[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]
IRAQ'S BUDGET SURPLUS
=======================================================================
HEARING
before the
COMMITTEE ON THE BUDGET
HOUSE OF REPRESENTATIVES
ONE HUNDRED TENTH CONGRESS
SECOND SESSION
__________
HEARING HELD IN WASHINGTON, DC, SEPTEMBER 16, 2008
__________
Serial No. 110-40
__________
Printed for the use of the Committee on the Budget
Available on the Internet:
http://www.gpoaccess.gov/congress/house/budget/index.html
U.S. GOVERNMENT PRINTING OFFICE
44-426 PDF WASHINGTON DC: 2008
---------------------------------------------------------------------
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512�091800
Fax: (202) 512�092104 Mail: Stop IDCC, Washington, DC 20402�090001
COMMITTEE ON THE BUDGET
JOHN M. SPRATT, Jr., South Carolina, Chairman
ROSA L. DeLAURO, Connecticut, PAUL RYAN, Wisconsin,
CHET EDWARDS, Texas Ranking Minority Member
JIM COOPER, Tennessee J. GRESHAM BARRETT, South Carolina
THOMAS H. ALLEN, Maine JO BONNER, Alabama
ALLYSON Y. SCHWARTZ, Pennsylvania SCOTT GARRETT, New Jersey
MARCY KAPTUR, Ohio MARIO DIAZ-BALART, Florida
XAVIER BECERRA, California JEB HENSARLING, Texas
LLOYD DOGGETT, Texas DANIEL E. LUNGREN, California
EARL BLUMENAUER, Oregon MICHAEL K. SIMPSON, Idaho
MARION BERRY, Arkansas PATRICK T. McHENRY, North Carolina
ALLEN BOYD, Florida CONNIE MACK, Florida
JAMES P. McGOVERN, Massachusetts K. MICHAEL CONAWAY, Texas
NIKI TSONGAS, Massachusetts JOHN CAMPBELL, California
ROBERT E. ANDREWS, New Jersey PATRICK J. TIBERI, Ohio
ROBERT C. ``BOBBY'' SCOTT, Virginia JON C. PORTER, Nevada
BOB ETHERIDGE, North Carolina RODNEY ALEXANDER, Louisiana
DARLENE HOOLEY, Oregon ADRIAN SMITH, Nebraska
BRIAN BAIRD, Washington JIM JORDAN, Ohio
DENNIS MOORE, Kansas
TIMOTHY H. BISHOP, New York
GWEN MOORE, Wisconsin
Professional Staff
Thomas S. Kahn, Staff Director and Chief Counsel
Austin Smythe, Minority Staff Director
C O N T E N T S
Page
Hearing held in Washington, DC, September 16, 2008............... 1
Statement of:
Hon. John M. Spratt, Jr., Chairman, House Committee on the
Budget..................................................... 1
Prepared statement of.................................... 2
Hon. Paul Ryan, ranking minority member, House Committee on
the Budget................................................. 3
Joseph Christoff, Director of International Affairs and
Trade, Government Accountability Office.................... 4
Prepared statement of.................................... 6
Frederick W. Kagan, Ph.D., resident scholar, American
Enterprise Institute....................................... 42
Prepared statement of.................................... 44
Lawrence J. Korb, Ph.D., senior fellow, Center for American
Progress................................................... 48
Prepared statement of.................................... 50
Christopher M. Blanchard, analyst in Middle Eastern affairs,
Congressional Research Service............................. 59
Prepared statement of.................................... 61
IRAQ'S BUDGET SURPLUS
----------
TUESDAY, SEPTEMBER 16, 2008
House of Representatives,
Committee on the Budget,
Washington, DC.
The Committee met, pursuant to call, at 9:35 a.m., in Room
210, Cannon House Office Building, Hon. John M. Spratt
presiding.
Present: Representatives Spratt, Edwards, Schwartz, Kaptur,
Becerra, Doggett, Berry, McGovern, Scott, Etheridge, Baird,
Moore of Kansas, Bishop, Ryan, Conaway, Tiberi, Porter,
Alexander, Smith, and Jordan.
Chairman Spratt. I call the Committee hearing to order, and
first of all thank everyone for attending today's hearing on
Iraq's Budget Surplus, and especially our witnesses.
This hearing will be the first opportunity for the Congress
to receive testimony on this report, the GAO Report, since the
Government Accountability Office released it several weeks ago.
GAO reports that Iraq is now running a substantial budget
surplus. It may reach $79 billion. At the same time the CBO
reported last week that in contrast to Iraq's growing surplus,
the budget deficit for the United States is expected to be $400
billion for the current fiscal year. That is the second largest
deficit in our history. Even bigger deficits are projected next
year.
This hearing will give the Budget Committee the chance to
develop some insight into Iraq's fiscal situation and its
ability to help pay for its own reconstruction. So far the
United States has provided more than $650 billion for our
efforts in Iraq, $50 billion of which is for reconstruction and
security forces training. We are spending today at the rate of
more than $10 billion a month, which is by anybody's calculus a
significant sum of money.
Given our budget deficits here at home, some find it
difficult to understand why American taxpayers are still
funding Iraqi reconstruction and security training. In funding
the Gulf War, the first President was able to secure much
greater cost sharing from our allies which greatly reduced the
bill that the taxpayers ultimately had to pay.
Let me say at the outset that this hearing is not a debate
on the war, not a debate on the surge, or the plans for
redeploying any troops we may have. In fact, even the strictly
budgetary issues of the total cost of the war, military and
reconstruction, is larger than today's topic.
We invited the Department of Defense to address the broader
budgetary issue in a hearing this fall, but they declined to
appear. Thus today's hearing is called to examine the issue of
the Iraqi budget surplus. We on the Budget Committee want to
assess for the purpose of projecting the bottom line whether
the burden of Iraq's reconstruction can finally begin to shift
from the United States to Iraq itself given the surplus they
are currently enjoying.
To help us understand the budget surplus we have two
panels. On the first is Mr. Joseph Christoff, the Director of
International Affairs and Trade at the Government
Accountability Office. Mr. Christoff is joining us to present
GAO's latest information on Iraq's budget surplus. Mr.
Christoff, thank you for coming and we look forward to your
testimony. On the second panel we have Mr. Christopher
Blanchard from CRS, Dr. Larry Korb from the Center for American
Progress, Dr. Fred Kagan from the American Enterprise
Institute. The second panel will continue the discussion on
this topic by giving us their expert opinions. On behalf of the
Committee I also welcome Mr. Blanchard, Mr. Korb, and Mr.
Kagan. We will come to you as soon as we finish with this
panel.
But before turning to the testimony of the witnesses let me
turn to my colleague Mr. Ryan from Wisconsin for any comments
he may care to make. Mr. Ryan?
[The prepared statement of John Spratt follows:]
Prepared Statement of Hon. John M. Spratt, Jr., Chairman,
House Committee on the Budget
I would like to thank everyone for coming to today's hearing on
``Iraq's Budget Surplus,'' particularly our witnesses. This hearing
will be the first opportunity for Congress to receive testimony on this
report since the Government Accountability Office released it.
GAO reports that Iraq is now running a substantial budget surplus
that may reach $79 billion. At the same time, the Congressional Budget
Office reported last week that in contrast to Iraq's growing budget
surplus, the budget deficit for the United States is expected to exceed
$400 billion for the current fiscal year--the second largest deficit in
U.S. history--with even bigger deficits projected for next year.
This hearing will give the Budget Committee the chance to develop
some insight into Iraq's fiscal situation and its ability to help pay
for its own reconstruction. So far, the United States has provided more
than $650 billion for our efforts in Iraq, $50 billion of which is for
reconstruction and security forces training. We are spending at a rate
of $10 billion a month--a significant sum of money. Given our budget
deficits here at home, some find it difficult to understand why
American taxpayers--rather than Iraqis--are still funding Iraq
reconstruction projects and security training. In funding the Gulf War,
the first President Bush was able to secure much greater cost-sharing
from our allies, greatly reducing the bill that the American taxpayers
had to fund.
Let me say at the outset that today's hearing is not a forum to
debate the war or the surge or the plans for redeploying our troops. In
fact, even the strictly budgetary issue of the total costs of the war--
military and reconstruction--is broader than today's topic. We invited
the Department of Defense to address that broader budgetary issue in a
hearing this fall, but they have declined to appear.
Thus, today's hearing is called to examine the issue of Iraq's
budget surplus. We on the Budget Committee want to assess, for the
purpose of projecting the bottom-line, whether the burden of Iraq's
reconstruction can finally shift from the U.S. to Iraq, given the
current budgetary surplus in Iraq.
To help us understand Iraq's budget surplus, we have two panels. On
the first panel we have Mr. Joseph Christoff, the Director of
International Affairs and Trade at GAO. Mr. Christoff is joining us to
present GAO's latest information on Iraq's budget surplus. Mr.
Christoff, I thank you for coming and join my colleagues in welcoming
you here.
On the second panel we have Mr. Christopher Blanchard from CRS, Dr.
Lawrence Korb from the Center for American Progress, and Dr. Frederick
Kagan from the American Enterprise Institute. The second panel will
continue the discussion on this topic by giving us their expert
opinions. On behalf of the Committee, I also welcome Mr. Blanchard, Dr.
Korb and Dr. Kagan. We appreciate their willingness to participate and
look forward to their testimony.
I now turn to my colleague, the ranking Member from Wisconsin, Mr.
Ryan for any statement that he may have.
Mr. Ryan. Thank you, Mr. Chairman. Also, Mr. Chairman thank
you for holding this hearing on an issue that is of particular
importance to this Committee. That is, how do we budget for the
War on Terrorism, and particularly the war in Iraq? But while
talking about this is important, with only two weeks left
before funding for our troops expires it would be wise for this
Congress to put forward a similar effort into actually
completing the Defense Appropriations Bill.
A month or so ago GAO estimated that Iraq will be
generating significant oil revenues in 2008 and will be running
a budget surplus. I am very interested to hear from Dr.
Christoff today on whether or not he believes that that is
still the case today with the volatility in oil prices such as
it is today. Clearly our success in Iraq depends largely on the
establishment of a stable security environment that is
necessary for a civil society and a growing economy in that
nation. This report suggests that Iraq is making progress on
getting its oil industry operating and developing a functioning
government.
I view this as progress. I was there a year ago and you had
black market trucks coming into the biggest refinery at night,
stealing the oil. And we had to send the 82nd Airborne in just
to secure an oil refinery. So we are seeing progress going in
the right direction. And I believe that that progress is due
largely to the fact that the surge has worked. American troops
have made remarkable progress in improving ground conditions in
Iraq. And by most accounts, it appears that we have clearly
turned a corner.
I was among those who supported the surge, and many of you
are here as well. Which I will note that Senator Obama recently
stated that he believes that it, ``has succeeded beyond our
wildest dreams.'' And while I have certainly heard the
arguments of those who insist that now is the right time to
simply pull out, I would argue the opposite. Now is the time to
take those incredibly hard fought gains, build upon them, and
finish the job so our troops can come home with a victory.
On a final note, if there is one thing I would ask my
colleagues to keep in mind it is that regardless of which side
of the aisle you are on none of us wants to be at war. At the
same time, every one of us wants to ensure the safety and
security for our nation. In short, I believe we all genuinely
want to do what is right for our country and for the security
of our people.
This hearing offers the Committee an opportunity to look
forward. Forward to how we budget for finishing the job in
Iraq, forward to ensuring the security environment in Iraq
continues to foster a growing economy, and forward to the day
that the Iraq government has the capability to stand on its own
two feet. I look forward to hearing from Mr. Christoff and from
our other witnesses who I would like to thank for coming here
today. Thank you, Chairman. I yield.
Protestor. [Inaudible].
Chairman Spratt. I'm sorry you are out of order and you
will be removed from the room if you persist in doing what
you're doing.
Protestor. [Inaudible].
Chairman Spratt. Mr. Christoff, the floor is yours. Your
statement will be made a part of the record so that you can
summarize it, but we welcome you to expand on it as well and
explain, number one, how this mission came about, and number
two how it was conducted as well as the findings of it. I would
ask before we get started that there be unanimous consent so
that all members can submit an opening statement, or any who
care to, which will be entered into the record at this point.
Without objection, so ordered.
Mr. Christoff, the floor is yours. Thank you again for
coming. We look forward to your testimony.
STATEMENT OF JOSEPH CHRISTOFF, DIRECTOR OF INTERNATIONAL
AFFAIRS AND TRADE, GOVERNMENT ACCOUNTABILITY OFFICE
Mr. Christoff. I thank you, sir. Thank you Mr. Chairman,
Mr. Ryan, for inviting me to this important hearing. Iraq has
an estimated 115 billion barrels of crude oil reserves. It is
the third largest in the world. And oil revenues are critical
to Iraq's economy, accounting for over half of the country's
GDP and over 90 percent of its revenues. My statement today is
based on the report we issued last month on Iraq's revenues,
expenditures, and surpluses from 2005 to 2008. To complete our
work we received revenue data from the Central Bank of Iraq and
the IMF, and expenditure data from Iraq's Ministry of Finance.
And let me summarize the findings in our report. First,
from 2005 to 2007 Iraq generated $96 billion in revenues. Oil
revenues accounted for over 90 percent of that total. For 2008
we estimate that Iraq could generate between $73 billion and
$86 billion in total revenues, nearly as much as it generated
in the prior three years.
Second, from 2005 to 2007 Iraq spent $67 billion on
operating expenses and investments. Operating expenses, such as
salaries and goods and services, consumed 90 percent of that
total. The remaining 10 percent was spent on investments, such
as structures, and vehicles. In general, Iraq has spent less on
investments than operating expenses. For example, in 2007 the
government spent only 28 percent of its $12 billion investment
budget. In contrast, Iraq spent 80 percent of its $29 billion
operating budget.
We also found that Iraq spent 1 percent of total
expenditures on maintaining Iraq and U.S. funded investments.
These investments included bridges, roads, weapons, and water
and electricity facilities. Iraq has not spent all of its
budgeted funds, resulting in a growing surplus, our third key
finding. We estimate that Iraq will accumulate a budget surplus
of between $67 billion and $79 billion by the end of this year.
This includes $29 billion accumulated through the end of 2007
and between $38 billion and $50 billion projected for 2008.
This surplus could be reduced if the government spends the
$22.3 billion supplemental budget it passed last month. The
government of Iraq projects it will spend its entire budget,
including the supplemental, and end 2008 with a $5 billion
deficit. Iraq made similar assertions in its 2005 through 2007
budgets, projecting deficits of between $3.5 and $8.1 billion.
However, Iraq ended each of these years with budget surpluses.
Accordingly, it is unlikely the government will spend its
entire budget for 2008. Moreover, as of June 2008 the Iraqi
government had spent only 38 percent of its $50 billion regular
budget.
Several factors affect Iraq's ability to spend its budget,
particularly its investment budget. Iraq has weak budgetary,
procurement, and accounting systems. In addition, it has a
shortage of trained staff with experience in preparing budgets,
soliciting awards, and overseeing capital projects. And
finally, violence has decreased the number of workers available
and increased the time needed to plan and complete capital
projects. Violence has also hindered U.S. efforts to help build
capacity in Iraq's central ministries.
In reviewing our report the Treasury Department agreed with
our findings. The Department stated that with more revenues the
Iraqi government is in a stronger position to shoulder the
burden of developing, rebuilding, and securing the country. To
date, the United States has largely shouldered that burden. For
example, in four key sectors, security, oil, water, and
electricity, the United States has spent 70 percent of the $33
billion it allocated. In comparison, the Iraqi government spent
14 percent of the $30 billion it allocated for these same
sectors.
So in conclusion, Iraq's large surplus and growing oil
revenues offer it the potential to contribute to the country's
reconstruction and provide more services to its people. Mr.
Chairman, that concludes my statement. I would be happy to
answer your questions.
[The prepared statement of Joseph Christoff follows:]
Chairman Spratt. Mr. Christoff, thank you very much, sir.
Would you explain to us just briefly, did you head up this
audit team yourself?
Mr. Christoff. Yes.
Chairman Spratt. Did you go to Iraq?
Mr. Christoff. Yes, our teams did go to Iraq. We had a team
that was in Iraq from January to March that we relied on
heavily to collect some of this information. More importantly,
we worked with the Treasury Department who gave us the actual
oil receipts from the Central Bank of Iraq that we used to
validate the revenues projections in our report.
Chairman Spratt. Are you satisfied that you saw what you
needed to see to reach the conclusions you----
Mr. Christoff. Yes.
Chairman Spratt. And the Iraqi government cooperated with
you?
Mr. Christoff. Yes.
Chairman Spratt. Did you find any instances that might have
warranted further investigation as to misappropriation or
misexpenditure of money, or----
Mr. Christoff. On this particular engagement, sir, we were
just focusing on trying to answer the questions that Senators
Levin and Warner asked us to do some projections about the
surplus, the revenues, and the expenditures.
Chairman Spratt. Does the fact that Iraq has been so slow
to spend this money for infrastructure in particular and for
investment in capital goods, does that arise from some concern
that it might be misspent, it might be misused?
Mr. Christoff. Well, the reasons that were cited for Iraq
not being able to spend its investment budget were the
weaknesses in its accounting, its procurement, its budgeting
systems. The U.S. government has had for the past two years a
very strong capacity building kind of program, spending about
$500 million to try to teach the Iraqis how to do a better job
of budgeting and procurement and contracting.
Chairman Spratt. Well, that is the reality of it. If you
look at June 2008, with a big surplus building up in the
current year, the General Accounting Office, the Government
Accountability Office, reported low expenditure rates by Iraq.
Whereas we have spent about 70 percent, Iraq has spent about 14
percent.
Mr. Christoff. That is correct.
Chairman Spratt. And this is a attributable to the fact
that they do not have the civil service, the sort of disbursing
and procurement bureau to handle the expenditures?
Mr. Christoff. Well, I mean that certainly is part of the
reasons. We certainly have heard the fact that we have been
generous in the reconstruction dollars. There has been less of
an incentive on the part of the Iraqi government to spend their
own dollars as well.
Chairman Spratt. So they are able to spend. If the will was
there they could be spending at a faster rate than they are?
Mr. Christoff. Well, they can spend it on their operating
budget with no difficulties. They spent a large percent, almost
80 percent of their operating budget. They can pay salaries.
They can buy certain operating goods and services. But when it
comes to the actual investment side, to reconstruct bridges,
roads, electricity, and water facilities, they fall short.
Chairman Spratt. Well, if you spend some of that money on
oil does it not come back to you in dividends?
Mr. Christoff. Well, all the oil revenues are required to
go into the Development Fund for Iraq. So all of those are
captured in a single fund that the Iraqi government can tap
into.
Chairman Spratt. And that money is at the New York Fed, I
understand?
Mr. Christoff. Yes. The DFI is at the New York Fed,
correct.
Chairman Spratt. Is there a reason for putting it at the
New York Fed?
Mr. Christoff. That was the agreement that was established
back in 2003 when the DFI was established. And at that time the
Coalition of Provisional Authority was responsible for spending
the funds in the first year.
Chairman Spratt. So is the Iraq government at will free to
draw from the $29 billion surplus at the New York Fed?
Mr. Christoff. Yes.
Chairman Spratt. Without our approval or approbation or
oversight?
Mr. Christoff. Once the transition occurred in June of 2004
Iraq was allowed to tap into the DFI.
Chairman Spratt. Do you see any movement towards their, how
long does it take to establish a civil service that can handle
the disbursement of money, the procurement of goods and
services, and things of this nature?
Mr. Christoff. Well, you know building capacity in any
ministries is not a short term effort. It is a long term
effort. I think when you look at the programs that USAID and
State Department have established, they have a longer term
perspective.
You know, one of the, we are also looking at Iraqi
refugees, for example, and in meeting a lot of the Iraqi
refugees in Syria and Jordan over the past month, I encountered
a lot of the civil servants that they need who have had the
technical expertise in budgeting and accounting and procurement
that have left the country. So some of the concerns, and some
of their problems, are the result of brain drain that among the
2 million Iraqis that have left the country, many of them were
the Sunni technocrats that had the kinds of skills and
capabilities.
Chairman Spratt. They were Sunnis, too, probably?
Mr. Christoff. Yes, many of them are Sunnis in terms of the
ones that have left the country.
Chairman Spratt. Well, notwithstanding that, the United
States government has appropriated about $48 billion----
Mr. Christoff. Correct.
Chairman Spratt [continuing]. And spent about $40 billion
plus or minus.
Mr. Christoff. Correct.
Chairman Spratt. A substantial share of what we have
provided and allocated. Is that sufficient for our share? Do we
have ongoing projects that we seek to complete that require the
appropriation of additional money? Or can we now turn to Iraq
and say, ``From here on, the obligation to undertake these
capital projects is your responsibility to fund?''
Mr. Christoff. Well, first in terms of the $48 billion that
we have appropriated, about 87 percent of that has been fully
obligated. So it is covering projects that we have agreed to
do. There still is money that has not been disbursed that has
been set aside for projects. Some of these projects are going
to continue for several years in terms of actually completing
them.
Now, you asked the question about at what point do we turn
over the responsibility for the reconstruction to Iraq? I think
that Congress has been moving in that direction. When you
passed the supplemental in June and you provided money for the
Economic Support Fund, you established a cost sharing formula,
a dollar for dollar match on the part of the Iraq government.
So you have begun the process of at least requiring the Iraqis
to put up a share dollar for dollar on those smaller
reconstruction projects that are funded under the ESF.
Chairman Spratt. Two final questions. What level of surplus
do you expect to be generated this year, 2008? And with this
year's surplus, what will the total accumulated surplus be,
including the $29 billion on deposit at the New York Fed?
Mr. Christoff. When we did our projections, first of all we
projected that just from total revenues would be between $73
billion and $86 billion. And that would then result in a
potential surplus at the end of this year of between $67
billion and $79 billion.
Chairman Spratt. To be added to the $29 billion?
Mr. Christoff. No, that is inclusive of the $29 billion.
Chairman Spratt. Including? Okay.
Mr. Christoff. Yes.
Chairman Spratt. Thank you very much. Before you get
started, there is a person with a sign in the middle of the
room. You will have to remove that sign. We cannot allow you to
have the kind of display in this hearing room. You can either
remove the sign and leave the room, or we will have you
removed. Okay. Mr. Ryan?
Mr. Ryan. Let me try and pick up where the Chairman left
off. While the numbers that we see in the press are kind of
treated as definitive, in actually reading your report and
testimony I see there is a bit of a variance and uncertainty in
these numbers. You use phrases like, ``for 2008 Iraq could
generate an estimated $73.5 billion to $86.2 billion in
revenues.'' Based on the fact that the conditions in the world
oil markets have changed dramatically since this report was
published, you know the price of oil has gone down very
significantly, and based on the fact that Iraq did pass the
supplemental, the $22.3 billion supplemental, do you still
think they are going to have a surplus in 2008 since this
report was published? And if so, what kind of number do you
think we are going to see, since these things have taken place
since this report was published?
Mr. Christoff. Yes, we still believe that there is going to
be a surplus. But it will probably be more towards the middle
of our range. And remember, keep in mind that we have a range
that we are projecting. I realize that the media has taken the
higher end of the range.
Mr. Ryan. Right.
Mr. Christoff. But it is still a range. We went back and we
did just some checking, trying to take into consideration the
recent drops in the oil prices. And if you go to page five of
my statement, and if you look at what our ranges are for the
amount of oil revenues that would be generated, when we----
Mr. Ryan. And these are based on different prices per
barrel of oil, correct?
Mr. Christoff. Exactly. And when we did some of the
checking we think that the actual export oil revenues for the
end of the year would be closer to the range between scenarios
two and three, now.
Mr. Ryan. Yes.
Mr. Christoff. So the high end of the budget surplus will
not be $79 billion. It will probably go down to about $72
billion. But there still will be a surplus.
Mr. Ryan. Now, you use the term cumulative surplus.
Mr. Christoff. Correct.
Mr. Ryan. As a budget person that is not a concept that we
are typically familiar with, or that we use here. When we look
at a surplus or deficit, we measure them in the year in which
they take place.
Mr. Christoff. Yes.
Mr. Ryan. I notice in your report you kind of roll up the
years 2005 through 2007, and add them to the projected numbers
for 2008 which, you know, as we see has some variable. Why do
you use cumulative surplus numbers like that, which is contrary
to the way we do budgeting here?
Mr. Christoff. Well, we do list the surplus at the end of
each year. It is on the highlights page, the first page. So
that you do see that in 2005 Iraq had a surplus of $6.5 billion
rising to $13.3 billion in that year alone. So when we went and
looked at the actual financial deposits that Iraq had at the
end of 2007 and we calculated where it was, it had a $29
billion surplus, cumulative, up to that point in time.
Mr. Ryan. I know. But why are you using the cumulative
number?
Mr. Christoff. Cumulative is a term also that the IMF uses
in terms of trying to determine exactly what Iraq's surpluses
and projections might be.
Mr. Ryan. Okay. Now, so the key to this is budget
execution, obviously.
Mr. Christoff. Right.
Mr. Ryan. And they have done a better job. Obviously, they
are increasing their expenditures. And the whole point of all
of this is we train their troops along with them, so we can get
our troops out and they can take over their government and
stand on their own two feet. So we all understand that. Let me
ask you about the, we had the SIGIR here, Bowen I think was his
name, and Ambassador Saloom, who is sort of in charge of budget
execution for the State Department last year, just chronicling
all of these problems that Iraq had in executing their budget.
To the point where I think we had to deposit some money in the
New York Fed, make interest on it to buy some equipment. Give
me a better sense, I know you went into this with the Chairman
a little bit, about budget execution. That is question number
one. Question number two, is oil security. How is oil security
improving? In stemming the black market, in controlling what is
going on in the refineries, and in pipeline security? How are
those two things----
Mr. Christoff. Yeah, let us talk about the latter point.
Because you brought up the Baiji incident of last year.
Mr. Ryan. Right.
Mr. Christoff. Where even the DOD was reporting losses of
$2 billion through the black market, just from the Baiji
refinery. That and security for the Baiji refinery has improved
significantly. I do not have actual numbers of what might be
the potential losses, but I know it has gone down dramatically.
Coupled with the fact that there have been these oil protection
forces that have been along the oil pipelines. Now there are
still interdictions, they are still occurring, particularly the
pipelines in the north. But we are doing a better job of
protecting the actual infrastructure so that you are reducing
the diversions that might occur, or the losses.
Mr. Ryan. Okay, budget execution then?
Mr. Christoff. Budget execution. Budget execution is a very
interesting term. It is a term, quite frankly, that was
developed by the State Department to try to give some idea of
what Iraq might spend. Not what it actually spends, but what it
might spend in terms of commitments. And Iraq through its
Minister of Planning puts out what are called these informal or
unofficial reports to try to tabulate projects that they are
thinking about spending. And the, both DOD and State report
budget execution rates that are higher than the actual
expenditure rates, because they are trying to capture
intentions.
We sat down with Treasury, went through those reports. And
both Treasury and GAO reached the conclusion that they are
unreliable. The information does not contain reliable----
Mr. Ryan. You mean, you cannot measure intent very
accurately, right?
Mr. Christoff. Exactly. It is difficult to measure intent.
Mr. Ryan. Yeah.
Mr. Christoff. Plus, when you just read the reports, things
do not add up, either.
Mr. Ryan. So, looking forward to 2009 and watching how the
Iraqi government is functioning, are they getting that? It was
sort of, what we found was, you know, the top level was able to
put together a good budget. We assist them with that.
Mr. Christoff. Right.
Mr. Ryan. And then it is down in the mid-levels of
government where you had that gray area, and you were not
allowed to apply or execute a budget. I do not mean execute
from the term you are using it. What is your sense of things at
that mid-level in government, where they are able to actually
get, you know, projects moving? Actually get funding to
employees and actually deliver on executing their budget?
Executing their budget in the term that I am using.
Mr. Christoff. You know, one thing that the Iraqi
government did which was positive was to try to begin
decentralizing some of the decisions about the threshold for
contracts, the dollar value of contracts, in terms of who can
approve them. A year ago they had an incredibly low threshold.
$10 million for a contract. If a contract exceeded $10 million
the decision to actually let that contract had to go all the
way up to the prime minister's level. So they have begun to
increase those thresholds, to $50 million at a minimum, and to
allow some of the decision making to occur more in the
ministries rather at the prime minister's level.
Mr. Ryan. Okay. Well, that is good to see progress on that
front. Thank you.
Chairman Spratt. Mr. Edwards?
Mr. Edwards. Mr. Christoff, thank you for being here and
for your report. Could I ask the staff to put up the chart, Mr.
Wolfowitz's statement from 2003?
Mr. Edwards. One of the administration's chief architects
of the Iraq War was Paul Wolfowitz, President Bush's appointee
as Deputy Secretary of Defense under Secretary Rumsfeld. This
is a statement he made to members on March 27, 2003 before the
House Appropriations Defense Subcommittee. ``We are dealing
with a country that can really finance its own reconstruction,
and relatively soon.'' Given the GAO report I guess I rank that
administration prediction right up there with some of the
predictions that we would be greeted as liberators, the war
would be short-lived, it would cost the American taxpayers less
than $100 billion, and we are turning the corner. We have
turned so many corners in Iraq I think we are all dizzy from
that. And every time we turn one corner we find another
roadblock down the way. I would like to ask you just again to
get the facts on the table. In fact, let me ask staff to put up
the chart on how much Iraq has spent and how much less it has
spent than the U.S.
Mr. Edwards. I just want to verify, Mr. Christoff, that
according to this chart the United States taxpayers that are
now facing historic deficits of over $400 billion this coming
year, U.S. taxpayers have spent $23.2 billion on Iraq
reconstruction. Is that correct, Mr. Christoff?
Mr. Christoff. That is for four sectors that we look at.
Mr. Edwards. Okay.
Mr. Christoff. Security, oil, electricity, and water.
Mr. Edwards. So, reconstruction in those four sectors. And
the Iraqi government, which now I think has up to a, what,
approximately $79 billion surplus has spent only $4.3 billion.
Is that fact----
Mr. Christoff. That is correct.
Mr. Edwards [continuing]. Correct?
Mr. Christoff. Yes, sir.
Mr. Edwards. So the U.S. taxpayers, in addition to giving
something you cannot put a dollar value on, we have sacrificed
over 4,000 of our young men and women in combat there, we have
then also spent five times what the Iraqis have spent on
reconstruction. Despite Secretary Wolfowitz' prediction that
Iraq would very quickly be able to pay for its own
reconstruction.
Let me ask you about this. Am I correct in understanding
from your report that the same Iraq for which we have
sacrificed over 4,000 American lives has just signed a $3
billion agreement with the communist Chinese National Petroleum
Corporation to develop the Ahdab oil field? Is that correct?
Mr. Christoff. I do not have any firsthand information on
it, sir. It is just what I have read in the papers, as perhaps
you have as well.
Mr. Edwards. Okay. Well I, for the record, I think that is,
Mr. Chairman, correct. That the Iraqi government, the same one
that is building up a $79 billion surplus while American
taxpayers are paying for most of their reconstruction efforts,
has just signed a $3 billion agreement with the communist
Chinese National Petroleum Corporation. And Mr. Chairman, it
just boggles my mind to think that there would be any evidence
that the communist Chinese ability to develop oil fields is
better than U.S. corporations' ability to do so. So once again,
we turn a corner and we are hit in the face with something that
I consider to be insulting.
Mr. Christoff, in the minute and a half we have remaining,
in terms of the 10 to 30 percent of Iraq's refined fuels that
were believed to have been diverted to the black market or
smuggled out of Iraq in 2006, that is just an astounding number
to me. Tell me the first, second, and third most important
reasons, again, as to why that massive amount of fraud
occurred?
Mr. Christoff. Well those were projections that occurred a
couple years ago. And it was based upon what was then an
imbalance in the price that Iraqis were paying for their fuel.
For example, two years ago Iraqis were paying four cents per
gallon. That has now been increased and subsidies have been
reduced. So quite frankly, the 10 to 30 percent that was
projected a couple of years ago probably is less than that.
Because a lot of the oil and gasoline was diverted because you
could get a better price outside of Iraq because of the heavy
subsidies within Iraq.
Mr. Edwards. Okay. Mr. Christoff, thank you very much. I
appreciate your report and your testimony. Thank you, Mr.
Chairman.
Chairman Spratt. Mr. Conaway?
Mr. Conaway. Thank you, Mr. Chairman. Mr. Christoff, thank
you for being with us today. In your testimony you were talking
about the reasons why they have not been able to spend the
money. When we talk about whether they execute, or whatever,
but spending the money, was given in no small part or in large
part to weak accounting staff, weak accounting systems,
internal controls, and all those kinds of things. What impact
did that have on the numbers that you are working with?
Mr. Christoff. Well, the standards that we were using was
the Ministry of Finance expenditure reports that have been
vetted in terms of, by the Treasury Department and others. So
we went through a vetting process. We actually excluded an
entire year's worth of expenditure data because we found, and
Treasury did, found the numbers unreliable. But for 2005
through 2007 we found that the expenditure data was
sufficiently reliable to show the trends.
Mr. Conaway. Okay. So you are confident, what is the
definition of surplus? That is just not the cash in the bank at
the Fed. What----
Mr. Christoff. No, not at all. I mean----
Mr. Conaway. I mean, how confident are you in the fact that
commitments and money that has been committed to spend and has
not been spent has been accurately accounted for in the
numbers?
Mr. Christoff. We are confident in terms of the actual
expenditure data that comes from the Minister of Finance. The
areas where I talked about where we did not feel that the
information was reliable is when you try to add up and put a
dollar value to projects that you might commit to. And those
are separate reports that come from the Minister of Planning
that we, when we looked at them, we could not even add up
columns and rows. But you can do that with the Minister of
Finance data.
Mr. Conaway. So----
Mr. Christoff. On expenditures.
Mr. Conaway. Sure. But the bills that are due, or payables,
or commitments that have been made, you are not confident that
accurately, that all of those numbers have been folded into
what the net surplus would be?
Mr. Christoff. Well, no, they should not be folded in that
surplus.
Mr. Conaway. So if you have signed a commitment to build
something and you have signed a contract to do that, that is,
that would not reduce that surplus?
Mr. Christoff. No, let me explain. If you did sign a
contract, Iraq has what are called letters of credit, in which
Iraq will set aside a certain amount of money that would be
reserved to cover that letter of credit. When we calculated the
surplus for the end of 2007 we excluded those letters of credit
so that the surplus that we tabulate for the end of 2007 is net
letters of credit.
Mr. Conaway. Okay. Okay. You are not suggesting, I hope,
that Iraq would be better off spending the money willy-nilly
without the proper controls and ways to do it-
Mr. Christoff. Oh, absolutely not.
Mr. Conaway [continuing]. Than leaving it in the bank so
that when they do develop the right infrastructure to be able
to let contracts and move forward on these infrastructure
projects that that money would then be available. So you are
not suggesting they squander the money, are you?
Mr. Christoff. No, not at all. And in fact the $22.3
billion supplemental that was just passed, the IMF issued a
report yesterday in which they expressed even some concerns
about Iraq spending all of that because of the inflationary
effect that it could have.
Mr. Conaway. Oh, okay, the fact that if they were to spend
it now----
Mr. Christoff. Right.
Mr. Conaway [continuing]. That it would push prices up
unnecessarily. So, okay.
Mr. Christoff. Right.
Mr. Conaway. But given, and one final question about the
accuracy stuff, you said your teams were there January through
March. Is that a recent enough, that is not a stale----
Mr. Christoff. Oh, no, not at all.
Mr. Conaway. Given how dynamic the circumstances are in
Iraq, in terms of their building capacity and the things that
are going on at the provincial level, to allow them to quote,
unquote execute their budgets better?
Mr. Christoff. No. In fact, we have actual oil receipt data
through the end of July that we received from the Treasury
Department that gets it from the Central Bank of Iraq. So, and
in fact, that statement that you have we updated even the
expenditure data. Because between when we issued the report and
today we received the updated expenditure data through the end
of June. So we have very current data in this statement.
Mr. Conaway. Okay. So the fact that Iraq is, may not be
spending it as quickly as we would like them to, you are
confident that the controls are in place to protect the money
so that when they do develop the right, Sunni technocrats get
back into place where they are supposed to be, and all the
folks are in line to spend money at least as responsibly as we
do here in this federal government, that the money is going to
be there to spend?
Mr. Christoff. Well, there are lots of external auditors
that are involved in terms of keeping track of Iraq's
expenditures. The Development Fund for Iraq, where the oil
revenues go into. There was an international advisory and
monitoring board that was established in 2004. Ernst and Young
audits that on a semiannual basis to keep track of it. The one
concern that I would have is, though, the DFI at the end of
this year, the oversight of that is going to end because the UN
Security Counsel resolution that covered the DFI is going to
expire. So the future auditing of that is going to left to a
new counsel of financial experts that the Iraqi government has
to set up. So I think there might be some concerns about the
continuing oversight after the end of 2008.
Mr. Conaway. Okay. Well, thank you, Mr. Christoff. Thank
you, Mr. Chairman.
Chairman Spratt. Mr. Doggett?
Mr. Doggett. Mr. Christoff, has the GAO not found that on
more than one occasion the American taxpayers' money was
squandered in Iraq and spent willy-nilly?
Mr. Christoff. Well, I think there have been, when we have
look at reconstruction efforts in the waters after three years
ago we found that we made some, quite frankly, some poor
decisions about turning over reconstruction projects to the
Iraqis before they were capable of maintaining them. And it has
been a concern.
Mr. Doggett. Right. Do I understand from your testimony to
Mr. Edwards a moment ago that at the time when we were
squandering our money and the Iraqis were saving theirs, that
Iraqi citizens were paying about four cents per gallon in
gasoline?
Mr. Christoff. Two years ago, that is correct.
Mr. Doggett. It has risen some since then?
Mr. Christoff. It is up to about $1.18 per gallon.
Mr. Doggett. I think there are probably a lot of Americans
who are paying for this so-called reconstruction in Iraq that
would be mighty glad if they could get $1.18 a gallon gasoline.
Did you play a role in the analysis of the benchmarks that
the Government Accountability Office provided last year?
Mr. Christoff. Yes, sir.
Mr. Doggett. What was that role?
Mr. Christoff. I was the Director in charge of that report.
Mr. Doggett. And have you also played the same role in
responding to questions about the benchmark from Chairman
Skelton this year with the report that you just did within the
last few weeks?
Mr. Christoff. Yes. I was the Director on the progress
report as well.
Mr. Doggett. All of us remember, except maybe President
Bush, that in January of 2007 he selected the benchmarks, the
guidelines, by which to measure success, by which to measure
victory in Iraq. And when we sought an analysis so we would
have some objective information instead of just the propaganda
from the administration about whether those benchmarks have
been met the Congress turned to the Government Accountability
Office. And my recollection is that when you came out with your
report on August 30th of last year that you determined that
eleven of the eighteen benchmarks that President Bush had set
were not met. Is that correct?
Mr. Christoff. Based upon that prior report, correct.
Mr. Doggett. Yes, sir. And you found that of the eighteen
benchmarks that the President set himself to measure success in
Iraq that only three had been met as of August 30, 2007. Now,
in this year, a year later, you did some evaluation again. You
did not evaluated every single benchmark. But you really found
that there had been very little progress in the year. We know
that fortunately fewer Americans are being killed there. But in
terms of the objective of the Bush policy in Iraq you had a
grand amount of success in that they met one more benchmark
than they had the year before. Isn't that correct?
Mr. Christoff. Well, we did not go through a benchmark by
benchmark analysis. But we did provide a report that talked
about progress on the security front, the legislative front,
and the economic front in our June report.
Mr. Doggett. Right. And I believe you found one more
benchmark met than the year before?
Mr. Christoff. Again, we did not do a benchmark by
benchmark analysis, sir.
Mr. Doggett. Well, if you look at, it may not have been
called a benchmark by benchmark analysis. But you looked at
some of the same factors that you had the year before. And just
to begin to go through them, on the Constitutional Review
Committee you found that they had formed the Committee but the
Committee had not done anything. Right?
Mr. Christoff. And that is still true.
Mr. Doggett. So they had not met that. On enacting and
implementing legislation on debaathification, you found that
they had enacted the legislation but they had not implemented
any of it, right?
Mr. Christoff. That is correct.
Mr. Doggett. So they had not met the second benchmark. On
the question of enacting the hydrocarbon or oil legislation,
you concluded that they had not met that again this year, did
you not?
Mr. Christoff. Correct. And no progress this year, either.
Mr. Doggett. On enacting and implementing legislation on
procedures to form semiautonomous regions, that was the fourth
benchmark President Bush had. You found that that was only
partially met. Again, they passed a law to allow the provinces
to act but it had not been implemented.
Mr. Christoff. Well, on that one it will be implemented
when provinces come together to form regions. So that is an
open----
Mr. Doggett. Right. But we are not there yet.
Mr. Christoff. Well, no provinces have voted to form
regions other than the KRG originally.
Mr. Doggett. On enacting and implementing legislation for
an independent high electoral commission you found only
partially meeting it. Again, they passed a law but had not
implemented it.
Mr. Christoff. The Commission is established. The
provincial election law was, the date was established for
October 1. But the implementing laws have not been enacted.
Mr. Doggett. Right. And they will not have the elections
that they have been promising us for a year they would have in
October?
Mr. Christoff. October 1, they will not meet that date.
Mr. Doggett. On the enacting and implementing legislation
for a strong militia disarmament program?
Mr. Christoff. That is not met.
Mr. Doggett. That is not met. And I see my time is up, but
Mr. Chairman we can keep going down the objectives that
President Bush set himself for success for victory in Iraq. And
you will find that it continues to fail. That this policy has
been a failure. American taxpayers are having to fund the
failure while the Iraqis pay a fraction of the price we pay for
a gallon of gasoline. Thank you.
Chairman Spratt. The gentleman's point is well taken. Mr.
Porter? Mr. Porter is not here. Mr. McGovern?
Mr. McGovern. Thank you, Mr. Chairman. Thank you, Mr.
Christoff for being here. And like my colleague from Texas, Mr.
Doggett, I have a great deal of frustration over our policy
toward Iraq. I believe the War in Iraq was a mistake. I still
believe that. And I honor the men and women in uniform who have
served there with great distinction, and they have sacrificed
an awful lot. And many of them have sacrificed their lives. And
listening to your testimony, as powerful as it is, only adds to
my frustration over the way U.S. policy makers have conducted
this war.
You know, I believe we need to find a way out. And I
believe that policy makers, Republicans and Democrats, and the
administration, need to be talking about how we extricate
ourselves from the mess in Iraq. And you know, we are spending
$10 billion a month for Iraq. $10 billion a month. And, you
know, you tell us that there may be budget surpluses that may
reach over $70 billion. And, you know, I think that is a
difficult thing to explain to the American people. Why we are
sacrificing so much and yet they have these incredible
surpluses.
Adding to the frustration is the fact that, you know, those
in this Congress, you know, who have cheered on this war,
including this administration, have done so and not asked that
the money that we spend on Iraq is budgeted. The vast majority
of dollars that we spend on Iraq is put on our credit card. No
one has been asked to sacrifice. No one has been asked to
account for that money. And yet we are told that Iraq has these
incredible surpluses. Why, you know, and the government of
Iraq, the Maliki government, I know you did not look at the
issue of corruption, but it is corrupt. I mean, I would not
trust them to tell me the correct time. And these people are,
you know, and here we are hearing people kind of rationalizing
and explaining away why they do not need to spend their
surplus. You know, why we need to continue to shoulder the
burden. Why would the Iraqi government want to change this
sweet deal that they have with the U.S. government? I mean, we
are a cheap date in this whole matter. I mean, we are giving
and giving and giving, and sacrificing and sacrificing and
sacrificing, and yet they have this incredible surplus.
So what are the incentives? And what should we be doing?
What should this administration be doing, what should Congress
be doing, you know, to kind of force this issue? You have
obviously talked to the people in the administration and people
in the departments, what is the plan? What is the plan to kind
of transition? To kind of force the Iraqi government's hand,
you know, to take more responsibility so that we can get out,
we can end our occupation. We can end our involvement here, and
stop sacrificing so much of our resources in this effort?
Mr. Christoff. I do not know that I have seen a plan that
would actually talk about transitioning so that the Iraqis
begin spending more money. But I think you all have begun that
debate within the Congress. As I mentioned before, when you
passed a portion of the supplemental in June you had about $3
billion for what is called the Economic Support Fund. That was
the first time that there was legislation that called for Iraq
to have a dollar for dollar cost share for these small
reconstruction projects that this ESF Fund supports. I also
know that in part of the NDAA discussion there is discussion
about also extending that type of cost sharing to what we
provide for the continued training and equipping of Iraqi
security forces. That area alone, we have appropriated, you
have appropriated $20 billion.
Mr. McGovern. Well, you know, I realize that that is a step
in the right direction. But quite frankly, it is kind of a
modest, or less than modest, step in the right direction. I
mean, we have been doing this for years, now. We have been
involved in this war for many years. Nothing, absolutely
nothing about this war has turned out as advertised by the
proponents of this war. And it just seems to me that, you know,
given the nature of the Iraqi government, given the problem of
corruption in that government, and given what I believe is an
unwillingness for them to kind of take more responsibility, and
in light of the fact that they do not need to. I mean, we are
spending $10 billion a month, $10 billion a month, in Iraq.
And, you know, they have these surpluses.
I guess my frustration is that there is not more
frustration by those who are proponents of this war to force
the Iraqi government's hand to take more responsibility. But I
appreciate your testimony. I think it is very helpful. And I
hope that it will urge, I mean, if not this administration, I
mean, Mr. Ryan invoked Senator Obama's name. I mean, you know,
Senator McCain has said we will be there for a hundred years. I
think we will go bankrupt if we follow that policy. So I
appreciate very much you being here.
Chairman Spratt. Mr. Porter? Mr. Porter is not here. Mr.
Scott? I beg your pardon, Mr. Scott. Mr. Etheridge?
Mr. Etheridge. Thank you, Mr. Chairman. Mr. Christoff,
thank you for being here and thank you for your report. I am, I
guess as I look at that and think of the numbers, and where we
are, I happen to have, represent a lot of men and women at Fort
Bragg and Pope who spend an awful lot of time overseas. At the
same time, their children attend the public schools here in the
United States. And my question I think sort of fits in a little
different area from what we have heard, so I will, you know, as
you mentioned we are spending about $10 billion a month of U.S.
revenues in Iraq. And your report tells us that the Iraqi
government is not spending its own funds to maintain these
reconstruction projects at a level they should. Actually, only
about 14 percent of the 28 that is allocated for security,
water, oil, electricity, etcetera. And we have a myriad of
spending needs here at home. I will not even go through the
list. I just want to talk about one of them.
Because we need to be building some school buildings in and
around my district, where we have got children in trailers, and
we have got one school that has 50 percent of our military
children in buildings that ought to, have modern buildings. My
question to you I guess is what factors are keeping the Iraqis
from taking more responsibility for its own reconstruction? And
how can we address that problem? Or how should we address it?
Mr. Christoff. Well, the factors that were cited in terms
of their low expenditure rates for investment, that is for
reconstruction, were the fact, again, that they have weak
procurement, budgeting, contracting procedures in place. They
have low thresholds in terms of the approving authorities. They
have to go to the highest levels to get actual approving
authority for the contracting. They have a brain drain in terms
of the many technocrats that left the country that were
responsible for many of these budgeting procurement issues. I
have spoken with DOD advisors to the Iraqi Ministries of
Defense and Interior. They have difficulties just teaching
basic accounting and spreadsheet technology to some of the
Iraqis. And also, keep in mind, this is a cash based economy.
Things are done by cash. They have hand ledgers to keep track.
There is not, there is not an automated financial management
system in place within Iraq.
Mr. Etheridge. I think the thing that bothers me, and I
think a lot of folks who remember, you know, the U.S. taxpayers
have financed nearly $50 billion in Iraqi reconstruction in
addition to all the other funds we have put in place. And now
we are spending about $10 billion a month. And at the same time
we see almost $80 billion in surplus.
Mr. Christoff. Yes.
Mr. Etheridge. And then I am reminded, and I think most
folks are, that Deputy Secretary of Defense Paul Wolfowitz said
in 2003 that the Iraqis could pay for reconstruction themselves
and relatively soon. And I think we have a chart here, Chart 1,
that shows that. And it is quite obvious that he was wrong. Or
overstated it, or something, because we paid twice. We have
paid a $50 billion reconstruction bill and now we are spending
$10 billion a month. And we are paying billions of dollars at
the pump, for gasoline. Is this a fair assessment?
I mean, I just this weekend had people just climb on my
shoulders and I do not disagree with them. They are paying a
ridiculous price for gasoline, and at the same time in Iraq
they are subsidizing their citizens. And we are paying more for
it, over there, to keep our troops in Iraq.
Mr. Christoff. Well, I think in terms of the Secretary's
original statement, Iraq does have now the capabilities to
begin financing its reconstruction. It did not have it, you
know, at the early part of 2003 or 2004. When you are talking
about paying at the pump, now I mentioned the $1.18 per gallon,
but quite frankly that is the typical price in the region. That
is what Kuwaitis pay, Saudis pay. So the IMF goal was to try to
get them to raise their prices to at least the regional level.
And they have dramatically reduced their subsidies for
gasoline, kerosene, and diesel, trying to give them a little
bit of credit for their achievement.
Mr. Etheridge. But my concern is that our troops are not
getting that benefit over there, and we are not getting it in
terms of paying for it by the American citizens buying that
fuel to help protect them.
Mr. Christoff. Yeah, I think in fact when we looked at, you
know, we have the receipts where Iraq actually sold its oil.
And about a third of the oil did come to the United States.
Mr. Etheridge. Thank you. I see my time has expired, Mr.
Chairman, I yield back.
Chairman Spratt. Thank you, Mr. Etheridge. Mr. Moore?
Mr. Moore of Kansas. Thank you, Mr. Chairman. Mr.
Christoff, do you know the projected United States deficit for
this year?
Mr. Christoff. Well, the latest CBO was approaching over
$400 billion.
Mr. Moore of Kansas. So we are approaching, according to
the CBO projection, a $400 billion deficit as a nation to add
to our $9.6 trillion national debt now, is that correct?
Mr. Christoff. Based upon what I have read in the CBO
projections, that is correct.
Mr. Moore of Kansas. And Iraq has a projected surplus for
this year of $79 billion?
Mr. Christoff. Up to $79 billion.
Mr. Moore of Kansas. Up to $79 billion. What is wrong with
this picture? That we have a huge projected deficit, they have
a good projected surplus, and they are asking us, basically, to
pay for reconstruction in Iraq. I guess I am asking a
rhetorical question because I think you have already answered
that. What incentive from your perspective does the Iraqi
government have to step up and assume responsibility for this
if they have got us paying for everything right now. And not
only money, but 4,000 American lives?
Mr. Christoff. Well, I think that remains a concern in
terms of how you incentivize the Iraqi government to begin
spending of its own money. The incentives are also going to
have to come on the part of the Iraqi people. They still are
only getting about ten hours of electricity a day. They are
still not getting potable water. Only a third of the children
in Iraq have clean water, even despite our reconstruction
efforts. So there has to be some incentivizing on the Iraqi
people to demand more from their own government.
Mr. Moore of Kansas. And the Iraqi people have to step up
to the plate and support their own government, do they not?
Mr. Christoff. Yes.
Mr. Moore of Kansas. If anything is going to change here?
Mr. Christoff. Yes.
Mr. Moore of Kansas. But they do have gasoline for $1.18 a
gallon, and we have gasoline for $3.50 a gallon in this
country. Is that about right?
Mr. Christoff. Yes, I have got a diesel car so I pay a
little bit more.
Mr. Moore of Kansas. Good. Good. And so basically right now
what we are doing, and this is the last question I have, we are
just charging the reconstruction costs to our national charge
card and passing the bill on to our children and grandchildren,
and future generations of this country. Is that not correct?
Mr. Christoff. Well, we have spent, you have appropriated
$48 billion for reconstruction and stabilization.
Mr. Moore of Kansas. Yes, sir.
Mr. Christoff. The big reconstruction projects are tapering
off. So the additional money that you have been providing
through the Economic Support Fund is for smaller reconstruction
projects. But we still have spent a chunk of change in terms of
trying to rebuild that country.
Mr. Moore of Kansas. Yes, sir. Thank you very much, Mr.
Christoff.
Chairman Spratt. Thank you, Mr. Moore. Mr. Bishop of New
York?
Mr. Bishop. Thank you, Mr. Chairman, and thank you very
much, Mr. Christoff, for being here. I have a couple of
questions. My understanding, the first Iraq War, the total cost
was about $61 billion. The net cost to the United States was
about $2.1 billion. And the diffence between gross cost and net
cost was in some cases in kind contributions from some of our
coalition partners, and in other cases our coalition partners
simply reimbursed us for monies that we laid out. Does that
comport with your understanding?
Mr. Christoff. I do not know, sir. I know we did reports
back in 1991 and 1992 in which we saw that there are actually,
we made a bit of a profit on the last war.
Mr. Bishop. I will not comment. What structural and/or
legal impediments exist right now, if any, that would prevent
Iraq from simply reimbursing us from their surplus for some
portion of what we have already laid out?
Mr. Christoff. I do not know. I would have to look into
that and perhaps get back to you for the record.
Mr. Bishop. Does that not represent a reasonable course of
action for this country, to try to recoup some of the enormous
amounts that we have laid out while Iraq is sitting on this
very substantial surplus?
Mr. Christoff. Sir, I would think that is a policy decision
that I would reserve to the Congress. I do not think it is
appropriate for GAO to comment.
Mr. Bishop. Secondly, if I understand your summary
correctly, Iraq has spent approximately $4.3 billion over a
three-year period on its reconstruction and on provision of
services. Is that about right?
Mr. Christoff. The $4.3 billion is for the four critical
sectors that we looked at.
Mr. Bishop. And we have spent about $42 billion?
Mr. Christoff. Well, that is $42 billion in total for all
of our reconstruction.
Mr. Bishop. For reconstruction and----
Mr. Christoff. Beyond those four sectors.
Mr. Bishop. So if I have done my math correctly, $42
billion, every dime of which has been borrowed, is, the annual
interest on that is about $2 billion or thereabouts, if I have
done my math correctly. And Iraq is spending less than that on
an annual basis for the four critical areas. So we are spending
more on interest on the amount we have borrowed to rebuild
their country than they are spending in total to rebuild their
country on an annual basis?
Mr. Christoff. I am for an accountability organization. I
would have to take your numbers and go back and check them----
Mr. Bishop. Okay.
Mr. Christoff [continuing]. Before I could comment on that.
Mr. Bishop. I am, these are back of the envelope numbers.
Mr. Christoff. Yes.
Mr. Bishop. I would acknowledge. But they appear to be
consistent with what you have reported. One last thing. You and
Ranking Member Ryan were engaged in a bit of a discussion about
budget execution.
Mr. Christoff. Yes.
Mr. Bishop. To what extent do you believe that the decision
to debaathify, which deprived the Iraqi government of in effect
a professional civil servant class, to what extent do you
believe that decision has contributed to their inability to
execute their budget plan?
Mr. Christoff. Debaathify--were you going to interject?
Mr. Ryan. Yes. I just wanted to tack onto that, because I
think it is an excellent question. Mr. Bishop, do you mind if I
just tack onto the end of that question?
Mr. Bishop. No, I just would like to hear----
Mr. Ryan. No, it is a good question. And I, and the
question is, are any of these technocrats coming back now that
the debaathification reforms have passed, I would like to know
if you track that as well.
Mr. Christoff. Sure. Debaathification certainly was a
factor in terms of the brain drain that has resulted in the
lack of the kind of technocrats that Iraq needs for the
administrative capacity, for good budgeting, procurement, and
contracting. Those types of Sunni technocrats are part of the
over 2 million refugees in Syria and Jordan. The extent to
which they are coming back, it is a very small amount.
Ambassador Foley two days ago said that only about 16,000 of
the 2 million refugees have actually returned to Iraq. I know,
I met some doctors when I was in Syria who wanted to return,
but they have no intentions of returning until they believe
that the security situation has improved and they have got a
house.
Mr. Bishop. One final question. You presided over the
report that assessed performance on the benchmarks.
Mr. Christoff. Yes, sir.
Mr. Bishop. And one of those benchmarks was moving away
from debaathification and restoring people to their jobs.
Mr. Christoff. Correct.
Mr. Bishop. In Mr. Korb's testimony, I do not know if you
have had the opportunity to see it, he makes the point that the
current effort to address debaathification may well result in
fewer Baath party members working in the government under the
new law than under the old law. To what extent did you address
that point in your assessment of the benchmarks?
Mr. Christoff. Two parts in answering that question. First
of all, Iraq did pass the Debaathification Law, which they
passed in February.
Mr. Bishop. The point of my question is, what is the impact
or efficacy of that law?
Mr. Christoff. When we issued our progress report in June
we had classified information that discussed that very issue
that I could provide later for the record but I could not
provide in an open session.
Mr. Bishop. Thank you very much. I appreciate it.
Chairman Spratt. Mr. Becerra? Mr. Berry?
Mr. Berry. Thank you, Mr. Chairman. And thank you, Mr.
Christoff for being here. You have just had the pleasure of
experiencing the discomfort and pain that is inflicted on the
messenger. And I regret that that has had to be the case. I
also think anytime we have a hearing like this we should first
and foremost recognize the contribution and sacrifice that our
men and women in uniform and their families have made, and we
should never, ever fail to be appreciative of that.
Mr. Christoff. Absolutely.
Mr. Berry. And show that appreciation in every possible
way. As I have listened to this testimony, and we can talk
about numbers, we can talk about policy, and all of those
things. It seems to me that we are in a situation where, it
reminds me of a bumper sticker you see from time to time.
``Don't follow me, I'm lost.'' You just said a while ago that
there is not a plan. I do not know who does not have a plan. It
seems to me to be pretty obvious that nobody does. I cannot
imagine a more ridiculous situation than we are in right now.
I would like to think from some of the things you said that
we actually may have a reasonable expectation that it will get
a little better. But at the same time, we do not have any
reason to think that it is going to be cleared up and
everything is going to be in really good shape over there in
the next few years, depending on how you define few. I would
say anything under five years. But I just, I do not see any, I
am like Mr. McGovern, I do not see any way to end this. We just
keep pouring money into that place. We continue to make deals
that no responsible person would enter into, it seems to me.
And we thank you for bringing us this information, at least
letting us know what really is going on as best as you are able
to determine it. And I am confident that you have done that.
And we appreciate all that. Beyond that, I think it is time for
the Congress, the American people, the administration, and
anyone else in a position of responsibility to begin to start
figuring out how we are going to get out of there, and how we
are going to bring this to a conclusion. Because the American
people cannot stand much more of it. And I thank you for the
work that you have done. Thank you, Mr. Chairman.
Chairman Spratt. Ms. Schwartz?
Ms. Schwartz. Thank you, Mr. Chairman. And I also thank you
for the information. And it is important for us to be having
this hearing today and I thank the Chairman for doing it,
because we, actually in some ways you are offering a suggestion
of how we can see our way out of some of this if we actually
just look at things really quite differently. Which is that, as
has been pointed out, you pointed out and many of the speakers
before me have pointed out, that we have, we are looking at
working with the Iraqis to make sure that they use their almost
$80 billion surplus to start spending their money on
reconstruction. And you know, I was particularly struck that
recently there was, I guess it was back in August, you know,
some discussion about rebuilding police stations in Iraq. And
our spending American dollars to do that. I have to say as
representing the City of Philadelphia and the suburbs, I go to
police stations and fire stations all across my district. And
they need reconstruction. And so instead of our President
saying, ``We are going to spend our dollars on reconstructing
our police stations and helping our first responders,'' we are
spending American dollars on reconstruction in Iraq when the
Iraqis actually are sitting on $79 billion.
Now you talked about the politics of why it has not
happened. But my question really is how can we, is there a way
for us to, one, start to say, and we have tried to in Congress,
to say that Iraqis should start paying for reconstruction. I
believe the last bill we passed actually had the condition of
their spending 50 percent----
Mr. Christoff. Right.
Ms. Schwartz [continuing]. Of going forward on that. Is
there any way that you would actually, that we could insist
upon that happening? Is there a way that we could maybe get
back some of these dollars that we are spending now, that are
committed into the future? You know, we were led to believe
seven years ago that we would not have to pay for this war at
all, and that has been pointed out as well. And yet, we are
right now spending billions of American taxpayer dollars to
reconstruct Iraq when Iraq has the money. And so adding insult
to injury we are spending a whole lot, every American family,
on the price of gasoline that we are buying from the Iraqis. I
mean, something about this picture just is not right no matter
how you feel about this war, or going into it.
And I have been asked, just recently, this weekend, was
asked about how we could, why we are not doing enough to make
sure that we get the Iraqis to spend their money on
reconstruction. And I understand the politics of it, and I
understand even the difficulty and some of the bureaucrats. But
even if we lend expertise, even if we help them figure out how
to do this, why, is there more that we could be doing to make
sure that going forward the Iraqis are spending their money,
particularly the surplus, $80 billion surplus, rather than
American taxpayers on reconstruction of basic infrastructure
for the Iraqi people? Which we all agree needs to get done. But
why not the Iraqis? And why are, why is this administration,
that is political. But what more could we be doing, from even
your perspective, to make sure that going forward this is
really a changed world, that we are not spending American
taxpayers' dollars on reconstruction, the Iraqis are?
Mr. Christoff. Well, let us just talk about this concept of
trying to get repayment for perhaps what we did? I think we
began in 2004 with good intentions. With good intentions to the
fact that the Iraqis at that time did not have the resources.
And so when you appropriated the $18.4 billion in IRRF 2. It
was quote, unquote, to jump start the reconstruction process
under two premises that generally did not pan out. One, that it
would be a benign environment where you could do reconstruction
without violence. Secondly, the Iraqis would step up to the
plate. And third, the international community would begin to
contribute. Those premises never really panned out until, quite
frankly, recently where we see the Iraqis now have a
substantial amount of money. I should not say recently. They
had surpluses in 2005, 2006, and 2007 as well because they did
not spend on the investments.
Ms. Schwartz. But you are making a good point, because
things are more secure, the issues around violence, allows them
to do some of this reconstruction without spending so many
dollars on security. Can we actually get them to both repay us
and actually begin to pay going forward?
Mr. Christoff. Yeah, I do not know if we want to take back
our generous contributions to try to jump start, because I
thought they were good intentions back in 2004. But again,
going forward I think you should have the healthy debate about
cost sharing. And you began it with the roughly $3 billion that
you put, and the restrictions you put on the Economic Support
Fund. That it should be a dollar for dollar cost sharing. The
State Department in two weeks has to send a report to the
Congress certifying that the Iraqis are engaged in cost sharing
on the ESF. So it will be interesting to see exactly how the
State Department can confirm that that is actually occurring.
Ms. Schwartz. Okay. Actually, not just interesting but
really important to both our own financial security here at
home and to respond to the American people that we have
actually said they have to be cost sharing dollar for dollar.
And it will be important for us to see that that is actually
happening going forward. And of course we would like to see at
some point the Iraqis pick up much more of the reconstruction,
if not all of it.
Mr. Christoff. Yeah, and I think the security situation, I
mean, that has been a noticeable improvement. I mean, violence
is down 80 percent from, if you compare the June data of 2007
to the June data of 2008 there has been an 80 percent drop in
the number of enemy initiated attacks. So that benign
environment, it is still not a benign environment----
Ms. Schwartz. I was going to say, very generous----
Mr. Christoff [continuing]. It is still a very difficult
environment. But the improvement in the security situation has
been noticeable.
Ms. Schwartz. But having been in Iraq twice I can say
certainly what all of our generals said, as well as our
Ambassador said, and unless Iraqis start to see their own
government, there is another reason for the Iraqis to be
spending their own dollars. They need to have confidence that
their own government is actually supporting the, the services
and, you know, the economy there that is actually creating some
confidence in the Iraqi government for the Iraqi people. So
their allegiance, their willingness to maintain the security is
only as great as their confidence and their working together as
a government. It certainly starts with their also providing
these goods and services and support and infrastructure for
their people with their own dollars.
Mr. Christoff. I think General Petraeus would agree with
that statement as well.
Ms. Schwartz. And that is what he said, and what we pushed
him to do. Thank you.
Chairman Spratt. Ms. Kaptur?
Ms. Kaptur. Thank you, Mr. Chairman. Sorry, I had a little
trouble there with the microphone. Welcome, Mr. Christoff, it
is really good to have you this morning. I have been looking
over one of the charts that we have been provided that
essentially shows the increase in spending by the people of the
United States on the war in Iraq. And I think everyone knows
that every year it gets larger. I remember Secretary Wolfowitz
coming up before our Defense Committee and saying that we did
not have to worry about this because it would all be paid for.
Well, where is he now? I have no idea where he is. But he
certainly was not correct in those statements which I think
influenced a lot of members of this Congress to vote in the way
that they did.
But one of the bits of information that I have here, that I
want you to clarify for me, deals with what appears to me to be
two structures operating in Iraq. One by the United States, and
one by the government of Iraq. It says, ``While the United
States has spent 70 percent of the $33 billion that it has
allocated for key security, oil, water, and electricity
sectors,'' in other words, we are spending down the money that
the American people have allocated for this. Iraq has only
spent 14 percent of the $28 billion it allocated to those
sectors, or less than 3 percent of the $10 billion that it had
programmed from the year 2005 to 2008.
So as I read these numbers, and I am looking at the
expenditure of our dollars, and we look at how much we have
spent versus how much they have spent, it seems to me then that
there may be two structures operating in Iraq. The American
paid for structure, and then the Iraqi structure. Because how
can the Iraqis be doing such a poor job? Is my perception
correct? That in fact there are two separate structures
operating there?
Mr. Christoff. Well in terms of----
Ms. Kaptur. For electricity, for water, for oil, and
security?
Mr. Christoff. Well, in terms of how things are spent.
Obviously, when the U.S. spent its money the majority of that
is being spent through the Corps of Engineers. They have been
the big builder using U.S. appropriated dollars. So they are
using Corps of Engineers contracting, procurement, budgeting
procedures. When you look at how the Iraqi government is
spending its resources, it is going through its own ministries.
Oil and electricity, water, to try to do the types of
contracting and procurement. So yes, there are separate
procedures because there are separate pots of money.
Ms. Kaptur. I appreciate that. Because if in fact oil
production has gone up it has been because of U.S.
expenditures. Because obviously the Iraqi expenditures are not
locking in.
Mr. Christoff. Right. Most of the money on oil
infrastructure investment has been the U.S. funding.
Ms. Kaptur. Then why would Iraq sign its first contract
with China? Do you have any----
Mr. Christoff. I do not know.
Ms. Kaptur [continuing]. Clarity on that?
Mr. Christoff. No.
Ms. Kaptur. And Royal Dutch Petroleum, Royal Dutch Shell is
the next one they signed a deal with. I just find all of this
very, very strange. Could you also tell me, in terms of the
sabotage and the smuggling?
Mr. Christoff. Yes.
Ms. Kaptur. It is estimated by some that at least a third
of what is occurring in the oil sector, and again it is unclear
to me who is really managing the oil sector. Is it the U.S.
dollars that have been allocated? Or is it the Iraqi dollars
that really have a handle on what is happening in the oil
sector? But regardless, if you have any comments on that I
would appreciate it. Of the dollars being expended, why is so
much being smuggled out of there? Who does not have control of
what is happening in the oil fields?
Mr. Christoff. Well, I think actually the smuggling and the
diversions have declined over the past couple years. The
biggest problem that occurred back in 2006 was the massive
smuggling of, estimates of up to $2 billion out of the Baiji
Refinery because there was not sufficient protection forces
around it. The U.S. and the Iraqi government have responded by
putting more protection forces around the major refinery within
Iraq, at Baiji. And also trying to set up these oil facility
police forces that are trying to manage and protect the oil
pipelines and the infrastructures, particularly in the north.
But it still, there are still interdictions that are occurring,
because you cannot cover everything. And I have not seen----
Ms. Kaptur. Who, may I ask you, sir, who hires those
security officers for those oil installations?
Mr. Christoff. Yeah, right now it is the Ministry of Oil.
But it is supposed to eventually be subsumed within the
Ministry of Interior's police forces.
Ms. Kaptur. But if we look at the expenditure of Iraqi
dollars to do all of this, it looks like the U.S. contracted
operations are spending their dollars down. Without them, Iraq
would not be able to function. Am I correct? If you just pulled
the U.S. contracting, let them fly on their own?
Mr. Christoff. Well, we have lots of reconstruction
projects in all of the critical sectors, including the oil
sector. So we have been investing, over the past several years,
in trying to build pipelines, trying to improve the refinery
capacity, a lot of individual projects that have added up to
billions of dollars. The Iraqis are trying to spend more money
in terms of the oil sector. One of the problems with the
Ministry of Oil is that unlike the Ministry of Electricity it
has not developed any type of a plan to determine what its
needs are, its priorities, and exactly where it should be
spending its future resources. And the Minister of Electricity
has got a pretty good plan. The Minister of Oil does not yet
have a plan to try to set its own priorities. And he himself
has estimated that he needs $30 billion to try to improve the
oil infrastructure in Iraq.
Ms. Kaptur. I know my time has expired. If I wanted to read
one clear report on what is really going on inside the Iraqi
oil sector, what would I read?
Mr. Christoff. Inside the Iraqi oil sector? I think in----
Ms. Kaptur. Whose security officers, who is paying for it,
how much has been smuggled, who did the smuggling, was anybody
apprehended, where do I find that?
Mr. Christoff. Well, I probably have to go back to some of
the CIA reports that I read that you would not be able to read
in the public domain.
Ms. Kaptur. Thank you. Thank you, Mr. Chairman.
Chairman Spratt. Mr. Christoff, thank you for your good
work and your excellent testimony. We very much appreciate your
being here today, and we have learned a great deal from what
you had to tell us.
Mr. Christoff. Thank you, sir.
Chairman Spratt. Thank you very much indeed. Now let us
bring forth the second panel, which consists of Christopher
Blanchard, who is an analyst in Middle Eastern Affairs for the
Congressional Research Service; Frederick Kagan, who is a
Resident Scholar at the American Enterprise Institute; and Dr.
Lawrence Korb who is a Senior Fellow at the Center for American
Progress.
All of you have testimony which we will take and make part
of the record so that you can summarize it as you see fit. If
there is no objection, your testimony will be included in its
entirety in the record. Let us proceed with Dr. Kagan.
STATEMENTS OF CHRISTOPHER M. BLANCHARD, ANALYST IN MIDDLE
EASTERN AFFAIRS, CONGRESSIONAL RESEARCH SERVICE; FREDERICK W.
KAGAN, PH.D., RESIDENT SCHOLAR, AMERICAN ENTERPRISE INSTITUTE;
AND LAWRENCE J. KORB, PH.D., SENIOR FELLOW, CENTER FOR AMERICAN
PROGRESS
STATEMENT OF FREDERICK W. KAGAN
Mr. Kagan. Mr. Chairman, members of this Committee, it is
an honor to be appearing before you speaking about this very
important issue that concerns us all. It is a particularly
interesting day to be holding this hearing. This is the day
that General David Petraeus relinquished command in Baghdad to
General Raymond Odierno. And General Petraeus will be heading
on to take command of CENTCOM in November, I believe. And this
marks the end of General Petraeus' nineteen-month tenure as
Commander of Multinational Forces in Iraq. And I think it is
worth noting not only the sacrifices that our men and women in
uniform have made, but also the remarkable successes that have
been achieved in that period, beginning with the reversal of
the sectarian civil war that looked as if it was about to
engulf the country completely, the defeat of an Al Qaeda in
Iraq organization that was in the process of declaring victory,
and even rather surprisingly the defeat of Shia militias and
the Iranian backed special groups this year, primarily by the
Iraqi government itself and the Iraqi security forces.
All of these accomplishments were the result of joint
efforts between Iraqis and Americans. The Iraqis stood up,
fought hard, met all of the security benchmarks that were put
in front of them, and surpassed them. Iraqis have been taking
casualties at the rate of about three times what American
forces have been taking and they have been fighting very well.
I am a little bit puzzled by some of the testimony that I
have heard, or some of the conversation that I have heard
previously which suggest that no one is making a serious effort
to get the Iraqis to spend their money. And I find that odd. I
have made five trips to Iraq since last April and one of the
things that has consistently been the case is that not only is
the American Embassy in Iraq working very hard and very
diligently to get the Iraqis to spend their money and to help
the Iraqis to spend their money, but American soldiers on the
ground, soldiers and Marines every day, are working with the
Iraqis to overcome some of the very significant problems that
they have as they attempt to spend their money. So I would like
to take issue with any notion that it has not been a priority
of multinational forces in Iraq and U.S. Embassy in Iraq to get
the Iraqis to spend their money. On the contrary, it has been.
And I think that as we think about the problems that have
prevented the Iraqis from spending their money, one thing that
has not been mentioned is that we are not just dealing with a
country that was wracked by sectarian civil war at the end of
2006, although that was not mentioned. It is a little bit odd
to talk about budget execution figures in 2005, 2006, 2007
without recognizing that there was an extremely intense war
going on which tends to play havoc with anybody's budget
execution processes however well conceived they might be when
it is an internal war. And now we have got that under control
and the question will be what does it look like going forward?
In addition to the brain drain which occurred, and some of the
problems with debaathification. We have to remember that Iraq
was also making the transition from a very poorly managed,
centralized, command economy that had been under sanctions for
more than a decade, to a market economy that had to rebuild a
lot of decrepit infrastructure that had not been invested in
properly for a very long time.
We also have to recognize that in the process of
transitioning that command economy to a market economy we were
helping the Iraqis to replace an entirely centralized Baghdad
driven budget development and execution process with a process
that included decentralized budget development, decentralized
budget execution. We have had to help Iraqi provincial
governments stand up and learn what it is to make a budget and
learn how to execute funds. We have had to help local Iraqi
organs understand how to do that. And we have had to help them
all understand how to link up with the traditional ministerial
structures, which remain focused on directors general that come
from the Iraqi ministries.
This is all rather difficult to do, and it is not something
that can happen in a few months. And it is particularly not
something that can happen in the context of the sort of
violence that we saw, frankly, through the end of last year and
into the beginning of this year. It is something that I think
we can expect to see accelerating. But we have to have
realistic expectations about this. And measuring from 2003 on
is frankly not very informative.
We were losing the war from 2003 to 2006, unquestionably. I
have said it many times. I am not here to defend the
administration. I do not speak for anyone but myself. In the
context of losing the war we did a lot of, made a lot of
decisions that were wrong decisions. Now the question is, we
have turned the situation around in Iraq on the ground. We have
seen very significant progress in the Iraqi political system
and also in budget execution measures and so forth. But we have
not seen the complete accomplishment of all our objectives,
which is not surprising because the war is not over.
The question is, what do we do? I think everyone agrees
that it is desirable to have the Iraqis spend their money, and
it is much more desirable for the Iraqis to be spending their
money than for us to be spending our money. I do not think
anyone disputes that. I think the argument that we can have, or
the discussion that we can have that would be helpful is really
to focus on what are the problems that actually hinder the
Iraqis from doing this? I think we need to get past the notion
that the Iraqis are lazy freeloaders, which has been booted
about not in this Committee, which has had an intelligent,
respectful discussion, but in the press, and recognize that
there are some actual problems.
And there are incentives for the Iraqis to spend their own
money because the Iraqis are going into an election period,
whenever these elections precisely are going to be held. Within
the next year, not only are all provincial leaders going to
have to be reelected but the Parliament will have to be
reelected as well. And let me tell you, Iraqi politicians are
very cognizant of the fact, as American congressmen are, that
spending in their districts translates into electoral success
at the end of the day in many respects. And they understand
that American spending in their districts does not help them
get elected. So the more we have the transition to a political
process in Iraq the more we see pressure on Iraq's elected
officials to spend their budget, which they have been trying to
do. And we have been helping with.
And I think one of the last questioners made the excellent
point. If we simply pulled all of our stuff out and stopped
doing anything for the Iraqis would the country collapse? I do
not know if it would collapse. But I know that it would set
back any kind of progress in Iraq very, very dramatically.
Because the role that we are playing at this point is a
guarantor, it is a peacekeeping role, in some places a peace
enforcement role, and an assistance role in helping the Iraqis
plan and execute budgets. In other words, we are now currently
engaged in a process of trying to accomplish the very
objectives, asking about which I think this hearing was called
for. Thank you.
[The prepared statement of Frederick Kagan follows:]
Prepared Statement of Frederick W. Kagan, Kimberly Kagan,
and Jack Keane
On September 16, General Raymond Odierno will succeed General David
Petraeus as commander of U.S. and coalition forces in Iraq. The surge
strategy Petraeus and Odierno developed and executed in 2007 achieved
its objectives: reducing violence in Iraq enough to allow political
processes to restart, economic development to move forward, and
reconciliation to begin. Violence has remained at historic lows even
after the withdrawal of all surge forces and the handover of many areas
to Iraqi control. Accordingly, President Bush has approved the
withdrawal of 8,000 additional troops by February 2009.
With Barack Obama's recent declaration that the surge in Iraq has
succeeded, it should now be possible to move beyond that debate and
squarely address the current situation in Iraq and the future.
Reductions in violence permitting political change were the goal of the
surge, but they are not the sole measure of success in Iraq.
We must see Iraq through the upcoming two elections, pressing the
government to conduct them fairly and inclusively as well as ensuring
that enemy groups do not disrupt them with violence.
The United States seeks a free, stable, independent Iraq, with a
legitimately elected representative government that can govern and
defend its territory, is at peace with its neighbors, and is an ally of
the United States in the war on terror. The Iraqi leadership has made
important strides toward developing a new and inclusive political
system that addresses the concerns of all Iraq's ethnic and sectarian
groups. But it has also taken steps in the wrong direction. An
understandable desire to seize on the reduction in violence to justify
overly hasty force reductions and premature transfer of authority to
Iraqis puts the hard-won gains of 2007 and 2008 at risk. Thus, the
president's announcement of new troop withdrawals has come before we
even know when Iraq's provincial elections will occur.
Reducing our troop strength solely on the basis of trends in
violence also misses the critical point that the mission of American
forces in Iraq is shifting rapidly from counterinsurgency to peace
enforcement. The counter-insurgency fight that characterized 2007
continues mainly in areas of northern Iraq. The ability of organized
enemy groups, either Sunni or Shia, to conduct large-scale military or
terrorist operations and to threaten the existence of the Iraqi
government is gone for now. No area of Iraq today requires the massive,
violent, and dangerous military operations that American and Iraqi
forces had to conduct over the last 18 months in order to pacify
various places or restore them to government control. Although enemy
networks and organizations have survived and are regrouping, they will
likely need considerable time to rebuild their capabilities to levels
that pose more than a local challenge--and intelligent political,
economic, military, and police efforts can prevent them from rebuilding
at all.
American troops continue to conduct counterterrorism operations
against Al Qaeda in Iraq, which has not given up, and against Iranian-
backed Special Groups, which are also reconstituting. U.S. forces
support Iraqi forces conducting counterinsurgency operations in the
handful of areas where any significant insurgent capability remains.
But mostly our troops are enforcing the peace.
In ethnically mixed areas, American troops are seen as impartial
arbiters and mediators. In predominantly Shia or Sunni areas, they are
seen as guarantors of continued safety, destroying the justification
for illegal militias. American brigades also play critical roles in
economic reconstruction, not by spending American money but by helping
Iraqis spend their own money. American staffs help local Iraqi leaders
develop prioritized lists of their needs, budgets to match those
priorities, and plans for executing those budgets. American troops
support the Provincial Reconstruction Teams that mentor Iraqi
provincial leaders and help local communities communicate their needs
to the central government. American soldiers provide essential support
to Iraqi soldiers and police working hard to develop their ability to
function on their own.
Indeed, American combat brigades have become the principal enablers
of economic and political development in Iraq. When an American brigade
is withdrawn from an area, there is nothing to take its place--all of
these functions go unperformed. Clearly, then, the number of brigades
needed in Iraq should be tied not to the level of violence but to the
roles the Americans perform and the importance of those roles to the
further development of Iraq as a stable and peaceful state.
But American brigades do more than that. They also give us leverage
at every level to restrain malign actors within the Iraqi government
and to insist that Iraqi leaders make concessions and take political
risks they would rather avoid. The notion, popular in some American
political discussions, that withdrawing our forces increases our
leverage is nonsensical. The presence of 140,000 American troops on the
ground in Iraq requires the Iraqi leadership to pay attention to
America's suggestions in a way that nothing else can. Every brigade
that leaves reduces our leverage just when we need it most.
For all the progress made to date, the next president will face
significant challenges in Iraq. In recent testimony, Secretary of
Defense Robert Gates enumerated them: ``the prospect of violence in the
lead-up to elections, worrisome reports about sectarian efforts to slow
the assimilation of the Sons of Iraq into the Iraqi security forces,
Iranian influence, the very real threat that al Qaeda continues to
pose, and the possibility that Jaysh al-Mahdi could return.''
The existence of malign sectarian actors in the Iraqi parliament
and in the prime minister's inner circle is not news. Nor is it news
that Iraqi politicians, elected under a closed-list system that
emphasized ethnosectarian identity at the expense of political
interest, have weak electoral bases and much reason to fear the results
of open and honest elections. It is similarly well known that Iran
seeks to drive the United States out of Iraq and has been putting
tremendous pressure on Iraq's leaders to obey Tehran and reject
Washington. These three factors help explain the development of
significant negative trends in Iraq in recent months: the downward
spiral of negotiations over the Strategic Framework Agreement, delays
in the passage of an electoral law, escalating tensions along the Arab-
Kurd border, and Iraqi government attacks on certain Sons of Iraq
groups in and around Baghdad.
American errors have contributed to these developments. At the
outset of negotiations over the Strategic Framework Agreement, for
instance, we should have offered Iraq a security guarantee. Iraq's
signing a Strategic Framework Agreement would have openly and publicly
committed themselves to the United States--and against Iran, in the
zero-sum thinking of Tehran. It was only reasonable that Maliki and
others in the Iraqi government should have expected an American
commitment to match their own, and we should have given it to them. But
American domestic politics made that impossible.
Leading congressmen and senators insisted that a security guarantee
would raise the Strategic Framework Agreement to the level of a treaty
requiring Senate ratification--which is true. They also made clear that
no such ratification would be forthcoming if the document bound the
next administration. The Bush administration therefore had to tell
Baghdad at the outset that America would not match the commitment we
were asking the Iraqis to make with an equal commitment of our own.
American domestic politics also prevented the administration from
placing the security agreement in the larger context of a U.S.-Iraqi
strategic partnership, since that concept was ridiculed by those who
refused to accept the possibility of success in Iraq.
The Iranians sensed an opportunity and responded with a massive
public information campaign in Iraq and a virulent private campaign to
put pressure on Iraq's leaders. America's refusal to offer a long-term
security guarantee gave weight to the constant Iranian refrain that
Iran will always be there, while America will ultimately leave Iraq to
its fate. Shrewdly refusing to admit the degree of direct Iranian
pressure, Maliki and his associates used the cloak of ``Iraqi
sovereignty'' to conceal their uneasiness at taking responsibility for
making a deal with the United States--uneasiness not before their own
people, but before Tehran. As a result, the negotiations have dragged
on, Iraqi demands have increased, and it is possible that Maliki will
now wait until after the American election to see who wins--all because
domestic political constraints prevented the Bush administration from
making the necessary opening bid.
Maliki has been using ``Iraqi sovereignty'' to do more than delay
those negotiations, however. He has also used it to insist on the
accelerated transfer of Iraq's cities, especially Baghdad, to Iraqi
control and the withdrawal of American forces from those cities. As a
result, the problems that premature transition can cause are on display
in the city of Baquba, the capital of Diyala Province northeast of
Baghdad.
Diyala has always been one of the most challenging provinces in
Iraq because of its swirling mix of Kurds with Sunni and Shia Arabs and
its proximity to Baghdad. It served in the past as a staging area for
Shia militias and al Qaeda terrorists launching attacks in Baghdad. It
was pacified in 2007 with a great deal of hard fighting that resulted
in the defeat of illegal Shia militias and the capitulation of the
local Sunni insurgent groups, many of whom joined the Sons of Iraq,
volunteer security forces organized and initially paid by the United
States. More remained to be done in Diyala as the surge ended, however.
Surge operations had cleared Baquba and areas further east, but not the
rim of the province from Khanaqin along the Iranian border and then
through Balad Ruz toward Baghdad. The end of the surge meant the
withdrawal of significant American forces from Diyala, so U.S. troops
largely turned responsibility for the city of Baquba over to the Iraqis
and moved out to clear the peripheral areas of the province.
Rumors began circulating that the Iraqi government believed it
would have to re-clear Baquba, even though violence remained low and
American leaders did not agree. In August 2008, the Iraqi security
forces, with limited support from American troops, did re-clear the
city--but their targets were primarily leaders in the Sons of Iraq
movement and members of the local government and community that had
supported them. This action--which could not have taken place if
American forces had continued to patrol the city--was part of a larger
effort by Maliki to weaken the urban Sons of Iraq. It appears that the
current Iraqi leadership has recognized that it must allow the Sunni
tribal movements, particularly in Anbar, to organize and gain power in
their own communities, but it sees the urban Sons of Iraq movements as
political threats to its power.
The return of the Sunni Iraq Islamic party (IIP) to the government
appears to have created an unholy alliance between Maliki and IIP
leader (and Iraqi vice president) Tariq al-Hashimi aimed at weakening
grassroots Sunni political movements in and around Baghdad and ensuring
that the unpopular and unrepresentative IIP continues to wield power
after provincial elections. A similar alliance is operating in Ninewa
Province, where Kurdish leaders appear to have joined with the IIP to
ensure that they will continue to have influence in the largely Arab
province when provincial elections eliminate the current
disproportionate Kurdish sway in the provincial government. This
Kurdish-IIP alliance helps explain why there are virtually no Sons of
Iraq in Ninewa. The extremely limited American presence in Ninewa, as
in Baquba, has enabled these developments, which may call into question
the legitimacy of the upcoming provincial elections in some areas.
Maliki's actions may reflect the continued powerful influence of
malign sectarian actors among his advisers, or it may reflect the
determination of a temporarily strong political leader confronting
elections that are likely to weaken his base. The specter of Iranian
power combines with the enormous question mark hanging over the future
of American support to make Maliki look to his own resources to
stabilize his position. Again, contrary to conventional wisdom, the
threat of American withdrawal and America's refusal to guarantee the
security of Iraq and its constitutional processes presses Iraq's
leaders to make bad decisions, not good ones.
Whatever Maliki's motivations, however, the bottom line is clear.
Although a dramatic increase in violence or the rebirth of a large-
scale Sunni insurgency in the next six months is unlikely, it is
possible that American policies are combining with Iraqi mistakes to
undermine the long-term prospects for success. These trends can be
reversed, with care, over the coming months if the United States can
summon some strategic patience.
There is no question that we should be able to start withdrawing
significant numbers of American forces from Iraq in 2009 and
accelerating our withdrawal in 2010. Assuming that Iraqi provincial
elections in 2008 or early 2009, and parliamentary elections in 2009 or
2010, are accepted as legitimate by the Iraqi people and the
international community, it is also highly likely that we can continue
to withdraw from Iraq's cities, including Baghdad, and move from a
patrolling role to an advisory and support role in the same period. But
the timing of force reductions and withdrawals from urban areas is
critical, and the current pace is too fast.
It appears from media reports that General Petraeus initially
proposed no reduction in the number of U.S. brigades below the pre-
surge levels, and that was certainly the right recommendation. Current
force levels may, in fact, already be too low. At all events, we must
see Iraq through the upcoming two elections, pressing the government to
conduct them fairly and inclusively as well as ensuring that enemy
groups do not disrupt them with violence. Doing so requires a
significant American presence on the ground in Iraq's population
centers, where, in addition to all the other key non-combat roles they
play, American soldiers are the canaries in the mine shaft. They know
before anyone else when Iraqi leaders at any level are starting to play
games that can undermine mission success.
We should therefore not withdraw any brigades from Iraq before the
provincial elections have occurred and the results have been certified
and accepted. We should not accept timelines for the departure of
American troops from Iraq's cities, particularly Baghdad, before the
parliamentary elections of 2009. We should continually press the Iraqi
government not simply to pay the Sons of Iraq (as it has announced it
will do beginning in October), but to bring most of them into the
political process. Some of the Sons of Iraq were leaders of the
insurgency and should have no place in Iraqi politics, but in its
Baquba operation, the Iraqi government was not sufficiently
discriminating in whom it sought to exclude (much less detain). We must
also support the Iraqi government in its efforts to push Kurdish
militias out of Diyala and Ninewa provinces.
This is not a matter of Iraqi sovereignty. American troops will not
stay anywhere in Iraq if ordered by the Iraqi government to leave. We
are not going to depose Maliki or retake control of Baghdad. We are not
going to force the Iraqis to do anything. And, above all, we are not
going to maintain a large military presence in Iraq indefinitely. But
we are engaged in continual negotiations with the Iraqi government
about what our forces will do and what Iraqi forces will do, and we
have tremendous leverage in those negotiations.
For too long, we have allowed domestic American political
considerations to reduce our leverage and weaken our bargaining
position, and we have refused to recognize the critical role the
presence of our combat forces plays in keeping us in the game at all.
When America provides combat forces to maintain internal or external
security in a foreign state, it acquires the right to bargain hard for
what it thinks is best for the common interest, even when the host
state's government does not agree. We have engaged in such hard
bargaining in South Korea and in Europe, and it is a normal part of
alliance relationships. We must bargain harder in Iraq and give
ourselves the tools and leverage we need to succeed.
Above all, we must recognize that there is never a glide path in
war. As long as the outcome remains in doubt, we must never imagine
that the situation is under control and we can put it on autopilot and
ignore it. The relief of getting Iraqi violence under control and
American casualties down turns naturally into a desire to declare
victory and withdraw. That is a danger to be avoided at all costs. This
administration must ensure that it hands its successor not only a
relatively peaceful Iraq, but an Iraq that is headed in the right
direction.
STATEMENT OF LAWRENCE J. KORB
Chairman Spratt. Thank you, Mr. Kagan. Mr. Korb?
Mr. Korb. Thank you very much, Mr. Chairman.
Chairman Spratt. Thank you.
Mr. Korb. It is a privilege to be here with you today. I
think in terms of looking at the surplus you have to put it in
the context of the horrendous costs of this war. As has been
pointed out several times already, we were told that the Iraqis
would pay for their own reconstruction, this war would be quick
and easy, and would not cost the taxpayer very much. And I
think had we known then what the costs would be we never would
have gone to war. It is clear basically from the opinion polls
of the American people.
And there is no doubt about the fact that violence today is
lower than the horrendous levels that it reached in June 2007.
However, remember the purpose of our military operations there
are to bring about political reconciliation. And if you take a
close look at it you will find that the Iraqis are still not
making the tough choices that they need to bring about
meaningful reconciliation. And I think the budget is one of
those areas where they are not doing what they need to do. They
are generating the revenues but they are really not executing
them. And as I think has been pointed out here, until they do
that the Maliki government is not going to get the support from
its own people. So it is not only in our interest that we
relieve the burden on the U.S. taxpayer but I think it is also
in the interests of the Iraqi government.
Now if you take a look at the trends they are not helpful.
The revenues are up, there is no doubt about it. But the
percentage each year that they spend is down. If you take a
look at where they spend the money, the percentage spent on
investment is down. In other words, they are spending much more
on overhead than actually improving the lives of the Iraqi
people.
Now we talked a lot about the capacity of the government.
There is no doubt about the fact that the debaathification
policy undermined the capacity of the Iraqis to actually
perform effectively in government. But the fact of the matter
is, you have had a debaathification law. And while I have not
seen the classified report, just from the open reports in the
press it is clear there are less Baathists back in the
government now than there were before the debaathification law
was passed. Similarly, there is an awful lot of corruption. In
fact, if you, they rank countries according to corruption and
Iraq, there is only two countries more corrupt than Iraq
according to the rankings, Myanmar and Somalia. We also know
that a lot of the money in the Iraqi government is ending up in
the hands of insurgents, people who do not wish us well or the
Iraqi people.
So the question becomes basically what do we do about it?
And let me make a couple of recommendations. The first, and it
has been alluded to here but I do not think it has been focused
on enough, we need to provide a soft landing for the Sunni
militias. Remember that in the fall of 2006, as General Allen
the commander of the Marines in Anbar Province and now General
McFarland said, once the Iraqis saw what was happening in this
country, particularly with the election, the Sunnis in Anbar
Province began to come over to us. And there we made a big
mistake. Why were we paying them? Why did the Iraqi government
not pay them then? We have now come 1 October the Iraqi
government is taking over that, and I think that is a good
thing.
But if you take a look at some of the things that the
Maliki government is doing in terms of integrating them into
the security forces, giving them government jobs, or actually
turning on them. Because, remember, we could have had this deal
as early as 2005. But the National Security Council turned it
down because these insurgents would not pledge loyalty to the
Iraqi government. And there are press reports that the Maliki
government is going after some of these people who have been
working with us.
Second, we have got to fully implement debaathification.
Again, as of June 2008 the government of Iraq has not yet
appointed members to the committee slated to replace the old
debaathification apparatus. And the current committee has
received conflicting instructions from the Iraqi government
about whether to proceed with the reinstatement petitions. We
have got to make this happen.
Number three, we have got to pursue anticorruption within
the Iraqi government. The Special Inspector General for Iraqi
Reconstruction, appointed by President Bush, calls corruption
the second insurgency. And you have got to be able to deal with
that.
There is a joint task force on capacity development that
was set up to correct these shortfalls. However, the Inspector
General found that it has, and I quote, ``limited authority to
coordinate the various activities and to establish an overall
capacity development agenda.
And then finally, we have got to set a timetable to get
out. Until you do, the Iraqi government is not going to
seriously do what they need to do. We are asking them to do
difficult things. And they keep kicking the can down the road.
They will say one thing, but then when you look at the fine
print things do not get carried out. And I am absolutely
convinced that until you do that they are not going to do,
whether it is spend their budget on investment, or meet all of
the other benchmarks that the administration has laid down,
until you give them a timetable to get out.
Now in conclusion let me say that this budget problem is a
symptom of a much larger problem with the way the war was
justified and conducted. And although we cannot undo the damage
to our national security, our reputation in the world, and the
sacrifices of our military men and women and their families,
and the cost to the American taxpayer, we can take a small step
by demanding that the Maliki government begin now to pay for
its own reconstruction and stabilization. Thank you.
[The prepared statement of Lawrence Korb follows:]
STATEMENT OF CHRISTOPHER BLANCHARD
Chairman Spratt. Dr. Korb, thank you very much. Mr.
Blanchard?
Mr. Blanchard. Thank you, Chairman Spratt, Ranking Member
Ryan, and members of the Committee. Thank you for inviting me
to testify before you today on Iraq's budget surplus. My name
is Christopher Blanchard. I am an analyst in Middle Eastern
Affairs with the Congressional Research Service. In the time
allotted I would like to summarize the main points from my
written testimony by discussing four factors that may affect
the Iraqi oil sector's ability to fund Iraq's reconstruction.
Those factors are security, Iraqi politics, market conditions,
and revenue management.
The U.S. Department of the Treasury and the International
Monetary Fund have expressed confidence that Iraq's oil
revenues are likely to be sufficient to meet the country's
development needs if underlying conditions remain favorable for
the expansion of oil production and if Iraqis manage their oil
revenues effectively. The prevailing level of security in Iraq
has a direct effect on oil production and exports.
Infrastructure attacks and persistent violence have hindered
efforts to develop the oil sector since 2003. In turn,
corruption in the oil sector has helped fund insurgent violence
and criminal activity. U.S. and Iraqi investments in
infrastructure security have contributed to increased oil
exports over the last year. In turn, the improvement in the
overall level of security in the country has reduced some
threats to oil output.
Looking forward, U.S. military leaders have made clear
statements about the potential reversibility of recent security
gains. The establishment of an overall level of security in the
country that could allow U.S. forces to draw down may still
leave the Iraqi government with internal security challenges
that could complicate oil operations.
Since 2003 Iraqis have struggled to reach political
consensus about decision making powers in the energy sector and
the terms of a national energy policy. This includes debates
over revenues sharing, and the degree and terms of potential
foreign participation in oil development. To date, Iraq's
Council of Representatives has not taken up draft energy
framework legislation because of continuing disagreement
between the national government and the Kurdistan regional
government over their respective decision making powers.
Parallel disputes over the status of the City of Kirkuk, its
large Kurdish population, and nearby oil resources further
complicate these matters. Nevertheless, both the National
Ministry of Oil and the Kurdistan Regional Government have
moved forward with oil and natural gas development by signing
service and production contracts with several foreign
companies. The Ministry of Oil is now planning to conduct an
international bidding round, the development of six major oil
fields, with contract awards expected some time in 2009.
Fluid global market conditions will ultimately determine
the demand for Iraq's energy exports, the revenue potential of
those exports, and the availability of investment capital. An
IMF report released yesterday referred to by Mr. Christoff
earlier highlighted the ``fiscal opportunity'' that higher
global oil prices have granted Iraq in 2008. The report,
however, builds on the IMF's January 2008 warning that the
Iraqi government has ``little room for fiscal slippage'' until
its oil output increases. Recent declines in global oil prices,
if sustained with steady exports, will likely lower Iraq's 2008
surplus revenue projections.
According to U.S. and international auditors, as we have
heard, the Iraqi government has proven unable to spend budgeted
funds effectively, to maintain current or planned investment
programs. According to observers, the factors that have
prevented effective Iraqi spending thus far may continue to
hinder reconstruction if left unaddressed. Midway through the
so called year of transition, the U.S. Department of Defense
warned in a June 2008 report to Congress that the Iraqi
government ``lacks the ability to execute programs on the scale
required.'' Administration officials recently created a public
financial management assistance group to better coordinate
interagency budget assistance programs in Iraq. The Iraqi
government also has amended its contracting procedures to
facilitate spending at all levels of government. However,
officials report that much remains to be done. And Iraqi
willingness to continue to accept U.S. advice and assistance on
revenue management and in other areas may prove limited.
In Congress legislative proposals pending in both houses
reflect the broad sentiment that seeks to require the Iraqi
government to pay more of its own reconstruction and security
costs. As the confidence of the Iraqi government increases and
nationalist sentiment among some Iraqis grows more vocal,
contract bases assistance from U.S. or other international
partners may emerge as a politically viable solution to Iraq's
administrative and reconstruction challenges.
Again, thank you for the opportunity to present this
testimony. I look forward to your questions.
[The prepared statement of Christopher Blanchard follows:]
Prepared Statement of Christopher M. Blanchard, Analyst in
Middle Eastern Affairs, Congressional Research Service
Iraq holds the world's third-largest proven oil reserves, and
revenues from the sale of oil resources are the engine of Iraq's
national economy and the lifeblood of its national budget. Iraq's
state-owned oil production and marketing system ensures that revenue
from the export and sale of Iraqi oil accrues to the Iraqi government,
and the Iraqi people's elected representatives are now responsible for
administering that revenue to meet the country's considerable
development needs. Iraq's energy resources and potential export
revenues offer the country an undeniable opportunity for economic
growth, if conditions prevail that allow those resources to be
developed efficiently and if Iraqi leaders manage export revenues
effectively. This statement analyzes the recent U.S. policy debate over
Iraq's current budget surplus, reviews relevant recent developments in
Iraq's oil and natural gas sector, and discusses factors that may
affect the oil sector's ability to continue to serve as an engine of
economic growth and public revenue for Iraqis.
CURRENT REVENUE ARRANGEMENTS
Iraq's State Oil Marketing Organization (SOMO) is responsible for
the sale and export of Iraqi crude oil. Under the terms of United
Nations Security Council resolution (UNSCR) 1483 (and renewed through
subsequent Security Council resolutions), revenue from Iraq's oil
exports is deposited into an Iraq-controlled account at the Federal
Reserve Bank of New York (FRBNY). Five percent of the funds are
reserved for a United Nations Compensation Fund for reparations to the
victims of the 1990 Iraqi invasion and occupation of Kuwait. The
remaining 95% is deposited into the Development Fund for Iraq (DFI)
account at the FRBNY and is then transferred to an Iraqi Ministry of
Finance account at the Central Bank of Iraq for further distribution to
Iraqi government ministries.
Under the terms of UNSCR1546 (and renewed by subsequent
resolutions), the DFI is monitored by an International Advisory and
Monitoring Board (IAMB), which provides periodic reports on Iraq's oil
export revenue, Iraq's use of its oil revenues, and its oil production
practices. According to the IAMB, as of December 31, 2007, $23.43
billion had been disbursed from the United Nations Compensation Fund;
Iraq owes $28.95 billion to the Fund. The IAMB estimates that ``at the
present rate of Iraqi oil sales, it would take approximately 17 years
for the compensation award to be fully paid.'' \1\ As of June 2008, the
balance in the DFI was approximately $17 billion.
UNSCR 1790 of December 18, 2007, extended the IAMB monitoring of
the DFI until December 31, 2008. In October 2006, the Iraqi cabinet
approved the creation of an oversight body known as the Committee of
Financial Experts (COFE) to monitor oil revenue collection and
administration. The president of the COFE inaugurated its activities in
April 2007, and the committee currently is working alongside the IAMB
on audit procedures. When the mandate of the IAMB expires in December,
the COFE will assume its duties. Immunity provisions contained in
standing UN Security Council resolutions prevent Iraqi funds deposited
in the DFI from being subject to property attachment motions in lieu of
legal judgments rendered against the former Iraqi regime. Many
observers expect those immunity provisions to be renewed in a new UN
resolution, and the IAMB has encouraged the Iraqi government to pursue
continued immunity protection.
IRAQ'S BUDGET SURPLUS: SOURCES AND MANAGEMENT
Revenue projections for governments that rely on oil exports are
based on variables such as price and export volume, which may be
subject to significant or rapid changes in domestic or global market
conditions. Iraq's recent surpluses have accumulated based in large
part on rapid increases in oil prices over the last year and higher
levels of oil production and exports attributable to improved security.
The August 2008 Government Accountability Office (GAO) report on Iraq's
budget surplus illustrates these relationships by laying out several
revenue projections for Iraq's potential 2008 surplus based on variable
price and export levels.\2\
At present, Iraq's steady oil export levels and a relative decline
in world oil prices from recent highs have moved revenue projections
closer to the more pessimistic assumptions outlined in the GAO report:
The GAO's lower estimate for Iraq's 2008 budget surplus assumed Iraq
would export an average of 1.89 million barrels per day and that the
average price received would be $96.88 per barrel. As of September 10,
2008, the U.S. State Department reported that Iraq's Basra Light Crude
was priced at $100.15 per barrel and that Iraq was exporting 1.93
million barrels of oil per day. Coupled with Iraq's recently adopted
Supplemental Budget of $22 billion, these market trends suggest that
Iraq's 2008 budget surplus may remain well below the upper limit
projected in the August 2008 GAO report, pending the result of
expenditures through the rest of 2008.
TABLE 1.--IRAQ: KEY OIL INDICATORS
----------------------------------------------------------------------------------------------------------------
Oil Oil Revenue
Oil Production (current weekly Production Oil Exports Oil Exports Oil Revenue Oil Revenue (2008, to
avg.) (pre-2003) (current) (pre-2003) (2006) (2007) date)
----------------------------------------------------------------------------------------------------------------
2.48 million barrels per day (mbd) 2.5 mbd 1.93 mbd 2.2 mbd $31.3 $41 billion $50.5
billion billion
----------------------------------------------------------------------------------------------------------------
Note: Figures in the table from the U.S. Department of State ``Iraq Weekly Status Report,'' September 10, 2008.
'Oil Revenue' is net of a 5% deduction for reparations to the victims of the 1990 Iraqi invasion and
occupation of Kuwait, as provided for in U.N. Security Council Resolution 1483.
The U.S. Department of the Treasury and the International Monetary
Fund have expressed confidence that, over time, Iraq's oil revenues are
likely to be sufficient to meet the country's development needs, if
underlying conditions remain favorable for the expansion of oil
production and if revenues are managed effectively. However, the IMF
warned in a January 2008 report that Iraq's public finances have been
``fragile'' in recent years and added that, in light of considerable
operations and reconstruction needs, the Iraqi government has ``little
room for fiscal slippage'' until oil output increases. The IMF report
explains how higher oil prices have compensated for missed oil
production expansion targets that undermined revenue generation and how
these factors otherwise would have ``depleted'' the $9.9 billion
balance in the Development Fund for Iraq ``by the end of 2007.'' \3\
While reports about Iraq's current and projected budget surplus
have raised questions in Congress about the relative overall size of
Iraqi and U.S. expenditures, shortcomings in Iraqi revenue management
practices and capabilities also have contributed to the accumulation of
surpluses. According to U.S., Iraqi, and international observers, these
shortcomings have prevented capital investment budgets from being spent
effectively thus far and may continue to hinder reconstruction progress
if left unaddressed. The U.S. Department of Defense (DoD) June 2008
Measuring Security and Stability in Iraq report noted ``marginal
improvement'' in the Government of Iraq's ability to spend its
resources, although the report concluded that ``budget execution rates
continue to be relatively low, limiting Iraq's ability to increase
economic development and deliver essential services to its citizens.''
\4\ Among the ``considerable challenges'' facing efforts to improve the
performance of Iraq's ministries identified in the report were
``cumbersome budgetary approval and complex funding processes'',
limited experience among available staff, and the ``limited
availability of resident contractors.''
The U.S. State Department made similar assessments in July 2008.
According to the Department's latest Section 2207 Report on Iraq Relief
and Reconstruction, impediments to effective budgetary expenditure in
Iraq ``persist at all levels.'' \5\ The report concluded that
``continued assistance is needed to address impediments to capital
budget execution.'' \6\ The Special Inspector General for Iraq
Reconstruction (SIGIR) reported in July 2008 that U.S. funded
ministerial capacity development programs had been hindered by ``weak
coordination'' among multiple agencies that ``tended to implement their
own programs with little prioritization of projects or coordinated
planning.'' The SIGIR concluded that U.S. investments in capacity
building are ``at risk'' unless more integrated programming is
implemented.\7\
In light of these assessments, both the U.S. and Iraqi governments
have undertaken initiatives in recent months to improve public
financial management and the coordination of U.S. assistance programs.
Iraq has issued new decrees and reformed administrative bodies to grant
greater contracting authority to ministries and provinces.\8\ Iraq's
2008 Budget Law allows provinces and government agencies to carry over
their unused budget authority into the current fiscal year. The U.S.
Embassy in Baghdad and the commanders of Multi-National Forces-Iraq
also have reorganized the management of existing U.S and coalition
budget assistance programs to improve coordination.
In late June 2008, the interagency Public Finance Management
Assistance Group (PFMAG) began its work. The PFMAG's civilian-military
Policy and Operations Committees now direct the activities of paired
teams of Action Officers and Treasury Technical Assistance Advisors who
work alongside Iraqis, collecting and analyzing data and helping to re-
engineer and expedite payments and other budgetary processes.\9\ These
activities build on existing programs such as USAID's National Capacity
Development Program (more commonly known by the name Tatweer, the
Arabic word for development), the U.S. Embassy Iraq Transition
Assistance Office (ITAO) Ministerial Capacity Development Program, and
the work of the Multi-National Security Transition Command-Iraq (MNSTC-
I) Embedded Advisory and Functional Capability Teams. Coalition
partners, such as the United Kingdom's Department for International
Development (DFID), participate in PFMAG decision-making, and U.S.
officials report that expanded PFMAG coordination with international
bodies such as the IMF and World Bank is planned.
RECENT DEVELOPMENTS IN IRAQ'S OIL SECTOR
The concept of federalism has been incorporated into Iraq's
constitution and law, and Iraqi attitudes toward the oil sector often
correspond with regional differences of opinion about the proper role
and power of the national government and regional and governorate
authorities to make oil policy and revenue decisions. However, the
constitution's ambiguity about the roles and powers of federal,
regional, and governorate authorities has contributed significantly to
the ongoing impasse over these issues. Articles 111 and 112 of the
Iraqi constitution state that Iraq's natural resources are the property
of ``all the people of Iraq in all regions and governorates,'' and that
``the federal government, with the producing governorates and regional
governments, shall undertake the management of oil and gas extracted
from present fields (italics added).'' These provisions were included
as a means of ensuring consensus among Iraqis and the adoption of the
constitution.
Further complicating matters are Article 115, which provides
regional authorities the power to override federal law in the event of
conflicts with regional legislation, and Article 110, which grants
powers to Iraq's federal government to formulate ``foreign sovereign
economic and trade policy'' and regulate ``commercial policy across
regional and governorate boundaries'' similar to those granted to the
United States Congress by the commerce clause of the U.S. Constitution.
According to the U.S. Department of Defense, Iraq's Constitutional
Review Commission ``continues to review almost 50 amendments addressing
the authority of the federal government and governorates,'' including
provisions addressing ``the extent of governorate powers under Article
115'' and the ``status and management of oil and gas.'' \10\
To date, draft legislation to establish a new framework for the
development of Iraq's hydrocarbon sector has not been placed on the
parliament's legislative calendar because of continuing political
differences between the national government and the Kurdistan Regional
Government (KRG) over their relative powers and other constitutional
issues, such as the administrative status of the city of Kirkuk. KRG
Prime Minister Nechirvan Barzani and Iraqi Prime Minister Nouri al
Maliki met in April and June 2008 to negotiate terms for moving forward
on the draft hydrocarbon laws, Kirkuk, and other outstanding issues.
According to Barzani, a political committee has been formed to continue
negotiations on the framework legislation.\11\ The June 2008 Measuring
Security and Stability in Iraq report states that the Chairman of the
Iraqi Council of Representatives Oil and Gas Committee does not plan to
proceed with a first reading of the draft legislation until the federal
government and the KRG reach a political agreement on the hydrocarbon
sector.\12\ The previous report in March 2008 observed that the Iraqi
government ``continues to distribute oil revenues equitably to the
provinces in the absence of this comprehensive legislation.'' \13\
Iraqi, U.S., and other international observers have expressed
concern that the potential for renewed violence and the atmosphere of
unresolved political tension prevailing in Iraq may not be conducive to
careful consideration of hydrocarbon sector legislation or to inclusive
decision making about long-term oil development contracts.
Nevertheless, in the absence of new oil legislation and regulation, the
Ministry of Oil and the KRG have moved forward with hydrocarbon sector
investment and development. New national and KRG contracts have
contributed to the persistence of an atmosphere of political
controversy surrounding the hydrocarbon sector. In turn, several
international companies have chosen to pursue investment opportunities
is Iraq in an uncertain legal environment. This includes China's
National Petroleum Corporation, which recently modified a Saddam-era
production contract into a 20-year service contract to improve
production in southern Iraq's Al Ahdab oilfield. Similarly, Shell has
launched negotiations to develop systems for capturing and marketing
associated natural gas in Iraq's southern oilfields; the gas currently
is being wasted at a cost estimated by the Iraqi government to be $40
million per day.\14\ The KRG has signed over twenty production sharing
agreements with international oil companies, but the limited amount of
oil currently being produced in KRG territory is not exported.
Overall, the Ministry of Oil has set a goal of nearly doubling
current oil production to 4.5 million barrels per day within 5 years,
and expanding production thereafter to 6 million barrels per day within
10 years. To reach these goals, the Ministry of Oil is moving forward
with plans to conduct an international bidding round for the
development of six major oil fields, with contract awards expected some
time in 2009. A pre-qualification round held in early 2008 attracted
strong interest from U.S. and international bidders: 41 firms were
qualified, including six unnamed state-owned firms.\15\ However, the
recent collapse and cancellation of an interim process to award short-
term service contracts for production expansion demonstrates the
difficulty Iraq's government and international bidders may have in
reaching mutually agreed contract terms and gaining public support in
the absence of new legislation and political consensus.
FACTORS AFFECTING IRAQ'S OIL REVENUE POTENTIAL
As Iraq and the United States look to the future, four key factors
may affect the Iraqi oil sector's ability to continue to provide
adequate financial resources to the Iraqi people. The first and most
fundamental of these factors is the security of the country. General
insecurity and infrastructure attacks have hindered efforts to
rehabilitate and develop Iraq's oil sector since 2003. Oil sector
corruption also has contributed to the insecurity of the country,
according to U.S. officials. For example, according to DoD, until mid-
2007, corruption and siphoning at the refinery at Bayji resulted in
``as much as 70% of the fuel processed'' being sold on the black market
at a value of up to $2 billion a year.\16\ U.S. military leaders have
made clear statements about the potential reversibility of the recent
security gains that have enabled oil output to increase since 2007.
During that time, U.S. and Iraqi investments in infrastructure security
for oil production facilities and pipelines have contributed to
increased export levels, and U.S. and Iraqi officials are expanding
existing projects to extend these gains.
Second, Iraqis face the challenge of coming to a greater degree of
political consensus about the powers and responsibilities of various
levels of government in determining national energy policy and about
various issues related to energy development. This includes reaching
agreements about the degree and terms of foreign participation and
models for revenue sharing. In late 2007, the KRG finalized its own
regional oil and gas investment law and signed new production sharing
agreements with several international companies, including U.S.-based
Hunt Oil.\17\ Some analysts believe that the Kurdish moves signal the
KRG's intention to begin large scale oil development activities
regardless of progress on federal legislation. The KRG has stated its
opposition to proposals to require federal approval of its existing or
future contracts, but notes that it is committed to revenue sharing as
defined in the constitution and the draft revenue sharing law. As noted
above, these issues remain the subject of ongoing negotiation.
In September 2007 a State Department spokesman stated the
Administration's view that the KRG deals ``elevate tensions between the
Kurdish regional government and the Government of Iraq,'' and ``aren't
particularly helpful'' to the extent that they hinder consideration of
a national oil law.\18\
Iraqi government officials from other parties have reacted
negatively to the impasse and the KRG's recent activities. On September
8, 2007, Iraqi Oil Minister Hussein al Shahristani stated that the
national government considers contracts signed by the KRG to have ``no
standing''.\19\
Tensions appeared to escalate further after Minister Al Shahristani
warned international oil companies that the national government would
not allow the export of oil produced under KRG contracts.\20\ The KRG
responded by accusing Minister Al Shahristani of mismanaging the Oil
Ministry budget and restated its opinion that its contracts were both
constitutional and legal.\21\ In November 2007, 60 Iraqi oil sector
leaders wrote to the Council of Representatives to state that the KRG's
unilateral signing of contracts constituted a ``deliberate and
dangerous action'' and had no ``legal or political standing
whatsoever.'' \22\ At least 120 members of the Council of
Representatives from a wide range of political parties endorsed a
January 2008 joint statement underscoring their opposition to the KRG
contracts.\23\ The Ministry of Oil has since refined its position
slightly to emphasize its opposition to contracts signed by the KRG
after February 2007. Contracts signed before February 2007 with firms
currently producing oil for domestic consumption would be considered
valid after review and potential amendments.
Third, fluid global market conditions ultimately determine the
demand for Iraq's energy resources, the revenue potential of those
resources, and the availability of domestic and external investment
capital. As noted earlier, recent declines in global oil prices have
lowered this year's surplus revenue projections for Iraq. However, the
abundance of energy resources in Iraq and their relative ease of
production will likely sustain the attractiveness of Iraq's oil sector
to international investors over the long-term. The U.S. Embassy's Iraqi
Transition Assistance Office estimated in 2007 that Iraq's oil sector
could require $100 billion in investment to meet the Iraqi government's
production goals.
In light of Iraq's transition from conflict and in light of strong
economic growth in the more stable countries of the Persian Gulf
region, Iraq may struggle relative to its neighbors in attracting
international investment and expertise to assist in its non-energy
related reconstruction. DoD has reported that projects for critical
ministries require ``multi-year, large-scale strategic infrastructure
upgrades'' that may require the involvement of international firms;
those firms could remain reluctant to engage in Iraq.\24\
Lastly, Iraqi leaders are working to address what the U.S.
government and international auditors have described as significant
weaknesses in Iraq's current public financial management practices. The
United States has financial advisory programs in place for many of
Iraq's key ministries, including with civilian leaders of security
ministries. However, these programs remain limited in scope and funding
in spite of their recently reorganized coordination. From Iraq's
perspective, the availability of significant oil revenues is fortunate
in light of the country's remaining development needs. In addition to
planned physical infrastructure investments, investment in human
capital and management assistance may prove equally important.
OPTIONS FOR U.S. POLICY
As Iraqi officials and their coalition partners preside over the
latter half of the so-called ``Year of Transition in Iraq'', U.S.
spending on large-scale reconstruction projects is coming to a close:
the State Department reports that the funds available in the Iraq
Relief and Reconstruction Fund have been almost entirely obligated or
expended as of early September 2008.
Pending legislative proposals in both houses of Congress reflect
broad and growing sentiment that seeks to require the Iraqi government
to pay more of the cost of reconstituting Iraq's security forces and
providing for reconstruction needs. Proposed defense authorization
language in both houses would reduce authorized spending from the Iraq
Security Forces Fund (ISFF) relative to the Administration's request
($2 billion) and last year's bridge fund ($1.5 billion).\25\ The
Appropriation Committees require ``equal cost-sharing'' for all
reconstruction projects above $750,000 in report language as well as
prohibiting the use of these funds for salaries for Iraqi military
personnel.\26\ Senate authorizers would prohibit using ISFF monies for
``large-scale'' infrastructure above $2 million; House authorizers
would prohibit the use of ISFF funds for any facilities construction
and argue that ``the Iraqi Government is well able to afford to finance
its own infrastructure needs at this point.'' \27\
As noted above, U.S. and international auditors have not expressed
doubt about the Iraqi government's ability to afford taking on more of
the costs of its reconstruction and security sector development, if oil
production expands and export conditions remain favorable. Those
auditors and observers have expressed significant doubts about the
Iraqi government's current ability to expend available funds at a
sufficient rate or level of efficiency to maintain the complex, long-
term, and large-scale programs required. By most public accounts,
Iraqis in many areas of the country remain somewhat dissatisfied with
the scope and pace of ongoing reconstruction programs, particularly
with regard to the delivery of essential services such electricity and
water. Midway through the ``Year of Transition'', DoD warned that:
``Future progress in essential services could be at risk since the
U.S. will transition large-scale infrastructure projects to the Iraqis
to fund and execute. While the Government of Iraq acknowledges it has
the revenues to support these projects, budget and program execution
rates indicate that the Government lacks the ability to execute
programs on the scale required.'' \28\
As such, Members of Congress concerned about relative scope and
effectiveness Iraqi contributions to reconstruction and security goals
may wish to consider options to encourage or enable the Iraqi
government to improve its public financial management capabilities. As
described above, Administration officials have already taken steps to
improve the coordination and performance of U.S. financial management
assistance programs in Iraq by creating the interagency Public
Financial Management Assistance Group (PFMAG). Congress can influence
the operations of the PFMAG and its constituent programs through
consideration of pending appropriations and authorization legislation
or through the exercise of targeted oversight and evaluation.
Existing U.S. programs to improve the performance and capabilities
of the security forces of allied governments in the Middle East also
offer potential models for the structuring future of the U.S.
assistance and advisory relationships with Iraq. Significant U.S.
foreign assistance programs for Israel and Egypt are funded through
annual appropriations of Foreign Military Financing, Economic Support
Fund, and other assistance, and the annual appropriations process
offers opportunities for Members of Congress to evaluate progress
toward stated bilateral goals and respond to changing political and
economic conditions. Alternatively, long-standing U.S. security
assistance programs for Saudi Arabia are financed through Saudi
government purchases of U.S. training and services through the Foreign
Military Sales program. Iraq has begun using the FMS program for its
acquisition needs, and may soon make large arms purchases worth up to
$11 billion according to arms sale proposals recently notified to
Congress by the Administration. The U.S. Army Corp of Engineers, which
is currently carrying out U.S. funded reconstruction work in Iraq,
carried out construction projects in Saudi Arabia on a contract basis
during the 1970s and 1980s, funded by Saudi government oil revenues.
Similar direct or contract-based bilateral assistance programs
could help Iraq complete its transition and reconstruction and would
likely make U.S.-Iraqi relations subject to more conventional
congressional concerns about human rights, the end use of U.S. military
equipment, the regional military balance, and the efficiency and
transparency of contract assistance programs. Increasing confidence
within Iraq's political leadership and competition among some Iraqi
political groups to harness popular nationalist sentiment may limit the
attractiveness or utility of official bilateral assistance efforts over
time, making contract-based solutions with U.S. or other international
partners more appealing or effective.
CONCLUSION
Thank you for the invitation to testify and I look forward to your
questions.
ENDNOTES
\1\ Ernst & Young, Development Fund for Iraq--Summary of Audit
Results for the year ended December 31, 2007, May 12-13, 2008.
\2\ Government Accountability Office, GAO-08-1031--Stabilizing And
Rebuilding Iraq: Iraqi Revenues, Expenditures, and Surplus, August
2008.
\3\ International Monetary Fund, Country Report No. 08/17, ``Iraq:
Request for Stand-By Arrangement and Cancellation of Current
Arrangement--Staff Report,'' January 2008, p. 9.
\4\ U.S. Department of Defense (DoD), Measuring Stability and
Security in Iraq--June 2008, Report to Congress in accordance with the
Department of Defense Appropriations Act 2007 (Section 9010, P.L. 109-
289), p. 10.
\5\ U.S. Department of State, Section 2207 Report on Iraq Relief
and Reconstruction, July 2008, Report to Congress in accordance with
the National Defense Authorization Act for Fiscal Year 2006 (U.S.
Policy in Iraq Act, Section 1227, P.L. 109-163).
\6\ U.S. Department of State, Section 2207 Report on Iraq Relief
and Reconstruction, July 2008.
\7\ Special Inspector General for Iraq Reconstruction (SIGIR)
Report 08-020, ``Key Recurring Management Issues Identified in Audits
of Iraq Reconstruction Efforts,'' July 2008.
\8\ A Central Contracts Committee has now replaced Iraq's former
contract approving authority. Decrees issued since January 2008 granted
Governors and selected Ministers and Heads of Agencies authority to
enter into contracts worth $50 million. The ministries selected were
Defense, Interior, Oil, Trade, Health, Electricity, Industry and
Minerals, Water Resources, Municipalities, and Public Works. Agencies
not attached to ministries have been granted a $30 million contract
approval ceiling. Iraq's governorates can now approve contracts worth
up to $10 million. SIGIR Report 08-020, ``Key Recurring Management
Issues Identified in Audits of Iraq Reconstruction Efforts,'' July
2008.
\9\ Information provided to CRS by U.S. Treasury Attache, Baghdad,
Iraq, September 13, 2008.
\10\ U.S. Department of Defense, Measuring Stability and Security
in Iraq--June 2008, p. 3.
\11\ Kurdistan Regional Government (KRG), Press Release: ``PM
Barzani announces political committee to discuss Iraqi federal
hydrocarbons law,'' June 28, 2008.
\12\ U.S. Department of Defense, Measuring Stability and Security
in Iraq--June 2008, p. 3.
\13\ U.S. Department of Defense, Measuring Stability and Security
in Iraq--March 2008, p. 4.
\14\ Reuters, ``Iraq approves preliminary gas deal with Shell,''
September 7, 2008.
\15\ Reuters, ``Firms pre-qualified for Iraq long-term oil deals,''
June 30, 2008.
\16\ U.S. Department of Defense, Measuring Stability and Security
in Iraq--June 2007, p. 13.
\17\ Bloomberg News, ``Dallas Oil Company Approved to Drill in
Kurdistan,'' September 10, 2007.
\18\ U.S. Department of State Daily Press Briefing, Tom Casey,
Deputy Spokesman, Washington, DC, September 28, 2007.
\19\ Ben Lando, ``Deeper Than an Oil Law in Iraq,'' UPI, September
10, 2007.
\20\ Platts Commodity News, ``Iraq's Shahristani Says Hydrocarbon
Law not Expected Soon,'' November 15, 2007.
\21\ Kurdistan Regional Government, ``KRG responds to Dr
Shahristani's threats to international oil companies,'' November 20,
2007.
\22\ Radio Free Europe Documents and Publications, ``Iraq: Baghdad,
Kurds At Odds Over Oil Deals,'' November 30, 2007.
\23\ Ned Parker, ``Iraqi Political Factions Jointly Pressure
Kurds,'' Los Angeles Times, January 14, 2008; and, UPI, ``Iraq Factions
Join Against Kurd Oil Deals,'' January 15, 2008.
\24\ U.S. Department of Defense, Measuring Stability and Security
in Iraq--June 2008, p. 10.
\25\ The Senate recommends $200 million while both the House
authorization bill and the previously-enacted supplemental
appropriations act (P.L.110-252) provide $1 billion.
\26\ Section entitled ``Iraq Security Forces'' in P.L. 110-252 and
report language on p. S4337, Congressional Record, May 19, 2008.
\27\ Sec. 1616 in S. 3001 as reported and S.Rept. 110-335, p. 428;
see also Sec. 1512 in H.R. 5658 as passed by the House. Section 1613 in
S. 3001 as reported by the Senate lists equipment, supplies, services,
and training as the only types of expenses that can be funded in the
ISFF; Sec. 1616 applies the prohibition to any ``large-scale
infrastructure projects'' above $2 million.
\28\ DoD, Measuring Stability and Security in Iraq--June 2008, p.
vi.
Chairman Spratt. Thank you very much, all three of you
presenting today expressing your views on this subject. Let me
just make clear of why the Chair and the Committee is holding
this hearing. First of all, some of us were here in the first
Gulf War and we recall the way the financing of it was arranged
through the good offices of President Bush, the first President
Bush, and Jim Baker. Namely we went to the allies in the region
and asked them for in kind contributions as well as cash
contributions, and they came through handsomely. We also went
to allies from Germany to Japan, and they paid substantial sums
partly in return for the fact that they were not making big
troop commitments. As a result the cost of that war out of
pocket to the United States was $2 billion to $4 billion,
depending on how you tally up those various contributions and
our outlays.
Begging the question, why have we not been able to achieve
the same kind of sharing, cost sharing here, especially now
that it appears that the country of Iraq is generating cash
reserves, cash surpluses, that are over and above its immediate
requirements.
And finally, we passed this year a supplemental
appropriation bill of $185 billion, $160 billion of it goes to
Iraq and Afghanistan. Everyone in this room knows, given the
deficit projections we have got as recently as last week from
CBO, that that level of commitment simply cannot be sustained
on the basis that we have maintained it for the last five or
six years, that is without borrowing every penny of it so that
it goes straight to the bottom line. After all, our economy is
our first instrument of a national defense. And our budget is a
key element, a vital element of that economy. And we simply
cannot keep building debt on top of debt and expect to be the
world's superpower and also be the world's largest debtor
nation.
So this is all part of our purpose in having the hearing
today. To ask, is this a source that we can now be relying upon
so that we can begin using Iraqi funds to do what Wolfowitz
said before this Committee and said before the Defense
Subcommittee, they should be able to pay for it themselves, and
relatively soon, given their vast mineral wealth. And that is
what we are trying to explore today.
So we appreciate your testimony and your observations about
it. And let me turn to Mr. Conaway now.
Mr. Conaway. Well, thank you, Mr. Chairman, and our
witnesses. Thank you for coming today and talking. And I do not
have an extended statement in the interest of time and
listening to what they have got to tell us rather than us
continuing to do our normal pontification and talk to each
other, comments we already know each other are going to say. I
would rather hear from the witnesses themselves. It may be a
bit of a departure from our standard operating procedure, but I
appreciate you guys being here and I look forward to the
questions.
Chairman Spratt. Mr. Doggett?
Mr. Doggett. Thank you, Mr. Chairman, and thanks to all of
our witnesses. Dr. Korb, I have three questions for you about
violence, about success, and about the future. First on
violence, while there does appear to be some consensus, some
evidence that the addition of troops contributed to a reduction
in violence, you know, we have heard the administration boast
so often that it does not negotiate with terrorists. We have
heard President Bush and his cohorts, even just heap scorn on
anyone who wanted to talk with people who do not agree with us.
And we hear the importance of the United States refusing to
blink. But is not the decrease in the number of deaths in Iraq
in large measure the result of the Bush administration's
decision to bribe, to pay off, the very organizations that were
killing and executing our servicemen and women?
Mr. Korb. There is no doubt about the fact that the so
called Anbar Awakening, remember Anbar was the most violent
province, and creating the group called the Sons of Iraq
composed of a lot of people who had killed Americans as well as
Iraqi government officials, has been a big factor in getting
the violence down because it took place initially in the most
violent province.
Mr. Doggett. Well, the decision may have worked in part.
But I have not heard the administration boasting of the reality
that when President Bush said, ``Bring it on,'' he responded by
pouring on American money to the very people that had the
finger on the trigger killing our young Americans in Iraq and
accounting for some of these 4,000 plus deaths.
Now, the second question concerns success. The objective we
were told was not that fewer Americans would be killed in Iraq
but that no Americans were being killed in Iraq, and success
was certainly not defined as continuing to pour out $10 billion
or $12 billion every single month of American dollars in Iraq.
And yet that is the situation of success of the surge we have
today. If instead we measure the success of the surge using
President Bush's own benchmarks as he announced them back in
January of last year, is it not correct that he cannot meet his
own benchmarks? That is why he never talks about them anymore.
And that what he deserves in terms of the objective as he
defined it with those eighteen benchmarks is a big fat F for
failure?
Mr. Korb. Well I think, as I pointed out in my testimony,
the Iraqis, I was over there as part of the AID project to
assess the capacity of the Iraqi government. And one of the
things I found in talking to a lot of them, they are very
clever politicians. And they know what is happening back here,
at home. And so if you get a benchmark like debaathification
they will go ahead and pass the law. But then when you go and
find out whether it is implemented it is not. And I think that
is, if you take a look at the GAO analysis what happens is,
yes, they will do a lot of these things. But then they really
do not carry them out. Or whether it is corruption, or whatever
it might be.
I mean, take the example of the provincial elections. Well,
the provincial elections, we are going to have them in October.
Well, they still have not set a date, you know, for them. That
is a very, very, very critical, critical thing. And unless they
implement these benchmarks you are not going to have political
reconciliation, which is the whole purpose of all of our
military activities. And I think it is important to keep in
mind that even with the numbers of troops reductions that
President Bush announced last week, you will still have more
troops there when these reductions occur than you had before
the latest build up occurred in January 2007.
Mr. Doggett. As you know, it has become conventional wisdom
to brag about the success of the surge. But if you evaluate it
in terms of the objectives that President Bush set out at the
beginning he has failed to meet those objectives, has he not?
Mr. Korb. I would say the majority of them have not been
met and that is why you really do not have political
reconciliation. In fact, what I worry about now, again, is the
Maliki government not incorporating these Sons of Iraq.
Mr. Doggett. And I wanted to talk to you about that because
that gets to the future. You say that without a timetable we
are going to continue to have that spigot of dollars just
continue to be wide open. And of course there is a timetable
there because most of the so-called group of willing, some
would call it billing, the people that we cajoled or bribed
into sending troops into Iraq, they have got a timetable. They
are either all gone or they are going from Iraq, are they not?
Other than maybe the two or three from Estonia, and some of the
other major powers that have contributed in the dozens instead
of in the hundreds of thousands.
Mr. Korb. The vast majority of the 40,000 troops from other
countries who went into Iraq with us are gone.
Mr. Doggett. And is it not, your testimony, I believe you
used the word stalled, that as long as we have a significant
American troop presence there the Iraqis will never meet the
standards that President Bush set for them last January that he
has failed to achieve. And that that spigot will be wide open
with American dollars and American blood because we have got
the wrong policy there and cannot achieve the objectives that
he set without getting a timetable to get our troops out?
Mr. Korb. I do not believe that they will ever undertake
meaningful political reconciliation unless you have that hammer
over them.
Mr. Doggett. Thank you for your testimony.
Chairman Spratt. Mr. Conaway, did you have a question you
wanted to ask?
Mr. Conaway. I did have some questions, Mr. Chairman. I
just did not want to make an opening statement.
Chairman Spratt. Okay.
Mr. Conaway. So, thank you. Mr. Kagan, in contrast to the
phased withdrawal that Mr. Korb was talking about, you
mentioned that the U.S. would lose leverage if we did that. Do
you want to flush that out some?
Mr. Kagan. Yes, Congressman, I would be happy to. I have to
say that I completely disagree with the analysis that says that
the U.S., the threat of a U.S. timetable to withdraw is a
hammer in some way to hold over the Iraqis. On the contrary, it
completely misunderstands what we are actually doing in Iraq to
say that. We are currently engaged in primarily in peace
keeping, peace enforcement operations in Iraq. And our troops
play an extremely important role. They are seen widely by the
Iraqi population as being relatively impartial and as being
able to defend sectors of the Iraqi society from other malign
actors in the government, outside the government, and so forth.
And they do provide us with tremendous leverage toward the
Iraqi government. I can guarantee you that whatever degree of
accommodation we get out of the Iraqi government in the things
that we want the Iraqi government to do is higher with more
American troops in the country than it would be with fewer
American troops in the country. Now that is not an argument for
keeping American troops there forever. I think that we should
have American troops in Iraq as they are needed. But I do think
that we, it is important to understand the dynamic there.
Mr. Conaway. Thank you. Dr. Korb, you obviously have a
different opinion on that. The eight to ten month time line
that you would argue for based on all of the evidence you have,
based on years of experience in the arena, is there a guarantee
associated with that?
Mr. Korb. There is no guarantees associated with anything.
Mr. Conaway. Okay.
Mr. Korb. I think that, let me----
Mr. Conaway. Well, I will. I just want to make my point.
Mr. Korb. I do want to make----
Mr. Conaway. Just one second. I will let you speak. Five
years from now, do you think someone will look on this
testimony the way we are currently looking back on Paul
Wolfowitz' testimony from five years ago and act like as if he
had given some kind of galactic guarantee that that was going
to happen. So I would argue that, you know, your position is
yours but you are not going to implement it. You are not going
to be responsible for that. And you do not have any skin in
that game and there is no guarantee. So what happens during
that ten months, if circumstances are different? Do you stick
to your guns? Or is there opportunity that the vacuum does
create some sort of ruckus that has got to be responded to
differently? What happens in that regard?
Mr. Korb. Well, as I pointed out in my testimony, General
James Dubik, the American general in charge of training the
Iraqi security forces said that the Iraqi Army and police will
be able, and these are his words, to assume full responsibility
for internal security as early as April of 2009. So that is one
indication.
The others I pointed out in my testimony. And I have
testified before other committees. I just referenced it very
briefly here. That in addition to us setting a timetable to
withdraw I think you need a diplomatic surge, because all of
the countries in the region have a vested interest in Iraq not
becoming a failed state. Even Iran does not want to see it
become a failed state because they will have the refugees
coming in. If it becomes a haven for Al Qaeda which people, you
know, point out, Al Qaeda is not a group that Iran likes which
is why they were very helpful to us in Afghanistan. But are
there any guarantees? No. I do not think there are any
guarantees in terms, but I do not think there is a guarantee if
you continue to keep expending American blood and treasure that
you are going to get what the administration says is a, you
know, victory, which is a stable, democratic Iraq that becomes
an ally in the War Against Terror and a bulwark against Iran
either.
Mr. Conaway. But you are open to the argument that should
this phased withdrawal be announced and we start walking down
that path that something unforeseen today happens that that
might need to be altered at some point. In other words, you are
not casting this in absolutely concrete the way some of the
comments get thrown back at us from, that we all make from time
to time as if we have got some guarantee. But there is an
opportunity that circumstances would not work out the way you
think they are?
Mr. Korb. Well, again, I go back to testimony I have given
before the Committee over the last couple of years. We are not
leaving the region, okay? That is a big difference. In other
words, you are leaving Iraq but you are not leaving the region.
And so therefore you have the capability, for example, if there
should be an external invasion. But if General Dubik is right
and they can provide for their own internal security, and this
is a whole other subject here, the Iraqis want us to go. This
is why we are negotiating with them on the status of forces
agreement. Okay? They are the ones that have asked for the time
line. Because the Maliki government, and I think feels quite
correctly, as long as it looks like we are in charge in fact
they are not going to be seen as legitimate by their own
people.
Mr. Conaway. Right. I think we all agree on the end goal.
It is just how do we get there? How do we orchestrate this
dance? Dr. Blanchard, one quick question for you. In terms of
the oil markets, is there anything sinister about Iraq going to
companies who are experts in developing large projects like
Royal Dutch Shell, like Exxon Mobil, like the Chinese
government. Is there anything sinister in terms of them looking
towards trying to find expertise in the arena to actually
increase their oil production, and modernize an infrastructure
that by all arguments has been totally neglected for some
twenty to thirty years?
Mr. Blanchard. I think the Iraqi government has pursued
those service, in particular, contract opportunities, based on
a recognition that it lacks either the expertise or the
technical capability to rehabilitate its oil production and to
meet its immediate short term goals. I think over the longer,
or medium term run, so if you look at these long term oil deals
that will come up for bidding next year, I think the
administration has taken the position, and I imagine many in
the Congress would agree, that that should be conducted through
an open bidding process that is free and fair.
Mr. Conaway. But that is something a sovereign government
would do with----
Mr. Blanchard. Indeed, these are sovereign government
decisions. And, you know, I think as an observer of Iraq's oil
politics the sort of only caveat I would add to that is that
these do not represent necessarily broadly discussed, you know,
there is a, as I said, there is a lack of political consensus
about really how to move forward with these things. So, you
know, a decision by the Maliki government to move forward with
a certain contract or a decision by the KRG to move forward
with a certain contract does not necessarily represent the, you
know, broadly shared vision of what Iraq's energy future should
be.
Mr. Conaway. Sure. Thank you, Mr. Chairman. Thank you, Mr.
Conaway. Mr. Doggett has had his opportunity but we will come
back to you if necessary. Mr. McGovern is not here. Mr. Scott
is not here. Etheridge, Moore, Bishop, Mr. Berry?
Mr. Berry. Thank you, Mr. Chairman. Dr. Kagan it says in
this information that I have in front of me that you were one
of the architects of the President's surge policy. Is that
correct?
Mr. Kagan. Congressman, I am uncomfortable with any
particular designation of that. I was an early proponent of the
surge. I put out a report recommending something very much like
the surge. But I did not have an official position in
government.
Mr. Berry. Was part of the idea or the plan that you had to
go into the neighborhoods and pay people not to cause trouble?
Mr. Kagan. I am sorry. I did not understand your last part?
Mr. Berry. Go into the neighborhoods and pay people not to
cause trouble?
Mr. Kagan. No, Congressman. We did not recommend in our
plan the Sons of Iraq initiative, although I think it was a
very good initiative and I stand by it. But we did not
recommend it.
Mr. Berry. If I understood you correctly, you recommend
continuing with whatever troop levels is necessary to maintain
some kind of stability in Iraq for as long as it takes,
basically, or certainly until there is a better alternative
that comes along?
Mr. Kagan. Well, Congressman, since my analysis tells me
that rapidly withdrawing American forces at this point would
lead to probably a resumption of violence and certainly a
failure of current Iraqi political efforts and a failure of our
mission, right now my recommendation is that we maintain forces
at levels necessary to continue to move forward in Iraq.
Mr. Berry. So at what point would you consider that it is
time to start pulling our forces out?
Mr. Kagan. When I believe that that is in the best interest
of the United States of America, I would recommend that, sir.
Mr. Berry. And how are you going to define that?
Mr. Kagan. Well, you have to make an evaluation of what the
likelihood of success is in Iraq, what the consequences of
particular force levels would be, what the new strategy would
be, what its likelihood of success is, what the various
spoilers and enemies would do in response to it, and come to a
reasoned conclusion about this. From my perspective the issues
is remaining focused on what our objectives are, making sure
that we have a strategy that makes sense to move us toward
those objectives, and maintaining that we have adequate force
levels and other resources, including non-kinetic measures, to
support that strategy. And that is the only way to do force
planning as far as I am concerned, sir.
Mr. Berry. And how would you propose to pay for this?
Mr. Kagan. Congressman, I am a strategist, not a budget
expert.
Mr. Berry. Oh, yes, okay.
Mr. Kagan. How would you propose to win the war,
Congressman, if we withdraw the troops?
Mr. Berry. We are not questioning the members. Thank you,
Mr. Chairman.
Chairman Spratt.*Thank you, Mr. Berry. Mr. Alexander of
Louisiana?
Mr. Alexander. Thank you, Mr. Chairman. Dr. Kagan you used
two terms a while ago. Peacekeeping and peace enforcement.
Would you describe in your opinion the difference in the two?
Mr. Kagan. Congressman, you engage in peacekeeping
operations in situations where violence is either low or
nonexistent, and where the main priority of your military
presence is to deter the resumption of violence by forces that
have put down their weapons and helped to make progress toward
permanent reconciliation. Peace enforcement is a term of art
that is used when you have violence that is going on that you
are working to reduce. And it is a level generally of violence
that you would say is below significant insurgency. And I think
in most areas of Iraq that is where we are.
Mr. Alexander. Okay. Look at the entire picture and in your
opinion, on a percentage basis, are our troops engaged in which
one the most?
Mr. Kagan. I would say, Congressman, it is very, I cannot
give you a definitive answer on that. I would say that it is
probably about fifty-fifty. Our troops, we put our troops
disproportionately in areas where there is violence, of course,
because our purpose is to bring it under control. So in areas
such as Diyala and Ninawa Province we have been focusing very
much on going after violence. In Baghdad for the most part, I
think, our forces are engaged in peacekeeping in a lot of
areas. In Anbar they are certainly engaged in peacekeeping, in
the south in Babel Province and so forth, they are engaged in
peacekeeping. I think in Basra our forces are largely engaged
in peacekeeping. So in large areas of the country we are
engaged in peacekeeping. But in terms of what the percentage of
troops that is I cannot say offhand.
Mr. Alexander. Okay. Thank you.
Chairman Spratt. Ms. Kaptur?
Ms. Kaptur. Thank you, Mr. Chairman. I wanted to ask any of
the panelists to comment, when we look back at the chart on how
much the American people have spent on this War, nearly three-
quarters of a trillion dollars, $653 billion and still
counting. How much of that money possibly could have ended up
in the wrong hands? There has been a lot of talk about
corruption. Congressman Berry talked about money being handed
out in order to buy people's behavior. From what you know of
the diversion of dollars in any society, even our own in any
federal program, where we have major institutions in place to
check corruption and even then we do not stop it. In a society
like Iraq, where lawlessness is more the order of the day than
a rule of law, what would be your guesstimate on how much of
that might have been misspent? Have you ever thought about
that? Diverted? Stolen?
Mr. Korb. Well, I think the Special Inspector General for
Iraq has given you some really good figures on that. And I
would, I think that his is probably the best analysis. And in
fact, you may remember that some members of the Congress were
so upset about his reports that they tried to do away with the
office, okay, in terms of, you know, the things that he was
saying. So I think his estimates are probably the, the best of
how much money has been wasted.
Ms. Kaptur. Thank you, Dr. Korb. Let me ask, of the number
of U.S. troops that have been killed in Iraq the rate of death
has been going down. Can we say the same about Iraqi civilians?
Mr. Korb. It has. I mean, the number of attacks on all
Iraqis as well as Americans has gone down dramatically. But I
think it is important to keep in mind that it went up
tremendously in 2007. So when you compare 2007 to 2008, June of
both years, yes, it is down. But that was a very, very high
number. And I think if you say in terms of are the levels of
violence where they were then? No, they are not. But it is
still not a safe place. And I think that is the key thing to
keep in mind. And that is why I think it is important that the
Iraqis take over their security. And if the head of the
training is correct then they can provide that security.
Remember now, there are close to 600,000 members of the
Iraqi security forces. And what we are talking about is
basically, we do not even have an estimate. But this is not a
large scale, conventional military threat they are dealing
with. They are dealing with violence and basically doing police
work. So I think, you know, General Dubik is correct that that
in fact could occur.
Ms. Kaptur. When you saw the death of the Sunni leader in
Baghdad this week, what did you say to yourself? Who was
cooperating with us.
Mr. Korb. Well, what concerns me about that is the attitude
of the Maliki government toward the so-called Sunni insurgents,
Sons of Iraq. They were never happy with this. This was not
their idea. This was something our on scene commanders did well
even before the surge. They are the ones who begin working with
these groups. And General Petraeus has been pressuring the
Maliki government to take more and more of them in. But the
fact of the matter is, it has been very, very, very slow. And I
do worry about the fact that we have created a ticking time
bomb there because these people do not support the central
government who we are supporting. And so while they have been
working with us to get rid of Al Qaeda in Iraq, because Al
Qaeda in Iraq over stepped their boundaries, and they saw the
results of the 2006 election, I think that in fact if they are
not accommodated they can cause an awful lot of problems.
Ms. Kaptur. I viewed it as a sign of the fragility of the
situation there. I do not know if you----
Mr. Korb. Yes, I do.
Ms. Kaptur [continuing]. Share that view to some extent.
Let me just say, I wanted to make this comment on the record.
It has been really amazing to me that the insiders who promoted
this war as a simple task, and I want to say their names, Paul
Wolfowitz, George Tenet, Douglas Feith, and Donald Rumsfeld,
have largely disappeared. Where are they? Are they
editorializing? Are they writing op-eds? Are they on the
evening news? Now you would think that if these were courageous
men they would stand by their position. But what has been
amazing to me is, it is as though they have vaporized. Where
are they? Why are they not up here? Why are they not giving
speeches? It is amazing to me, one of the greatest disappearing
acts I have ever seen.
Now, Colin Powell has sort of been on occasion seen. There
has been a sighting now and then, and of course I think Vice
President Cheney is one of the most hidden vice presidents I
have ever seen. But where is the courage of their conviction?
And I just wanted to say on the record. It is very upsetting to
me. I did not agree with them on their position. But where are
they? Do the American people not have a right to hear from them
now? And I hope if, you know, they are listening today or
someone says something to them, I hope that they hear this
member from Ohio,because many of her constituents are dead
because of them. And I can remember when Mr. Rumsfeld and Mr.
Powell appeared before our Defense Committee and I asked Mr.
Powell the question, ``Sir, do you view what is going to happen
as a liberation or an occupation? How will you know the
difference?'' Mr. Chairman, I view this now as an occupation in
the way that it is functioning, not a liberation. And what is
amazing to me is how these gentlemen have not stood by the
courage of their convictions. Though I disagree with them
completely, where are they? Thank you, Mr. Chairman.
Chairman Spratt. We have got some votes coming up. We want
to make sure everyone has an opportunity to ask questions. So
Mr. Jordan?
Mr. Jordan. Thank you, Mr. Chairman. I will be quick. I
want to thank you all for coming. I did not get a chance to
catch everyone's testimony. But Dr. Kagan, I just want to go
back to this public timetable, time line, deadline, debate.
Which to me just does not make sense. And this is coming from
someone, I mean, on the surface you can recognize it. You know,
I always say deadlines influence behavior. The first piece of
legislation I ever did back in the General Assembly in Ohio was
welfare reform legislation. And I did the amendment. I remember
offering it on the floor, and the big debate. I did the
amendment that said after a certain point in time, able bodied
adults would not longer receive cash payments from the state.
Made sense, deadlines impact behavior.
But in this context it just scares me because of the
message it sends A, to the bad guys, and probably more
importantly, and I want your comments on this, more importantly
to the citizens and government of Iraq. Are they going to have
the full commitment they need to get where they need to get so
this country, and our troops get home like we all want to see
happen.
So elaborate on that if you would, and then I will yield
back, Mr. Chairman.
Mr. Kagan. Thank you, Congressman, I appreciate the
opportunity to elaborate on that. The, first of all I want to
make the point that Iraq has been so far by far the best ally
in the war on Terror that we have had in terms of the number of
troops Iraq has put into the field against terrorists and the
number of casualties that Iraq has suffered. And I think it is
very important to remember that. Because it is important to
remember that the Iraqi security forces and the Iraqi
government really, and the Iraqi people, really have chosen our
side on the whole against our own worst enemy, Al Qaeda in
Iraq, and also against Iranian backed militias.
Mr. Jordan. In fact, when I was there you saw that, you
witnessed that, when we were in Iraq last summer.
Mr. Kagan. Absolutely. Absolutely. And it was a very
positive sign when we were, when I was last down near Amara as
the special groups had fled from the Iraqi security forces
attack in that city. One of them had written graffiti on one of
the bridges hear the border saying, ``We will be back.'' And
one of the Iraqi soldiers who had chased them out wrote
underneath it, ``We will be waiting.'' So there is a real
commitment on their part to fighting our common foes. And what
the Iraqis across the board are looking for from us is a
commitment to them. And what they are hearing from Washington,
D.C. is the exact opposite of that. They are hearing arguments
that we should make no commitment to them. That we should
hector them, that we should bully them, and we should punish
them, but that under no circumstances should we guarantee that
we will stand with them if they continue to fight against Al
Qaeda, that we will stand with them if they continue to fight
against Iranian backed and controlled militias.
And I think the more time that goes on when we leave open
the question whether or not we will stand by this ally, the
longer they are going to have to make some choices that I think
we are not going to enjoy. Choices about how long do they want
to be on the firing line alone, and how long do they want to
wait before they start cutting deals with these various
enemies. And I think we have already seen the very nefarious
effect of this. Because the truth is one of the main reasons we
have been having a hard time with this strategic framework
agreement, which was initially supposed to be a SOFA is because
at the outset we could not meet, the administration could not
meet the Iraqis' asking price. The Iraqis' asking price was a
security guarantee. And their point was that if they sign any
kind of deal with us the Iranians, who see the world in a very
black and white, zero sum game, would see them as siding with
us against Tehran. And the Iraqis said, ``We are willing to do
that. Are you willing to back us?'' And right up front, because
of resistance within this Congress, the administration had to
say no. And that has already led to very negative effects.
Now, if we set a timetable and say we are unconditionally
pulling out by a certain period, whatever the situation on the
ground, we will be sending the additional signal to the Iraqis
that we do not plan to be there. We do not plan to back them
and they need to make their own decisions. And I do not
understand why anyone imagines in that circumstance, given the
threats they face, and given what the Iranians tell them on a
daily basis, why if we abandon them we think that they will
choose us and do what we want.
Mr. Jordan. Thank you, Mr. Chairman.
Chairman Spratt. Mr. Scott?
Mr. Scott. Thank you, Mr. Chairman. We were told going into
this war, just a couple of months before, not to worry about
budgeting for the war. The cost would be so insignificant when
you considered that oil revenues were not listed in the budget
and the cost of the war was not listed in the budget. So as the
Budget Committee we were told by this administration not to
worry about it. We have now spent over $600 billion and when
you consider the future health costs for troops and replacement
costs for equipment the estimates are in trillions. What
happened?
Mr. Korb. Well, I think what happened is that we got
carried away. We did not understand what we were dealing with.
I think also what happened, and again if you go back and you
look you may remember Larry Lindsey, who I had the privilege of
serving with in the Reagan administration, who said, ``You
know, this could be $100 billion to $200 billion.'' They got
rid of him. And then the head of OMB, now Governor of Indiana,
Mitch Daniels said, ``No, no, that is way too high.'' You know,
it could not be even, you know, more than a hundred. And then
of course Wolfowitz said it.
I think what happened, and this goes to Congresswoman
Kaptur's point here that I think is very important. We talked
about people who admitted they made a mistake. One of them is
Francis Fukuyama, who wrote the book The End of History, is now
the Dean at SAIS. He basically supported the war. And, but he
said a couple of years later, I think, if you had told the
American people that we were going to go to Iraq and have over
4,000 dead, spend whatever the number is, some, you know, could
be up to $3 trillion, hundreds of thousands of Iraqis would
die. And these were his words, ``So Iraq could have an
election,'' which was basically what happened, you would have
been laughed out of the ballpark. I mean, and that is what
happened. People were trying to convince the American people
that it was necessary to go to war with a country that had
nothing to do with 9/11. And so therefore, they presented a
case.
And, you know, we are talking about Paul Wolfowitz here. He
is also quoted as saying, ``Well, I never believed there were
weapons of mass destruction. But that sold. So that is why we
emphasized that.'' I mean, that is the type of thing that we
had to deal with. And I think had the American people known
this, had all of you known this, in terms of the votes I think
the vote would have been a lot different in the Congress.
But we believed our own propaganda. I mean, there was this
character Chalabi here that convinced the administration we
would be greeted as liberators. Do you remember that we thought
we would be down to 30,000 troops by the end of 2003? I
remember when I went to Iraq the first time in November the
troops all thought they were coming home by Christmas, okay? I
mean, they were told that. And then when General Abizaid said,
``No, we have got an insurgency.'' Secretary Rumsfeld said,
``No, you cannot use that word.'' Okay? And then, you know, I
mean, so all of these things happened. You know, there were a
number of mistakes made.
But I think the original one was overestimating our ability
to go into a foreign country and achieve a quick, relatively
easy military victory. And we are all paying the price for it.
I did not support the war. But I think it is important to keep
in mind that this is the first significant conflict we have
ever fought in our history where we do not have a draft and we
have not raised taxes. And therefore, the problems that
Chairman Spratt was talking about earlier in terms of our
overall economic position is in terrible, terrible shape.
And that is also one indicator of our economic power. In
terms of, what about the costs of not being able to do what you
need in Afghanistan? Afghanistan is deteriorating rapidly and
you do not have the wherewithal to deal with that situation.
Mr. Scott. The costs of reconstruction, what portion of
that cost is due to the damage done by the war and how much of
that is new and improved infrastructure?
Mr. Korb. Again, if you go back and you take a look, after
they said they had no idea how bad the Iraqi infrastructure was
before we went in. And again, I am thinking, how could you miss
that? You had, you know, CNN was there, you had newspaper
reporters, not to know how, so I think the infrastructure was
not in very good shape before we went in. We did not realize
that. Had we realized that we would have known that the costs
would have been much greater to rebuild. I do not think, in
fact I think there is a credit to our troops, they minimized
the damage to the Iraqi infrastructure when they went in. Now,
subsequently with the development of the insurgency you have
had a lot more damage.
Mr. Scott. Iraq has a surplus. Have they ever committed to
using the surplus to do the construction rather than have us do
the construction? I mean, I do not remember them inviting us in
with their representation that they would spend their money.
What, on what basis are they committed to spend their money and
not ours?
Mr. Kagan. Congressman, the Iraqis do seem to be committed
to spending their own money. They are having a variety of
problems doing that. They do budget annually for infrastructure
projects and they have said that they want to spend their own
money and also bring in foreign investment. They have repeated
on many occasions, it is their objective to spend their own
money to build their own country. I do not think there is any
question about the intention.
The issue is the pragmatic difficulties that they face in
actually doing that spending on infrastructure. And I think we
can get a little bit carried away talking about the trivial
amount that they have spent on reconstruction. The fact is, if
you go back and look at the GAO report they have spent tens of
billions of dollars of their revenue. They have spent a lot of
their revenue. They have spent it primarily on operations and
maintenance funds, which is to say salaries.
Now in the context of the sort of insurgency that we were
dealing with that was fueled for a long time by people who were
simply unemployed, that was a direct contribution to our
efforts to bring violence under control. Now we are working
them toward the process of developing the systems that they
need in order to spend infrastructure money responsibly without
having excessive corruption, but that takes time.
Mr. Scott. Who decides who gets the contracts?
Mr. Kagan. The Iraqi government decides who get Iraqi
government contracting, sir.
Mr. Scott. And the American contracts?
Mr. Kagan. We decide.
Mr. Scott. No further questions.
Chairman Spratt. Mr. Baird
Mr. Baird. Thanks, Mr. Chairman. I just want to start by
stipulating I think this invasion and conduct of it were some
of the worst foreign policy mistakes in the history of the
country. But once we are there we have to deal with that
reality. In the context, I just want to put things in the
context. Because I hear things said here on Capitol Hill and
back home that are just sort of out of context.
In the context of our total annual deficit, which CBO now
estimates at over $400 billion plus another 150 borrowing from
social security, what is the annual spending on Iraq?
Mr. Korb. It is about $10 billion to $12 billion, at least
$10 billion a month. So that----
Mr. Baird. So the point being, the point being if we
completely withdrew, spent not another penny on Iraq, would we
still be in deficit or not?
Mr. Korb. Well I think, yes, you would.
Mr. Baird. We would be substantially, we would not, I do
not think we should waste a penny of the taxpayers' money. But
people have argued back home, ``Gosh, if we were not in Iraq we
could rebuild our infrastructure, blah, blah, blah.'' We would
still be in deficit, friends. We need to be clear about that.
Secondly, in Iraq, U.S. dollars what percentage goes to
reconstruction now versus security?
Mr. Kagan. Congressman, I do not have the exact number for
you. But we have made policy decisions sometime hence and we
were going to stop investing in long term infrastructure
projects in Iraq. And we were to focus very heavily on
security. And so whatever the percentage is now, and I think it
is heavily weighted toward security at this point, you will see
that it will be even more heavily weighted that way in the
future based on decisions that have already been taken in
theater and in the administration.
Mr. Baird. I believe that to be accurate. It is heavily
weighted toward the security side. The reason I say that is
people also say, ``Why are we spending such vast funds to
rebuild the Iraqi infrastructure when our own infrastructure is
hurting?'' I understand the concern. I wish we were not
spending so much money in Iraq. But we need to be clear, at
least for the facts, the vast majority of U.S. funding is not
going to rebuild Iraq's schools, or roads, etcetera. And the
Iraqis are doing more of that.
Mr. Korb, a year ago at this time were you suggesting that
there was progress in the security situation in Iraq? Or were
you skeptical at that time?
Mr. Korb. Well, a year ago the violence had not yet come
down, okay? So it does not really start until late in 2007.
Okay? When a combination of factors, Sons of Iraq, more troops,
Sadr laying down his arms.
Mr. Baird. Did you foresee that and say, ``I see all these
things happening and therefore I expect casualty numbers of
U.S., Iraqi, and civilians to go down?'' Or were you rather
skeptical that that was going to happen a year ago at this
time?
Mr. Korb. Well, I was mainly focused on the political
reconciliation. That is what I was concerned about because the
whole purpose of the increase in troops and the other things
was the get the political reconciliation.
Mr. Baird. Did you make any comments a year ago about the
security situation?
Mr. Korb. Again, a year ago in September?
Mr. Baird. Yeah.
Mr. Korb. I did not think that the violence was going to
come down the way that it did, no.
Mr. Baird. I appreciate that. That is correct. If we had
pulled out, it is correct you said that. It is not correct that
you were correct. If we had pulled out one year ago, or if we
had begun a withdrawal, a year ago some people were saying,
``Let's begin to withdraw one to two brigades a month and let
us finish it up by 2008.'' So no U.S. combat, very small
physical presence, 30,000 or so. Even that, some said zero.
What do you think would have happened? Mr. Kagan, and we will
go on down the line. Do you think we would be seeing low
numbers of casualties? Do you think we would be seeing chaos?
What do you think, Mr. Kagan?
Mr. Kagan. Congressman, I am very confident that if we had
begun a year ago as General Petraeus was testifying about what
he thought needed to happen, withdrawing a brigade or two a
month, sectarian violence would have rapidly begun to increase.
The Iraqi government probably would have collapsed. The Iraqi
security forces definitely would have collapsed. They were not
in a position to function on their own. As the Jones Report at
that time made very clear and as our own observations on the
ground made clear. And I think all of the progress that had
been made to that point in 2007 would have been undone. And I
think the situation might well have become irretrievable very
rapidly at that point because it would have been seen as the
final betrayal by the Americans of the Iraqi people.
Mr. Baird. What would have happened to surrounding
countries, like Jordan?
Mr. Kagan. You would have seen increased refugee flows. I
think Michael O'Hanlon at Brookings Institute wrote an
excellent report about the likely spillover effects of this.
And you would have seen significant destabilization. I think
you would have started to see much more aggressive intervention
on the part of Iraq's neighbors both to stem the tide of
refugees and also to try to protect their coreligionists and so
forth. So I think you saw a real danger. And again, I think it
was probably Ken Pollack who laid this out. You saw a real
danger that a situation in Iraq spiraling out of control could
well have become a regional conflagration.
Mr. Baird. Mr. Korb, do you want to comment on that?
Mr. Korb. I think if you go back and you take a look in
2006, when President Bush met Prime Minister Maliki in Jordan.
And Prime Minister Maliki said the following, ``Let us take
control of Baghdad, my troops, and you, you move yours to the
outskirts.'' If in fact that happened and you also had the so-
called Anbar Awakening----
Mr. Baird. Let me just, I try not to be discourteous. But
my question was, if one year ago, not in 2006, in 2007 we had
begun to withdraw one to two brigades a month, and to this
point where we were very, very low troop strength. Mr. Kagan is
of the belief, I actually share that belief, that we would have
had substantial infighting, chaos in the ground, possible
genocidal violence, a number of U.S. troops killed in the
withdrawal process, and resurgence of Al Qaeda, and the
strengthening of Iran.
Mr. Korb. I disagree.
Mr. Baird. Uh-huh. What do you think would have happened?
Mr. Korb. As I have said all along, basically, and
obviously you have looked up some of the things I have said
because----
Mr. Baird. Well, you said it about me at the time so I
remembered it.
Mr. Korb. Basically, if you set a withdraw date and
undertook a diplomatic surge with the countries in the region,
none of whom wanted to see Iraq become a failed state, they
would have been involved constructively. And I also
demonstrated in the reports, the Americans would not have had
any casualties if you had done it the same way that you put in
over 200,000 troops in 2004. So that, there would not have been
increased American casualties. And it would have, in my view,
given the Iraqis the incentive to do what they need to do. I
think, I cannot emphasize, this is a very, you know,
distinguished group of people. These people are, you know, have
long traditions. And I think it would have given them the
incentives to do what they need to do, which they still have
not done. And with that----
Mr. Baird. Well, the National Intelligence Estimate at the
time took a somewhat different perspective on that in a line
that got very little attention. The line basically said that
the threat of U.S. withdrawal and a U.S. timetable is probably
causing people to retrench rather than reach out and work
together. Anyway, I am thankful, at least, that the casualty
numbers have gone down. I think it is a credit to our soldiers,
it is a credit to the Iraqi people, it is a credit to the
change in tactics by General Petraeus and Ambassador Crocker.
Thankfully, we did not have to test the other hypothesis. We
did not have to run the risk of genocide, etcetera, etcetera.
And it is still fragile. But the fragility in my judgment does
not justify the claims of and the calls that we now withdraw
one to two brigades a month. Because how, saying an edifice
propped up by certain things that it is finally getting
stronger if we just pull out the props, that will suddenly
force it to strengthen itself, it does not work in architecture
and I do not think it would work in foreign policy. I thank the
Chair and thank the witnesses.
Chairman Spratt. Thank you, Mr. Baird. And to our three
witnesses for your diligence and cooperation in preparing your
testimony and the testimony you have given and the answers you
have forthrightly stated, we very much appreciate it. We have
learned from your contribution and we appreciate your
participation.
Before we conclude I would ask unanimous consent at this
point that anyone who did not have the opportunity to ask
questions be permitted to do so by submitting them for the
record within the next seven days.
Thank you once again for coming and for your participation.
The Committee is now adjourned.
[Whereupon, at 12:00 p.m., the Committee was adjourned.