, Sunday through Tuesday, due to the end-of-Ramadan holidays. The international trading of the Dinar, on the other hand, will continue at the stabilized rate specified during the holidays.

The Iraqi financial market has opened doors to trade from other countries allowing foreign traders to participate in the Iraqi exchange market since early August.

The Iraqi Dinar has appreciated to its current value against the dollar from as low as 2,200 in the aftermath of the war.

Tuesday, October 9, 2007

U.S. Embassy in Iraq: Construction project has gone $144 million over budget - State Department has delayed its opening indefinitely

By: Committee on Oversight and Government Reform
Published: Oct 9, 2007 at 09:03
Email this article

Printer friendly page

Today Chairman Waxman wrote to Secretary Rice regarding documents obtained by the Oversight Committee that depict widespread defects in fire detection systems, fire service mains, fire sprinklers, fire-proof construction materials, and electrical wiring throughout the new Embassy in Iraq complex. Other documents implicate the Managing Partner of First Kuwaiti, the prime contractor, in an illegal kickback scheme to obtain subcontracts under the Army's multi-billion logistical support contract.

The text of the letter is below.

October 9, 2007

The Honorable Condoleezza Rice
U.S. Department of State
2201 C Street NW
Washington, DC 20520

Dear Madam Secretary:

I am writing to raise new concerns about the State Department's $600 million U.S. Embassy in Iraq. On July 26, 2007, the Committee held a hearing to review reports of numerous problems with the Embassy construction project. In particular, the Committee asked about allegations of substandard work by the prime contractor, First Kuwaiti General Trading & Contracting Company, and whether problems with the fire protection systems, electrical systems, and power plant would delay the opening of the Embassy beyond its September 2007 completion date and increase the costs to the taxpayer above the $592 million budget.

At the hearing, Maj. Gen. Charles Williams (Ret.), the Director of Overseas Building Operations (OBO) at the State Department, dismissed all of these concerns, stating emphatically:

I am pleased to report, Mr. Chairman, that the project is on schedule and on budget. We are slated to complete the project in September of this year and personnel can begin to move into offices and residences shortly thereafter. As to project quality, OBO is proud of its employees and contractors work on this project. We have received numerous accolades as to the extremely high quality of construction. It is among the best that OBO has managed.

This weekend, however, it was disclosed that the Embassy construction project has gone $144 million over budget and the State Department has delayed its opening indefinitely.

The Committee has now obtained new documents that raise additional questions about the Embassy project and First Kuwaiti. One of these documents is a recent report on the Embassy's fire suppression system. This report was completed by inspectors from the State Department's Fire Protection Division and issued on September 4, 2007, based on inspections conducted between August 17 and September 2. The report finds:

- "The NEC [New Embassy Compound] is not ready for tests and the Contractor could not provide a timeline for completion."

- "Because the fire service mains are deficient, there is no reliable automatic fire sprinkler system coverage in any building on the compound."

- "None of the fire alarm detection systems were ready for testing at the time of arrival and none were completed during this site visit."

- "The Contractor continues to struggle with an understanding of the project specifications."

- "Most buildings have a complete lack of firestopping in fire rated walls and floors. Unless all openings in rated walls and floors are firestopped using approved methods and materials, a fire could spread very quickly from one area to another. This is especially true because the sprinklers are not in service."

- "[T]he entire installation is not acceptable."

Other documents reveal that the Justice Department has asserted in court papers that the Managing Partner of First Kuwaiti, the prime contractor, bribed officials to obtain subcontracts for First Kuwaiti. According to these documents, Wadih El Absi agreed to pay over $200,000 in kickbacks to obtain subcontracts under a Halliburton subsidiary's multi-billion dollar contract to provide logistical support for U.S. troops in Iraq. Mr. El Absi operates First Kuwaiti as a foreign corporation out of Kuwait and refused to travel to the United States to testify at the Committee's hearing in July.

A third set of documents show that Pentagon auditors raised serious questions about the performance of First Kuwaiti before the State Department awarded the Embassy contract to First Kuwaiti. According to these documents, the Pentagon auditors released a report several months before the award of the contract that questioned more than $130 million that First Kuwaiti had billed for services provided to the U.S. military.

I am growing increasingly dismayed by the State Department's resistance to responsible oversight. At the July hearing, State Department officials repeatedly and erroneously told the Committee that the Embassy would be completed on time and under budget. When the Committee investigated the State Department's oversight of Blackwater, the Committee received significantly more cooperation from Blackwater than from the Department. And when the Committee held a hearing last week to investigate corruption in the Maliki government in Iraq, the State Department witness, under orders from the Department's leadership, refused to answer questions about the extent of corruption in the Iraqi government or its implications for U.S. interests in Iraq.

The Committee is seeking information relating to all of these matters. With regard to the specific issues raised in this letter, I expect a prompt and complete response by October 19, 2007.

Substandard Embassy Construction by First Kuwaiti

From August 17, 2007, to September 2, 2007, inspectors conducted tests of the fire protection systems at the Baghdad Embassy as part of the final accreditation process. These inspectors issued a report on September 4 that documented widespread deficiencies, including many that First Kuwaiti failed to repair despite repeated warnings. For example, the report found critical deficiencies in the fire alarm detection systems:
None of the fire alarm detection systems were ready for testing at the time of arrival and none were completed during this site visit. The wiring methods used by the Contractor do not comply with the NFPA 70, National Electric Code, and will be very difficult to maintain. The Contractor continues to struggle with an understanding of the project specifications, despite guidance from OBO/OM/FIR.
The report also confirmed that despite earlier warnings, the underground mains that feed the sprinkler pipes in the Embassy building had been connected improperly and cracked under pressure:

The fire service mains are installed using non-approved materials and this was noted in a trip report dated 16 October, 2006. The Contractors has not corrected this situation despite having more than 20 breaks on the system since being place in service in July 2007.
The report further noted:
[S]ome of the leaks repaired prior to our arrival failed a second time during our visit. These failures are occurring during normal use of the system and will continue to occur. There are at least 600 joints on the system, and the entire installation is not acceptable.
In the course of their work, the inspectors documented hundreds of violations of the contract specifications and the fire codes and regulations. These problems were so severe and widespread that the inspectors concluded that none of the buildings on the New Embassy Compound could be approved for occupancy. The report included the following findings:

- "The fire service underground piping and the repair methods used by the Contractor do not meet the project specifications or NFPA 24, Standard for Underground Fire Service Mains."
- "Four leaks in the fire service mains were discovered and repaired while OBO/FIR Staff were on site. The Contractor is repairing leaks by replacing the coupling(s) and encasing the new joints in concrete. This method is also not in compliance with project specifications and NFPA 24 (referenced in the project specifications)."
- "Because the fire service mains are deficient, there is no reliable automatic fire sprinkler system coverage in any building on the compound. … A few fire sprinkler systems were placed in service, but most were not sufficiently completed to place in service. However, without the fire service mains, the sprinkler systems remain inoperative."
- "Most buildings have a complete lack of firestopping in fire rated walls and floors. Unless all openings in rated walls and floors are firestopped using approved methods and materials, a fire could spread very quickly from one area to another. This is especially true because the sprinklers are not in service."
- "The NEC is not ready for tests and the Contractor could not provide a timeline for completion."

The inspectors, who are licensed electrical engineers, also discovered significant problems with the electrical system and wiring. An attachment to their report documents unsafe splicing and incorrect wiring methods used throughout all buildings on the compound that do not meet either electrical codes or the contract specifications. The inspectors observed wiring problems with electrical panels, smoke detectors, and light fixtures. Many of these problems were found to be endemic throughout the Embassy. For instance, describing a photograph of faulty electrical work, inspectors noted: "Wrong wiring method. Free-wiring and open splices do not meet code or specifications." Another observation notes: "Improper wiring methods used on light fixtures. Typical throughout building."

The September 4, 2007, inspection report reveals that OBO and First Kuwaiti had been aware of these problems for nearly a year. In October 2006, OBO received reports that First Kuwaiti "is installing underground fire protection service mains that are not of the correct material, which has already resulted in stress cracking. This condition is unacceptable and was discussed with the Contractor." However, according to the 2006 report, "the contractor responsible for the underground service mains was not receptive to any corrective action."

The October 2006 inspection, and subsequent inspections in March and May 2007, found numerous other problems in the fire system in the Baghdad Embassy complex. For instance an inspection report dated March 14, 2007, noted that "many of the electrical connection boxes and conduits are installed without any approved fittings." It also found deficiencies in the firestopping between walls, including "openings between apartments and the apartments and corridors" throughout the staff diplomatic apartments. The inspectors warned that "all penetrations between apartments and each apartment and corridors must be suitably sealed to provide a minimum fire rating."

Many of these exact concerns were raised at the Committee's hearing on July 26, but State Department officials dismissed them as minor problems akin to a "punch list" used during the purchase of a personal residence. For example, I asked General Williams about whether earlier reports of problems with embassy construction — such as those identified in interim fire inspection reports from October 2006 and March 2007 — were adequately addressed by OBO and First Kuwaiti. He responded: "There's no way to have or to put in place a new embassy compound that does not meet our specifications."
General Williams continued:

I have found with this contractor that there's never been any shyness on correcting what we bring to their attention. They want to get it right. They've tried very hard to get it right. They're not perfect. I've never seen a perfect project. There's always — when you're installing something of this magnitude there are things that are not exactly the way they should be, and that's the reason we have these check points in the process. We have a good process.
Contrary to General Williams' testimony, the final inspection shows that the problems pointed out in earlier reports had been ignored by both OBO and First Kuwaiti. It now appears clear that the Embassy will require major repairs simply to meet the project specifications.
The First Kuwaiti Kickback Scheme
Documents submitted by the Department of Justice to the Federal District Court in Illinois assert that the Managing Partner of First Kuwaiti, the prime contractor on the Embassy project, personally engaged in a kickback scheme with a major U.S. contractor in Iraq in order to obtain subcontracts. This individual is Wadih El Absi. The Committee invited Mr. El Absi to testify about his company's work on the Embassy at the July hearing, but he refused to appear. The involvement of Mr. El Absi in the kickback scheme was first reported by the Associated Press on September 20, 1997.

In July 2007, Anthony J. Martin, a former subcontracts administrator and manager for Halliburton subsidiary KBR, pleaded guilty in federal court to violating the federal Anti-Kickback statute in connection with the award of a subcontract to First Kuwaiti. In so doing, he admitted that in 2003 he had conspired with Mr. El Absi in a kickback scheme to award over $13 million worth of contracts to First Kuwaiti under the U.S. Army's Logistics Civil Augmentation Program (LOGCAP). According to the Justice Department, the amount of the kickbacks was incorporated into the price of the subcontracts and ultimately paid by the U.S. government. Court documents obtained by the Committee state as follows:

- "In or about June 2003, [First Kuwaiti's] Managing Partner offered to pay and [Mr. Martin] agreed to accept a kickback for the purpose of obtaining and rewarding favorable treatment for [First Kuwaiti] in connection with a subcontract relating to LOGCAP III."

- "Managing Partner agreed to pay [Mr. Martin] approximately US$170 per semi-tractor, per month, under any government subcontract the defendant would award to [First Kuwaiti]."

- "In or about June 2003, prior to the bid process for the subcontract for the 50 semi-tractors and 50 reefer trailers, Managing Partner paid [Mr. Martin] approximately US$10,000 in Kuwaiti Dinars as an advance on their kickback agreement."

- "In or about June 2003, [Mr. Martin] awarded to [First Kuwaiti] the subcontract for the 50 semi-tractors and 50 reefer trailers in the amount of approximately US$4,672,273.50. KBR designated the subcontract as Subcontract GU49-KU-S00167 ("Subcontract 167")."

- "Under the kickback agreement … [Mr. Martin] was to receive approximately US$50,240 for his awarding Subcontract 167 to [First Kuwaiti], including the US$10,000 [he] had already received."

- "On or after June 21, 2003, [Mr. Martin] and Managing Partner signed Subcontract 167 on behalf of their respective companies. The subcontract contained a notice prohibiting [First Kuwaiti] and its employees from offering any money, fee, commission, gift, gratuity, or thing of value to KBR employees for the purpose of improperly obtaining or rewarding favorable treatment in connection with a government subcontract."

According to the Justice Department, Mr. Martin also admitted at his plea hearing to awarding an $8.87 million contract to First Kuwaiti. Under the kickback scheme, First Kuwaiti would have paid Mr. Martin approximately $150,265.

First Kuwaiti's Past Overcharges

The Committee has also obtained an audit issued by the Defense Contract Audit Agency (DCAA) that questioned over $130 million in charges by First Kuwaiti for other work in Iraq. DCAA issued this audit on March 20, 2005, several months before the State Department awarded First Kuwaiti the contracts to construct the Embassy in Baghdad. Like the involvement of Mr. El Absi in a kickback scheme, this audit should also have been a red flag warning the State Department away from First Kuwaiti.

In its audit, DCAA reported that First Kuwaiti may have significantly overcharged the government on a subcontract under KBR's LOGCAP contract to provide living containers to the U.S. military. In particular, DCAA found that First Kuwaiti was charging double the median cost charged by its supplier. In the audit, DCAA found:

- First Kuwaiti "is a reseller of Red Sea Housing products. In a direct comparative analysis of [First Kuwaiti] living unit prices to those of Red Sea, the [First Kuwaiti] price is almost double that from Red Sea."

- "KBR essentially paid [First Kuwaiti] … over 260% of the price that KBR could have acquired comparable living units.

DCAA provided the Committee with a briefing on the overcharges in February 2007. During that briefing, DCAA stated that it had disapproved over $50 million paid to KBR on the First Kuwaiti living container subcontracts. Slides from that briefing stated that KBR paid First Kuwaiti for "alleged delays and double handling costs" and that KBR "selectively used higher priced subcontractors without justification." In September, DCAA told Committee staff that it had disapproved $82 million paid to KBR on the First Kuwaiti living container subcontracts. DCAA also informed Committee staff that the remaining $49 million in questioned costs were still being disputed by KBR. According to DCAA, the Army has not sustained any of the $130 million in costs questioned by DCAA.

In preparation for the Committee's hearing in July, the Committee asked for information on the State Department's decision to award the Baghdad Embassy construction contracts to First Kuwaiti on July 8, 2005, and September 16, 2005. Senior State Department officials told the Committee that prior to the award of the contracts, the State Department conducted a "thorough review" of First Kuwaiti's past performance on federal contracts. They also told the Committee that First Kuwaiti's "experience in the region" was a key factor in awarding the company a contract to build a facility to house embassy security guards. There was no mention of First Kuwaiti's overcharges under the Defense Department contract.


Based on the information the Committee has received, I do not understand why the State Department would rely upon First Kuwaiti to build the largest embassy in the world. The bribery incidents, which occurred well before the contract award, implicate the company's Managing Partner in an illegal kickback scheme. DCAA's audit, which was released just months before the selection of First Kuwaiti, raises red flags about the company's performance and billing practices. These should be inescapable warnings about the wisdom of entrusting such a crucial project to First Kuwaiti.

I also do not understand why the Committee was misled by State Department officials about the status of the Embassy project at the July hearing. Given the importance of the Embassy to the State Department's mission in Iraq, the extent of the construction problems, and the prior warnings that had been raised, it would appear to be gross incompetence if the Department's senior management were unaware of the defects at the Embassy when they testified before the Committee.

Increasingly, it appears that the State Department's efforts in Iraq are in disarray. The Committee's investigation revealed that the Department's oversight of Blackwater has been exceptionally lax. Both the Committee's investigation and the testimony last week of Special Inspector General Stuart Bowen and Comptroller General David Walker raise serious questions about the effectiveness of Department's efforts to combat corruption in Iraq. Now the Committee is learning that the Embassy project, which is apparently being built by a contractor with a record of bribery and poor performance, has serious construction deficiencies.

I continue to believe that you should testify before the Committee to address these issues.

In addition, I ask that you provide the Committee with the following documents and information about the Embassy project by noon on October 19, 2007:

1. All documents sent to or from James L. Golden, Mary French, or Maj. Gen. Charles Williams relating to concerns, deficiencies, or substandard work involving construction of the Baghdad Embassy, including communications to and from officials at the State Department, embassy, other U.S. government agencies, First Kuwait General Trade and Contracting Company, KBR, and other inspectors;
2. All documents relating to the evaluation of the bids received for construction at the New Embassy Compound and adjacent guard camp;
3. All documents relating to First Kuwait's performance or involvement in any illegal activities under any other U.S. government contracts;
4. All communications between State Department officials and First Kuwaiti officials regarding the Committee, the Committee's investigation, the Committee's document requests, or the Committee's hearing on July 26, 2007;
5. All communications between Wadih El Absi and State Department officials or contractors; and
6. A copy of the 32-page report submitted by the State Department to Congress referred to in Iraq Embassy Cost Rises $144 Million Amid Project Delays, Washington Post (Oct. 7, 2007).

I also ask that the Department provide a briefing to Committee staff on or before October 19, 2007, on the current timeline for the completion of the new Baghdad embassy, the Department's plans for correcting the construction deficiencies, and the processes by which the State Department considers contractors' past performance and initiates suspension and debarment proceedings.

The Committee on Oversight and Government Reform is the principal oversight committee in the House of Representatives and has broad oversight jurisdiction as set forth in House Rule X. Enclosed with this letter is additional information about how to respond to the Committee's document request. For your reference, I am attaching copies of the court documents and DCAA materials the Committee has obtained.

If you have any questions, please contact me or ask your staff to contact Theodore Chuang or Margaret Daum of the Committee staff.


Henry A. Waxman Chairman


cc: Tom Davis
Ranking Minority Member

Iraq sees $42 bln 2008 budget, up $1 bln on 2007

By Mariam Karouny

BAGHDAD, Oct 8 (Reuters) - Iraq has prepared a $42 billion budget for 2008, an increase of $1 billion on this year, Finance Minister Bayan Jabor said.

"We have finished the budget and now all it needs is printing," he told Reuters on Sunday. "It is $42 billion, that is $1 billion more than last year's."

Jabor said $10 billion would be spent on investment projects outside the Baghdad region, focusing on schools and water projects. An additional $4 billion unspent this year would be rolled over into next year, boosting spending to $46 billion.

"It will include investment money for $10 billion and it targets supporting the southern, northern and western provinces. Their share will be increased by 55 percent," he said.

"Also some amounts from 2007 will be ... given to the ministries and provinces. This will give ... extra money for the budget which means it is around $46 billion."

Jabor said Iraq calculated 2008 revenues based on assumed oil exports of 1.7 million barrels per day at $50 per barrel. Average exports in 2007 have been 1.6 million bpd, he said.

The 2008 budget also assumes an exchange rate of 1,260 dinars to the U.S. dollar, the same as this year. But the government may strengthen the Iraqi currency to 1,200 to the dollar during the course of the year, Jabor said.

Last year the government strengthened the dinar by 13 percent against the dollar after raising interest rates to limit the use of dollars in the economy and stem inflation.

Iraq's dependence on oil revenues will fall to about 88 percent next year from 94 percent in 2007 because of additional income from the telecommunications sector, Jabor said.

The dinar's 13 percent gain against the dollar at the start of the year had helped boost central bank foreign currency and gold reserves to $22 billion, Jabor added. He did not give a comparative figure for last year.

Iraq: where has the money gone?

Over four years after the US-led invasion of Iraq, peace and security for many of the country's citizens remains elusive. Large areas exist in a state of violent conflict while political disarray in Baghdad has paralysed real progress. Despite billions of dollars worth of funds poured into Iraq's reconstruction, that process has stalled.

Corruption, incompetence, a violent insurgency, sabotage, criminality and looting are cited as reasons for Iraq's slow progress. But who is to blame in a country where the government's authority is uneven, where centralised bureaucracy cripples business and where the security situation makes even the simplest meeting almost impossible in many areas? "Everybody must assume responsibility," says Wayne White, head of the US State Department's Iraq Intelligence Team 2003-2005.

"The US military, the Iraqi government, individual ministries, the Shia militias, Sunni insurgents, even down to the individual looters.

"Reconstruction has been seriously hampered by contractor and Iraqi government corruption; US government and military incompetence; and insurgent sabotage. Corruption involving contractors and Iraqis working with them has been a huge problem, in part because of an astonishing lack of oversight."

But when, after the successful removal of Iraqi dictator Saddam Hussein, did things begin to go wrong? In June 2004, the US-led Coalition Provisional Authority (CPA) relinquished civil authority over post-conflict Iraq. This ended 13 months of occupation and marked the creation of an independent interim Iraqi government. It was also the point at which questions began to be asked about where billions of dollars of reconstruction money had gone in the intervening months. These questions have not yet been answered.

Shwan Al Mulla, president of Iraqi Consultants and Construction Bureau, a company managing US$300mn worth of reconstruction projects in Iraq, estimates that more than US$30bn has been poured into Iraq's reconstruction to date.

If the war were to end, he believes it would take up to 15 years to rebuild the country, "depending on how much effort Iraqi politicians are willing to put into it," and a staggering US$150bn.

Financial irregularities

In mid-2004 "financial irregularities" in the dispersion of Iraqi money held in the Development Fund for Iraq (DFI) were discovered by auditors KPMG-Bahrain. This fund was held in a bank account in New York and administered by the CPA. Today lingering questions about that account remain, specifically regarding missing Iraqi money worth an estimated US$8.8bn.

"We're talking hard cash here, we're not talking theoretical money," says David Claridge, managing director of Janusian, a British security contractor operating in Iraq. "There were definitely lumps of cash, the Iraqi dinar being used. That's why they introduced the new Iraqi dinar."

But the situation is hugely complex, and does not end with questions over the CPA's use of DFI money. In late October 2003, international donors pledged more than US$33bn to fund Iraq's reconstruction. Of this US$18.4bn was US money, approved by Congress to be spent on Iraq's redevelopment. The use of this taxpayers' money has also attracted a storm of criticism.

"A large portion of it ended up being spent on security," says Claridge, "and not security for reconstruction, but being diverted." US money was being spent in part on the Iraqi security forces, "not on what it was originally intended for." Its use remains under Congressional investigation in the US. James Drummond, a journalist based in Baghdad between 2004 and 2005, and a former advisor in Iraq to a British contractor describes the situation as a "calamitous waste of money for the US taxpayer."

The use of reconstruction money to fund security is a huge issue in Iraq. In order for any project to establish itself large sums have to be spent on stabilising the environment in which the work is carried out. And sabotage, looting and criminality add to the risks of the ongoing insurgency.

But the extent of the difficulties faced by the reconstruction effort is often overlooked. Iraq's infrastructure was in ruins well before 2003. Sanctions enforced against Baghdad following Saddam Hussein's invasion of Kuwait in 1990 rank among the most comprehensive and crippling on record. In order to keep infrastructure functioning at a basic level the administration "cannibalised what they had and used everything to hand," says Drummond. Even before the war, "by the time 2003 came round entire power stations had to be rebuilt."

Another flow of reconstruction money open to corruption took the form of military ‘discretionary' funds. "There were discretionary funds made available to the US military and these were spent on a large number of scattered infrastructure projects, schools, things like that at a community level. The money was very carefully doled out and focused."

But while the intentions behind the dispersion of these funds were commendable, "you still had to hand it over to a contractor." It is at this stage that the "corruption became intolerable," says White.

Misguided intentions

A particular problem under the CPA in the early days of the reconstruction process was the involvement of the military in the rebuilding process. "The first round of reconstruction efforts were militarily directed," says Drummond. "It is now widely felt that this wasn't particularly well thought through."

Money was spent largely in the west of the country and Baghdad, the country's most dangerous areas. The likelihood of any reconstruction project's success was limited here. Drummond poses the question: What if reconstruction had been applied to areas where it could have worked at the early stages of the post-war programme? This could have had a much greater impact on peoples' lives and been far more successful in winning the support of the Iraqi people.

White explains that under the CPA billions of dollars were committed to large-scale projects that would take several years to complete, "when psychologically, Iraqi's needed quick fixes. They needed projects that they could get relief from within six months or a year."

This diversion of funds from more immediate relief projects was "a terrible mistake," says White. "It was well meaning. But at a time at which the situation was pretty shaky on the ground a lot of short term projects were denied money that could have showed Iraqis much quicker relief."

White identifies the military's involvement in the early stages of the reconstruction as "a problem with expertise. Many projects, particularly during the CPA period, were being administered by military personnel who had absolutely no knowledge of what something costs. They were not financial officers; they were not development officers; they were thrust into the job, and they knew nothing about financial oversight." As a result, "you had a large a number of projects that had expenses running seriously beyond what was required. There was a tremendous waste."

Washington has also been widely criticised for awarding large contracts to American companies, including Halliburton, Bechtel and KBR, in controversial closed or no-bid processes. In many cases these contracts are designed so that the same contractors can be used again at short notice. "Those large US companies had to jump through many hoops even before the Iraq war," says Drummond. "You can wonder about the whole model of the war and occupation, but this is how it works." Pragmatism prevails in reconstruction efforts: "as long as the costs are reasonable. I don't think it is corrupt," offers Drummond, "I think it is misguided."

Friday, October 5, 2007

Iraqi Dinar : Sebastian River Holding's Inc. updates shareholders on dinar dividend

On Oct. 1 Sebastian River Holding's Inc. updated its shareholders on the previously announced Iraqi dinar dividend, with a record date of Sept. 14 and a payout date of Sept. 28.

The Company has ordered an official shareholders list; this list will allow the Company to determine all shareholders who hold actual stock certificates in the Company as of Sept. 14. The Company is ordering a broker's list; this will allow the company to determine all shareholders who hold their shares in brokerage accounts as of Sept. 14.'s+Inc.+updates+shareholders+on+dinar+dividend__1112653.html

Arabs offered $16,000 for leaving

By Basil Adas, Correspondent
Published: October 05, 2007, 09:09

Baghdad: The process of paying compensation for Arabs to leave Kirkuk and settle in other places has started, the governor of the troubled Iraqi province said.

Abdul Rahman Mustafa, Governor of Kirkuk, told Gulf News: "The compensation process has already begun and every Arab who wishes to leave Kirkuk is being paid about 20 million Iraqi dinars ($16,000, Dh58,848). The compensation has been approved by the Committee for Normalising Situation in Kirkuk.

"The process is transparent and without any external pressure, and this first phase to implement Article 140 it will be followed by the census and referendum processes to determine Kirkuk's fate," he said.

According to Article 140 of the Iraqi constitution, compensations will be paid to Shiite and Sunni Arab residents of the province to facilitate their return to native provinces.

Kirkuk is facing a struggle for its identity between Kurds on one side and Arabs and Turkmen from the other. Thousands of Kurds were displaced from the province during Saddam Hussain's regime.

Mohammad Arslan, a member of the Turkmen Front in Kirkuk, told Gulf News: "The Patriotic Union of Kurdistan and the Kurdish Democratic Party are trying to change the province's demography by forcing Arabs and Turkmen to leave Kirkuk. I think people are being forced to accept compensations ... this will lead to confrontation."

Wednesday, October 3, 2007

Iraqi refugees and the economy

Jordan Times - 02/10/2007

(MENAFN - Jordan Times) Yusuf Mansur

Jordan has offered refuge to many Iraqis, several waves of them as a matter of fact. The last, whose size is yet to be officially disclosed, ranges from 250,000 to 1.25 million.

The last influx of Iraqis, a brutal consequence of the disastrous war which, according to many, is still going on, has been subject to intense debate and scrutiny, especially after the downwards slide of the stock market, a fall in FDI inflows and deflation of real estate prices.

Should Jordan be compensated for hosting Iraqis? The answer is worth a "billion dollars". Below I examine several of the so-called "adverse" effects of the Iraqi influx on the economy.

In recent months, there were claims that Iraqis have been behind the inflation witnessed in Jordan. The basic idea is that a sudden increase in population leads to a larger consumer base and, consequently, a greater demand for goods and services. However, in any well-functioning economy, such an impact is short-lived because markets react by expanding production, greater employment opportunities are generated and prices go back to normal. Hence, the impact of the sudden influx should have been temporary.

When prices rise and become sticky downwards - refuse to fall - the outcome is due to inherent market deficiencies: a small, non-reactive production base, obstacles to business creation and expansion, monopolistic practices, lack of information and information asymmetries in markets, and governmental controls and policy failures - to name a few.

Since the surge in demand cannot be satisfied domestically and can only be met by greater imports, with no visible chances for local supply responses, the shortage is satisfied by more imports and rising prices that persist in the long run.

Has this been the case in Jordan? There is evidence that the business environment has not improved but deteriorated in the last three years relative to the rest of the world.

Jordan's ranking in the Doing Business report of the International Finance Corporation dropped from 73 in 2005 to 78 in 2006 and 80 this year. A lean, proactive business environment would have been better able to respond and growth would have been beneficial.

Moreover, monopolistic practices are present in almost all commodity markets in Jordan, which also explains why monopolists, once faced with the possibility of a price hike, tend to maintain the new prices under the pretext that there are shortages and increased demand. This phenomenon is present even among the small grocery stores in villages where locational monopolies allow the seller to persist in imposing price hikes.

Empowering the Competition Directorate and making it an independent body, as the National Agenda suggested two years ago, would have helped solve this homegrown dilemma.

The horde of quick-fix policies of on-off selective price controls, and the rising energy bill that was translated into higher energy costs to producers and consumers contributed to rising the prices of industrial products and real estate - rent of apartment buildings and offices - especially when the heating and services bill were included in the rent contract.

Ministers resigned or let go from the economic team as a consequence of their disagreement with a vision or its implementation (if only it had existed). The economy has become more confused by short-nosed, unstudied, quick to the draw policies and a long-term vision seems to be nowhere in the offing. One fails to see the connection between the Iraqi refuges and such a litany of policy failures.

A more probable and direct cause for the increase in inflation is the falling US dollar, to which the Jordanian dinar has been pegged since 1995. This has caused imports to become more expensive. Moreover, the shortages in commodities worldwide have had an impact on rising commodity prices in Jordan.

The rise in fuel prices has also contributed to a rise in production costs. The removal of subsidies - the most recent of animal feed - led to increased imports, as local production cannot compete with relatively cheaper imports. To this add the frequent increases in the sales tax and its spread to necessary commodities, and the picture of inflation becomes much clearer.

All these conditions at play exercised tremendous upwards pressure on prices, which caused inflation to rise last year.

Did Iraqis compete with Jordanians for jobs in the labour market? With only 1,700 work permits issued to Iraqis, one cannot claim that Iraqis drove Jordanian workers out of the labour market. Official estimates show that the unemployment rate has not been affected significantly either way. The Ministry of Labour reported a 1 per cent lower unemployment rate than the Department of Statistics, but both figures happen to be the lowest in five years.

Based on these published figures, it seems the influx of Iraqis has, to the contrary, helped an upturn in the economy - not a downturn as some officials and analysts have claimed.

Could unemployment have dropped further without the Iraqis in the country? Not likely, since Iraqis could not work in Jordan.

Did the economy grow with the Iraqis influx into Jordan? It grew by 8.3 per cent in 2004, 7.4 per cent in 2005, 6.3 per cent in 2006 and is expected to grow by 5.9 per cent in 2007, according to the Central Bank of Jordan. These rates are much higher than the rates of 2002 and previous years, which were around 3 per cent.

Some of the savings and injected wealth of Iraqis may have been behind this growth. Activities pertaining to the Iraqi market, completely decimated in the aftermath of the war, may have also contributed to the rise in economic activity in Jordan - the gateway to Iraq.

Did Iraqis use Jordanian public schools? It was only last month that the Ministry of Education announced that it would allow Iraqi children to attend public schools. Besides, 45 per cent of the Iraqi children's families opted for private schools (a rate that is close to that of Jordanian children) since public schools are overcrowded and dilapidated, and had been so long before the 2003 war on Iraq.

Now let's consider infrastructure. Jordan needed to overhaul its infrastructure for years. One ministerial Cabinet after another was saddled with an inflexible budget. The National Agenda noted in 2005 that infrastructure became a far second on all Cabinet agendas. Putting out fires, reactive and operational measures became the name of the game, instead of focusing on strategic thinking and future development. Furthermore, electricity, water and telephony have been, for all purposes, privatised and the subsidies provided them are too paltry to note.

Government revenues also increased significantly from visas and fines slapped on those who overstayed without legal papers, and from the rise in sales tax and customs revenues, due to increased consumption. Businesses owned by wealthy Iraqis have also contributed to the budget in stamps and fees, which make up one third of the budget. The government, at the same time, became the recipient of more aid immediately during and after the last Iraq war, especially from the US, more than it had during all the previous decade.

Did the Iraqis cause the speculation in the real estate and stock markets? Partially. Since Jordan exhibits many of the ills of a neoliberal economy, it too was driven by the speculative global trend that caused real estate markets to balloon throughout the world in recent years.

The surge in real estate prices would have happened with or without the Iraqi purchase of land and property, which made up around 3 per cent of all real estate activity. Again, had the productive base in Jordan been larger, the profits realised from such sales would have been poured into the economy and produced other goods and services. And, had we truly improved the business climate and the competitiveness of the Jordanian economy in recent years, the Iraqi refugee influx would have been an even greater boon for Jordan.

Kuwait to sell stake in Iraqi bank

by Reuters on Tuesday, 02 October 2007

Kuwaiti investment firm Iraq Holding said on Tuesday it was in talks to sell its 20% stake in Iraqi lender Bank of Baghdad.

The company did not identify the buyer in a statement on the bourse web Site, saying only it expected a profit of around 3 million dinars ($10.73 million) if a deal was concluded.

"The company announces that it is in negotiations with one party," it said.

Bank of Baghdad, founded in 1992, has expanded its business since the central bank allowed private lenders to offer full banking services, and has opened an international banking unit, according to its Web site.

All in a day’s work

Patrick Lair/Democrat-Herald
Austin is shown on the back hatch of a Stryker vehicle.

On his second tour, Sgt. Mike Austin of Scio is giving soldier training to Iraqi forces

KHAN BANI SA’AD, Iraq — For Sgt. Mike Austin of Scio, cruising the dusty roads of Diyala province in Iraq and training Iraqi soldiers is just another day on the job.

Austin, 25, a dismounted team leader in the 4th Stryker Brigade Combat Team, 2nd Infantry Division, out of Fort Lewis, Wash., is currently serving his second 15-month tour in Iraq. He recently took part in a major clearing operation in Khan Bani Sa’ad, about 10 miles north of Baghdad, to remove insurgents, buried explosives and weapons caches from an embattled neighborhood of that town.

It was the first time the Iraqis planned and executed their own mission in that area, with only logistical support from the Americans.

“This is the first time since we’ve been here that Iraqis are taking the lead and we just support them,” Austin said. “It’s good to see. At least it’s a step in the right direction.”

Austin and other soldiers from the 2nd Infantry Division live and work with a battalion of Iraqi Army soldiers at a compound surrounded by mud-brick walls and dirt-filled HESCO barriers in the city known by American soldiers as “KBS.”

About a year ago, al-Qaida militants moved into the KBS neighborhood of Al Askari, evicting more than 100 families from their homes and using the site to launch attacks on coalition forces and Shiite populations in an adjoining marketplace. Insurgents buried more than 50 IEDs in the roads, used the rooftops to fire sniper shots at soldiers and civilians and launch mortar attacks on various targets throughout the city.

On Sept. 6, the 2nd Infantry Division provided blocking positions around the neighborhood with their Stryker vehicles, and the U.S. Air Force provided close air support, as Iraqi soldiers and policemen cleared the neighborhood house by house.

Iraqi explosive ordinance disposal teams uncovered and destroyed multiple IEDs as well as a cache of 37 mortars. Iraqi security forces reclaimed roads through the neighborhood and then set up security checkpoints to prevent insurgents from burying more explosives in the ground.

“I was really surprised when I saw kids playing soccer in the street the day after the mission,” Austin said. “That’s the first time we’ve ever seen them playing outside since we’ve been here.”

The day after the mission, U.S. and Iraqi soldiers handed out more than 100 tons of food and water to local residents. In addition, the Iraqi federal government is giving each displaced family between 4 million and 10 million Iraqi dinars, or $4,000 to $10,000, to assist them in resettling the area.

“Our plan is to bring back the families of Al-Askari, both Sunni and Shia, to live in harmony and peace,” said Col. Karim Wahid Salman Al-Ubaidi, Iraqi Army commander in KBS. “Our short-term goal is to assist the families with food rations and assist the municipal government in cleaning the streets and reinstating water and electrical services.”

Austin, a former member of the Oregon Army National Guard unit in Lebanon, joined the active duty Army in 2003 and deployed to the city of Ad-Diwaniyah, southwest of Baghdad, in that same year. Having spent most of his life in western Oregon, Austin said he now misses the outdoor activities he used to enjoy.

“I miss the hunting, the fishing and the skiing. Mostly, I miss going to the dunes and riding four-wheelers,” he said. “The worst parts about being here though are the heat and the lack of creature comforts, like television and air-conditioning.”

When he returns to Oregon for his two-week leave, Austin said he plans to take his wife, Danielle, and their two children, David and Cody, to the coast.

Asked what his goals are for the rest of his deployment, he responds: “I’m just hoping to finish what we’re doing here and get back home.”

Army Sgt. Patrick Lair is serving in the Mideast with the 115th Mobile Public Affairs Detachment. In civilian life he covers east Linn County for the Democrat-Herald.

Search Results