By Ferry Biedermann
Financial Times, 06 June 2006
Foreign donors spend too much of their aid to Iraq outside the country and ordinary Iraqis do not feel they are being helped by the international community, the country’s new minister of planning has told the Financial Times.
Ali Baban said he would push for a comprehensive review of the way aid to Iraq was being spent. He also warned against pressure from the likes of the International Monetary Fund on his country to scrap subsidies on oil products and food, which currently run at $8bn (€6bn, £4bn) annually.
In one of his first salvos since taking office just over two weeks ago, Mr Baban said: “The donor countries must listen to Iraqi needs and to the views of Iraqi officials.”
But he also committed his ministry – responsible for development aid and investment – to creating a special division to woo foreign investors. “We will give them all the guarantees they need,” he said in Baghdad.
Some 40 to 50 per cent of all foreign aid ends up outside Iraq, says Mr Baban. He accused donor countries of spending the money on foreign advisers and security personnel “usually from the same country that makes the donation. Iraqi people receive very little.”
The donor community has long been familiar with the complaint. But one foreign official in Baghdad said that under the current security situation it was inevitable that much training was done outside the country. Similarly, it could not be helped that every infrastructure project has to spend 30 per cent of its budget on security.
Mr Baban warned that the economy could only improve if the security situation was tackled first. But the security situation alone did not account for the “ineffective” way the aid was being spent, he said. Donors put too much emphasis on training courses and capacity building. “When the Iraqi government and the ministries give a list of their needs and requirements, of equipment, buildings, hardware, often this list will be neglected.”
The US, with a current aid programme of more than $18bn, has been responsible for most of the larger infrastructure-related projects. But of the more than $10bn that has already been spent, the largest single outlay has been on security and law enforcement, which has been more than $4bn, according to the Washington-based Brookings Institution.
Donors other than the US had pledged $14bn to Iraq, as of December 2005, notes the report. Of this, just over $3bn has been disbursed.
International institutions, meanwhile, thought the country would need $56bn in reconstruction and stabilisation aid from 2004 to 2007, a number that Brookings says is probably too low.
But rebuilding the country’s infrastructure was ultimately up to the Iraqis, said the aid official in Baghdad, noting that the country was potentially very rich. “They have to get their own house in order, with the allocation of oil resources and the priorities for their ministries.”
Mr Baban warned that Iraq might not be able to enact economic reform soon, or reduce subsidies as envisioned by the International Monetary Fund.
“I hope the IMF will take into consideration the situation in Iraq and not pressure us to do what will be hard for our people, especially cancelling subsidies,” he said.
Iraq spends large amounts on subsidies for oil products and food that is still distributed through a state network.
Mr Baban said that lifting these subsidies now would undermine confidence in the government.
He was worried about the impact on foreign investment of provisions in the country’s new federalist constitution that allocate oil resources to regional authorities. “It will make foreign companies hesitate to invest a dollar in new Iraqi fields,” he said. He feared it might threaten the future of the Iraqi petroleum industry. The constitution would have to be amended, he said.
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Citation: Ferry Biedermann. "Donors accused of spending aid outside Iraq," Financial Times, 06 June 2006.
Original URL: http://news.ft.com/cms/s/34450016-f59e-11da-bcae-0000779e2340.html
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