Mismanaging Iraq: No Cash to Carry

  • Share
  • Read Later
Maya Alleruzzo / AP

A Sons of Iraq supervisor distributes payments to security volunteers in Baquba

Just before U.S. markets went into meltdown and venerable financial institutions teetered or collapsed, several of Iraq's 18 provinces, including Diyala in the northeast, suffered their own cash crunch, literally running out of cash. Bank notes. Bills. Some public-sector bank branches, mainly in Diyala, ran out of physical bank notes because of a combination of unforeseen demand and a lapse in importing new currency notes from printers based overseas. It is the latest inefficiency to stymie the country's long-delayed reconstruction efforts.

Iraq's coffers may technically be burgeoning with billions of petrodollars, but over the summer, the vaults of some branches of the country's two main state-owned commercial banks, the Rafidain and Rasheed, were empty. A kink in the supply chain owing to miscommunication among several financial bodies meant that the flow of physical bank notes to some provinces like Diyala was reduced to a trickle. There was no shortage of cash on the streets of the province, but government pensions and salaries were delayed, as were payments to contractors, who in turn didn't have the cold hard cash to pay their employees. "The reason you don't see [construction] cranes flying all over the province and building like they did when the Berlin Wall came down is because they don't have any cash," says Major Tim Hunt, the 2nd Stryker Cavalry Regiment's liaison to the provincial government. "They literally don't have a bill to hand this guy and say, 'You're paid.' So if you can't pay anybody, you can't do any work." (See pictures of U.S. troops' 5 years in Iraq.)

The "crunch," as central-bank governor Sinan al-Shibibi described it, lasted for several months and was only recently rectified. "We had some temporary problems," he said, explaining that they were precipitated by the government's public-sector pay raises that took effect in July. "There should be more coordination between the central bank and the government to assess and to project for the demand for currency by the government." That is quite the understatement.

President-elect Barack Obama has repeatedly said the Iraqi government must dip deeper into its own coffers to finance the country's reconstruction projects. To date, American taxpayers have shelled out some $50 billion, according to the most recent quarterly U.S. congressional report. The Iraqi government has matched that. Still, the reconstruction of Iraq is not simply a question of who foots the bill or which companies get the contracts. Iraq's rebuilding efforts are being hamstrung by sclerotic administrative procedures that are in desperate need of modernization, after decades of inefficient centralized control, corruption, cronyism, wars and sanctions. "It's almost as if Saddam froze the clocks, froze the calendars in 1980, and nothing moved," says Terrence L. Barnich, a senior U.S. adviser for law, policy and regulatory affairs in the Iraq Transition Assistance Office. The result, Barnich says, is a generation of managers and technocrats cut off from how business is done in the rest of the world, weaned by a top-down regime where orders came down to the ministries and provincial governments and suggestions or complaints rarely (if ever) went up.

It's a crippling legacy that is proving hard to unlearn. Many Cabinet ministers still sign off on minutiae like restocking their office supplies, while the lack of digitization in some government bureaus is almost Monty Python–esque. In Diyala, the governorate's billion-dollar budget (the amount is cumulative because the budget has not been executed over three fiscal years) was being administered by a single accountant who had "a pencil, an eraser and a huge ledger," says Hunt.

The flight of hundreds of thousands of Iraq's best and brightest during the war (and before) has also resulted in many sectors severely lacking in professionals. During recent talks between the Electricity Ministry and General Electric over a multibillion-dollar deal to pump 7,000 megawatts of sorely needed power through Iraq's fitful grid, the ministry sent a negotiating team of only three people. Says Barnich, who helped facilitate the talks: "There's just nobody there."

See photos from the 2007 battle of Diyala.

See pictures of Iraq's revival.