U.S. Spends $2.5Bln in Iraqi Oil Revenues

WASHINGTON -- Struggling with bureaucratic problems in spending the money appropriated by Congress to rebuild Iraq, U.S. authorities are moving quietly and quickly to spend $2.5 billion from a different source, Iraqi oil revenues, for projects employing tens of thousands of Iraqis, especially in the country's hot spots, George W. Bush administration officials say.

The spending program, which was started unannounced, has been undertaken in consultation with Iraqi ministers, despite misgivings that the oil revenues belonged to Iraq and that they should be set aside for use when Iraq's sovereignty is restored, scheduled for the end of June.

Because of deteriorating security and complex delays in contracts that have slowed the spending of the $18 billion in congressionally appropriated funds, occupation authorities say they decided in the spring that they had to spend the Iraqi funds to build schools, factories and oil fields and turn Iraqis away from violence.

"The security needs were just overwhelming," an occupation official said. "Would we rather have been able to save the money and have a nice kitty? Sure. There's always a tension between putting money to work right away and having it available for a tough year next year."

Bush administration officials say they believe that the spending program has helped stabilize Iraq, although most note that negotiated arrangements allowing insurgent groups to operate peacefully in Fallujah, Karbala, Najaf and other troubled areas were also instrumental in reaching that goal.

Iraq's overall domestic budget of roughly $20 billion for 2004, financed mostly by oil revenue, was approved last year by the Program Review Board, a unit of the Coalition Provisional Authority -- the U.S. occupation authority in Iraq.

But this spring, Bush administration officials said, it became clear that rising global oil prices were presenting Iraq with a windfall, and a decision had to be made whether to save that extra money or disburse it in a one-time expenditure that might not be available in the 2005 budget.

U.S. occupation officials said the $2.5 billion had helped pay for security needs like police cars and uniforms, as well as repairs of schools, power grids, oil fields, state-owned factories and other sources of employment. Additional funds have been used for vocational training for young Iraqis.

Some of the money has gone to U.S. military teams operating since the beginning of the occupation 14 months ago. The teams have become famous in Iraq for the way they have spread out across the country, commissioning repairs and paying for them from satchels bulging with $100 bills shipped by plane from a Federal Reserve vault in East Rutherford, New Jersey. Much of that money came from Iraqi assets frozen in the United States during the Persian Gulf War in 1991. At least $1 billion has been distributed in this fashion -- by some estimates more than $2 billion.

"The military commanders love that program, because it buys them friends," said an administration official, referring to the cash distribution. "You want to hire everybody on the street, put money in their pockets and make them like you. We have always spent Iraqi money on that."

The $2.5 billion to be spent from Iraqi oil funds has several components, the biggest of which is $1 billion to be spent on 15 to 21 military or security projects around the country. The rest of the money is to be used for vocational training, infrastructure repair, principally in the oil and electricity sectors, and increased supplies of food. A small amount has been set aside for compensation for victims of Saddam Hussein's government and displacement since the occupation began. A principal goal is to employ Iraqis and compensate for the shortfall in financing that was supposed to have come from U.S. sources.

One reason for distributing cash for quick gains, some administration officials say, is that controls on the $18 billion appropriated by Congress last fall to rebuild Iraq may make it harder to operate in that fashion, so policymakers have decided to use what they have before the formal end of the occupation, now scheduled for June 30.

A senior administration official said that, contrary to early hopes, it would probably take five years to use up the $18 billion.