[Senate Hearing 108-165]
[From the U.S. Government Publishing Office]
S. Hrg. 108-165
IRAQ STABILIZATION AND RECONSTRUCTION:
INTERNATIONAL CONTRIBUTIONS AND RESOURCES
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON FOREIGN RELATIONS
UNITED STATES SENATE
ONE HUNDRED EIGHTH CONGRESS
FIRST SESSION
__________
JUNE 4, 2003
__________
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COMMITTEE ON FOREIGN RELATIONS
RICHARD G. LUGAR, Indiana, Chairman
CHUCK HAGEL, Nebraska JOSEPH R. BIDEN, Jr., Delaware
LINCOLN CHAFEE, Rhode Island PAUL S. SARBANES, Maryland
GEORGE ALLEN, Virginia CHRISTOPHER J. DODD, Connecticut
SAM BROWNBACK, Kansas JOHN F. KERRY, Massachusetts
MICHAEL B. ENZI, Wyoming RUSSELL D. FEINGOLD, Wisconsin
GEORGE V. VOINOVICH, Ohio BARBARA BOXER, California
LAMAR ALEXANDER, Tennessee BILL NELSON, Florida
NORM COLEMAN, Minnesota JOHN D. ROCKEFELLER IV, West
JOHN E. SUNUNU, New Hampshire Virginia
JON S. CORZINE, New Jersey
Kenneth A. Myers, Jr., Staff Director
Antony J. Blinken, Democratic Staff Director
(ii)
C O N T E N T S
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Page
Hearing of June 4, 2003
Biden, Hon. Joseph R., Jr., U.S. Senator from Delaware, Ranking
Minority Member................................................
Opening statement............................................ 3
Prepared statement........................................... 5
Lugar, Hon. Richard G., U.S. Senator from Indiana, Chairman...... 1
Larson, Hon. Alan P., Under Secretary for Economic, Business and
Agricultural Affairs, U.S. Department of State................. 6
Prepared statement........................................... 9
Natsios, Andrew S., Administrator, U.S. Agency for International
Development.................................................... 31
Prepared statement........................................... 35
Taylor, Hon. John B., Under Secretary for International Affairs,
U.S. Department of the Treasury................................ 25
Prepared statement........................................... 27
Zakheim, Hon. Dov, Under Secretary of Defense (Comptroller), U.S.
Department of Defense.......................................... 18
Prepared statement........................................... 22
Responses to Additional Questions Submitted for the Record
Question submitted to Under Secretaries Larson (State), Zakheim
(Defense), Taylor (Treasury), and Administrator Natsios (USAID)
by Chairman Lugar.............................................. 80
Response Submitted by Dov Zakheim, Under Secretary of Defense 80
Response Submitted by John B. Taylor, Under Secretary of the
Treasury................................................... 80
Response Submitted by Alan Larson, Under Secretary of State.. 81
Questions for the Record Submitted by Senator Bill Nelson to
USAID Administrator Andrew Natsios............................. 81
IRAQ STABILIZATION AND RECONSTRUCTION:
INTERNATIONAL CONTRIBUTIONS AND RESOURCES
----------
Wednesday, June 4, 2002
U.S. Senate,
Committee on Foreign Relations,
Washington, D.C.
The committee met, pursuant to notice, at 9:36 a.m., in
Room SD 419, Dirksen Senate Office Building, Hon. Richard
Lugar, presiding.
Present: Senators Lugar, Hagel, Chafee, Alexander, Biden,
Sarbanes, Feingold, Nelson, and Corzine.
OPENING STATEMENT OF HON. RICHARD LUGAR,
U.S. SENATOR FROM INDIANA
The Chairman. This hearing of the Senate Foreign Relations
Committee is called to order.
The committee is pleased this morning to welcome Under
Secretary of State Alan Larson, Under Secretary of Defense Dov
Zakheim, Under Secretary of the Treasury John Taylor, and
Administrator of the Agency for International Development
Andrew Natsios. Our panel represents a broad range of United
States agencies responsible for American stabilization and
reconstruction activities in Iraq. The bureaucratic diversity
of this panel also underscores how important interagency
coordination of the operation is in our success in Iraq.
The committee is looking forward to this testimony about
the funding required for efforts in Iraq, the administration's
plans for seeking international contributions, and efforts to
ensure that resources are used effectively.
This is the second in our series of hearings on post-
conflict Iraq. The committee greatly appreciated the
comprehensive testimony delivered by Deputy Defense Secretary
Paul Wolfowitz and General Peter Pace on May 22. They helped to
clarify United States policy and plans for stabilization and
reconstruction in Iraq and to put in perspective the
difficulties that accompany these efforts. They assured us that
the administration is making adjustments to its plan aimed at
accelerating reconstruction and addressing stabilization
problems. I was particularly pleased to hear Secretary
Wolfowitz assure the committee that the administration is
committed to the long term in Iraq and ``will remain there as
an essential security force for as long as we are needed.''
Up until now, the support of the American public for the
war in Iraq and the war on terrorism has been strong. As we
move into the expensive and complicated process of rebuilding
Iraq, Americans will want to know that their money is being
spent effectively and that other nations are contributing a
fair share.
As part of the $79 billion supplemental appropriations bill
covering Operation Iraqi Freedom and the war on terrorism,
Congress has already provided $2.5 billion for relief and
reconstruction in Iraq. Most experts anticipate that
significant additional appropriations will be needed by year's
end. As we examine what funding will be needed, we must ask
what are the most critical priorities, how are existing funds
being used to meet those priorities, and who is making the
decisions about those expenditures.
We are also intensely interested in the administration's
efforts to secure contributions from other nations that will
reduce long-term United States financial burdens and broaden
the interests of the international community in a successful
outcome in Iraq. During the military conflict, many nations
contributed to the success of the coalition, some by
contributing troops, others by offering logistical support,
material, or shared intelligence. We are grateful for the
partnership and commitment of these nations.
With regard to the rebuilding effort, however, it is still
unclear what international contributions have been offered and
what goals the administration has set for securing both
financial and human resources. Experts have identified the need
for peacekeeping forces along with economic and technical
experts, but it remains unclear who is being asked to provide
these personnel. The main criteria for the involvement of
allies and international organizations must be their ability to
make contributions that will advance our goals in Iraq.
Another issue that we wish to explore in depth is the
degree to which Iraq's own resources will be available for the
rebuilding effort and how Iraqi funds will be administered.
These resources include the $1.7 billion in frozen Iraqi assets
in the United States, at least $600 million in Iraqi assets in
other nations, plus the more than $700 million dollars
recovered by coalition forces that was hidden in Iraq by Saddam
Hussein's family and associates. We would also like to examine
funds remaining in the United Nations' Oil For Food account and
revenues from future oil sales. Together, these assets
represent a substantial down payment on Iraq's future, but the
administration of Iraqi assets will require full transparency
and a high degree of political sensitivity.
The passage of Resolution 1483 lifting the United Nations'
sanctions on Iraq had added a new dimension to these resource
issues. The winding down of the Oil For Food program over the
next six months and the establishment of the Development Fund
for Iraq with $1 billion in unallocated UN escrow account funds
can help meet immediate reconstruction needs.
The measure of success in Iraq that matters most is what
kind of country and institutions we leave behind. Toward that
end, we should acknowledge that we are engaged in nation-
building in Iraq. The achievement of stability and democracy in
Iraq presents an opportunity to catalyze change in the Middle
East region that can greatly improve United States' national
security and help win the war against terrorism. Achieving such
ambitious goals will require careful planning by the
administration, full participation by the Congress, and support
from the American people.
We look forward to exploring these issues with each of you
today. I call now upon the distinguished ranking member of our
committee, Senator Biden, for his opening statement.
STATEMENT OF HON. JOSEPH BIDEN,
U.S. SENATOR FROM DELAWARE
Senator Biden. Thank you very much, Mr. Chairman. I think
we have a lot of important hearings but I think this is a truly
important hearing. The reason I do is that to state the
obvious, but you are assembled at the table the players who are
going to make this work or not work in Iraq, and we have a lot
of questions.
Let me begin, though, by saying that I think this is a
moment of great opportunity both in the war on terrorism
generally and specifically in terms of changing the face of,
the climate, and the circumstances in the Middle East
generally.
And I want to begin by complimenting the President. I have
been an open critic of the President and a private critic to
him personally for his failure from the time he became
President to get deeply involved in the Palestinian-Israeli
conflict, because I believe there is no possibility of
resolution without U.S. leadership there. And I must say that I
have been very positively impressed by his commitment which he
made privately as well as publicly to me and to others that he
is going to get involved with both feet.
I noted in today's New York Times one paragraph, and I
quote: ``In a remarkable turnaround for the President, who has
resisted taking a personal role in peacemaking in this part of
the world, Mr. Bush spent 90 minutes alone with Arab leaders,
leaving Secretary of State Colin Powell and National Security
Advisor Condoleeza Rice sitting in an ante room as he concluded
and conducted talks with the help of only a translator.'' That
to me is the most significant thing that I have seen or heard
of the President's efforts in the Middle East thus far, and I
want to publicly compliment him.
We all understand, we have been here a while, that a
President who involves himself in this way is putting his
political capital at risk. He has great capital right now and I
want to publicly acknowledge that as long as he is working this
way, he will get the support of this senator and I suspect many
Democrats in his effort.
The second point I would like to make is that I hope we get
by in this hearing today about, you know, how well you planned
this before. You didn't plan this well before and this has not
been planned well, it's understandable why it's not been
planned well. The thing never got off the ground the right way
in terms of the reconstruction of Iraq. You guys had your hands
full. Let's just go from here. Please do not bore me with how
much planning you did before you got involved and what this
long lead-up was.
The fact of the matter is, it's understandable that we find
ourselves in a situation where all the things that we were
privately told that you and the administration planned on
didn't come to fruition. We were told there was going to be an
infrastructure left of the military, we would have them
available to us. An infrastructure left of the various
agencies, all we are going to do is decapitate the bad guys and
the Ba'athists, and we would have agencies up and running.
Please, let's not do this, okay? Let's not go into that. Let's
talk about what you are really going to do from this point on,
because there is still a chance to make all of this work in a
way that I think with the personal leadership of the President
with regard to the Israeli-Palestinian issue, has an
opportunity to have a ripple effect throughout the region, and
there is a confluence of a number of streams here that are
working.
And so the question is, how do we get this thing underway.
The things I would like to hear about today, and maybe you
won't have the answers, I don't expect all the answers today,
is, how are the various agencies coordinating their efforts
here in Washington? Is there a single office, a single
individual in Washington who is charge of managing the efforts
minute-by-minute and day-to-day? I'm not suggesting there
should be, but is there? What's the plan, Stan? You know,
what's the deal here, okay? What is the balance of decision
making in Washington versus the decision making made by
Ambassador Bremer and his team in the field? How much
unilateral or independent authority do they have? Does Bremer
have the authority to disperse resources as he sees fit? If so,
how many funds does he have control over?
And I would like to know, is the Pentagon's chief budget
officer going to provide us with working estimates even if they
are ranges, on the size, the length, the cost of maintaining a
presence here? If you haven't thought that through, if you
haven't thought through the possibilities, then you shouldn't
be here at the table. And you owe it to us and to the American
public to give us the ranges.
We're in the deal now. We're in the deal as to whether or
not we go to war, the Congress, and we gave the President the
authority. From the time he went to war to the time the
shooting stopped, that was his business, he's the commander in
chief. He made the judgments. Now the reconstruction rests upon
us cooperating with you, and we have to know front end what the
ranges are, what's the idea, what do you think we're in for.
Because the American people, if you look at the polling data
already, do not sign on to the idea of staying there for years
and spending billions of dollars, when we know they're going to
have to. It may be a year, it may be 10 years, but we know it's
more than a day.
When we were kids we used to play that game, guess what I
have in mind, bigger than a bread box, smaller than a Mack
truck. Well yeah, give us some ranges. Give us some ammunition,
because we have to go home and tell our folks what you're going
to expect us to come up with, as you should, the resources
needed to get your job done.
I would also like to know your estimates as to what extent
you believe Iraqi oil will pay for Iraqi reconstruction. Again,
there is this notion out there that this is it, now all we have
to do is tap the well and boom, we don't have any problems. I
believe that not be to accurate. Some in the administration say
what they think it is. Again, if you have not thought that
through, you shouldn't be at the table.
What is the Treasury estimate of the size of Iraqi debt?
Will there be an effort to reschedule or write off that debt?
If it's not written off, what will be the impact on Iraq's
recovery?
AID published a vision statement in February that
identified benchmarks on a range of sectors of Iraqi
reconstruction. I would like to know from Mr. Natsios whether
or not we're on target and if not, what do we have to do to get
you on target, or have the targets changed?
And what is the plan across a number of areas? How are we
going to get Iraqis back to work, including former military
personnel? What's going to replace the Oil-For-Food program
when it's phased out over the next six months? What efforts are
being made to rebuild the justice system? How is education to
Iraqi children being managed? Are there new textbooks that will
be available to every Iraqi child the next school year, as AID
planned?
These are practical things we'd like to know about. I don't
expect you personally, I don't expect you to have all the
answers to these things, but I do expect, and quite frankly
respectfully demand that you let us know what your plans are,
who's in charge, what your estimates are. We have an absolute
right to know that.
And I would ask unanimous consent that my formal statement
be placed in the record at this point, Mr. Chairman.
The Chairman. Placed in the record in full.
Senator Biden. I thank you all for being here, and we look
forward to having a conversation with you.
[The prepared statement of Senator Biden follows:]
Prepared Statement of Senator Joseph R. Biden, Jr.
Mr. Chairman, our witnesses today come from a wide range of
agencies within our government: the Pentagon, the State Department, the
Treasury Department and AID. Even more agencies will have a role in
Iraq in the coming months and years--from the Commerce, Justice, and
Energy Departments, to the Office of Management and Budget.
Each has a critical part to play in helping to win the peace in
Iraq.
The fact that so many parts of our government will be focusing
their time and resources on Iraq shows just how extensive our effort
must be.
But for all this effort, there appears to be no effective structure
to coordinate the activities of these diverse agencies. We have been
told that the Defense Department is in charge. But which office and who
in Washington has the sole and exclusive responsibility minute-by-
minute, day-to-day to ensure that decisions are made efficiently,
agencies are coordinating their activities, and that Ambassador Bremer
is getting all of the support he needs in the field.
Our superb planning for and execution of the war has not been
matched by our planning for and execution of the peace. It appears
there was a failure to comprehend that security would be the sine qua
non for progress in all other areas. This should have come as no
surprise after our experience in the Balkans.
This committee, going back to last summer, has been a virtual
Groundhog Day on the question of security and post war planning,
repeating over and over again the need to get our act together before
we went into Iraq, not after the fact.
And many of the leading think tanks in town have made the same
point, too.
Simply put, without security, people will not return to their jobs,
parents will not send their children to school, doctors and nurses
won't make it to their hospitals, women will not leave their homes and
participate in rebuilding their country, and engineers cannot make
vital repairs to the infrastructure.
So, I'd like to learn today what we are doing to secure
international contributions--for police forces like the gendarmes, for
more traditional troops, and for funds to stabilize and rebuild Iraq.
I'm glad that President Bush has moved beyond the finger pointing and
talk of retribution with our allies in Europe and is asking for their
help. Marshalling the help of friends and allies in Iraq is the the
best way to spread the risks and reduce the burden on U.S. troops and
taxpayers.
I also hope to hear from our witnesses the answers to several
fundamental questions today: What are the working estimates for the
cost and duration of the occupation? What are the working estimates for
the cost of reconstruction?
What I do not want to hear is a dodge we've heard all too often
from the civilian leadership at the Pentagon that the future is
unknowable, so we won't estimate anything.
I'd also like to explore whether the administration still believes
that oil will cover the reconstruction costs? Leading energy experts,
including Dr. Daniel Yergin of Cambridge Energy Research Associates,
estimate that when Iraq achieves its pre-war level of oil production,
that is expected to generate $15 to $20 billion per year.
Witnesses before this committee have calculated that maintaining a
security force of 100,000--which is significantly less than the number
of troops now in Iraq--will cost approximately $25 billion a year.
And then there are the reconstruction costs, which are expected to
be in the tens of billions of dollars.
What is the size of Iraqi debt and how will it be handled? The
Center for Strategic and International Studies estimates that Iraq's
obligations--be they debts, claims, or contracts--total some $383
billion. What impact will this burden have on Iraq's economic recovery?
Mr. Chairman, we cannot afford to fail in Iraq. Our credibility in
a region vital to our security is at stake.
We have gotten off to a rough start, but there is still time to
turn things around. Doing so will require a lengthy and costly effort
in troops and treasure from the United States. The American people will
support that if they are informed of what is to be expected of them.
As I have said repeatedly, no foreign policy can be sustained
without the informed consent of the American people.
They have not been informed to date.
I hope that today's hearing provides some of that information. More
important, I hope that the President follows through on the pledge he
made to me and tells the American people that we will be in Iraq for
several years at least, with tens of thousands of troops, at a cost of
tens of billions of dollars, but that this high price is worth paying.
At our last hearing, Deputy Secretary Wolfowitz said that he had
heard the President say privately that winning the peace would be even
tougher than winning the war. Well, it is high time he said that
publicly to the American people.
If he does that, I am confident the American people will support
the effort.
Again, I welcome our witnesses and I look forward to hearing their
testimony.
The Chairman. Thank you very much, Senator Biden.
I will ask the four of you to testify in the order that I
introduced you to begin with. I will commence with Secretary
Larson and then move to Dr. Zakheim, Secretary Taylor, and Mr.
Natsios. Let me just say at the outset, all of your statements
will be published in the record in full. You need not ask for
permission to do that; and please, if you can, reduce your
statement or summarize it. We will not be restrictive in terms
of time, but we have asked a lot of questions and we are
hopeful that you will be full in your testimony. We will ask
for questions following that.
Secretary Larson.
STATEMENT OF HON. ALAN P. LARSON, UNDER SECRETARY FOR ECONOMIC,
BUSINESS AND AGRICULTURAL AFFAIRS, U.S. DEPARTMENT OF STATE
Mr. Larson. Mr. Chairman, Senator Biden, and distinguished
members of the committee, I am pleased to be here today with
Under Secretary Zakheim, Under Secretary Taylor, and
Administrator Natsios to discuss Iraq reconstruction. The four
of us and many others have worked long and hard together on
this issue and our close teamwork is representative of the
administration's efforts to plan and implement reconstruction
policy on Iraq.
This is an important task and a challenging task. It's
going to require concerted efforts of the administration, the
Congress, our partners abroad, and most importantly, the Iraqi
people. Even as we confront those challenges, we should bear in
mind what has been accomplished so far.
Contrary to fears and expectations of many, the coalition's
military strategy and humanitarian planning did prevent large
movements of refugees, significant food shortages, and health
crises. Basic services such as water and electricity are being
restored, with levels of performance now exceeding in many
instances those Iraqis experienced before the war. The oil
infrastructure has been protected and now oil production is
being ramped up.
The challenges we now face are those of working with an
Iraqi people who are eager for progress after 25 years of
depression and economic decline. The oil and transportation
sectors need significant rehabilitation. The telecommunications
system, as detailed in my written testimony, has been neglected
for decades and will need to be expanded and modernized. The
food production and distribution systems will need to be
overhauled, moving them from a system of price controls and
rationing to one based on free markets and individual choice.
The commercial need, the commercial regime will need to be
revamped in order to encourage trade, promote investment, and
facilitate private enterprise.
A national budget is being prepared that will set out
priorities both for recurrent expenditures but also for
reconstruction projects. And all of this needs to be done as we
facilitate the formation of a representative and legitimate
Iraqi government. With so much to do, it's important that both
Americans and Iraqis be somewhat patient, remembering that we
cannot undo in a month or six months the legacy of 25 years of
misrule.
The United Nations Security Council Resolution 1483
provides a crucial framework for reconstruction. Among other
things, it recognizes the role of the United States and the
United Kingdom as the responsible authority in Iraq. It ends
economic sanctions. It provides a significant role for the
United Nations, including through the creation of a special
representative of the Secretary General. We welcome the
appointment to this position of Sergio de Mello, who will among
other things coordinate UN assistance, assist in the
development of representative government institutions, and
promote economic, legal and judicial reform.
The resolution also establishes a development fund for Iraq
that will receive proceeds from export sales of oil and will
disburse these funds in a transparent manner for the benefit of
the Iraqi people.
And finally, the resolution signals through the unanimous
voice of the Security Council that the international community
needs now to rally behind the cause of reconstruction in Iraq.
We know that Congress is eager to have the clearest
possible picture of the costs of reconstruction and of the
resources that will be available to cover those costs. As for
needs and costs, Peter McPherson, who is the financial
coordinator for the Coalition Provisional Authority working
under Ambassador Bremer, is working on such a budget. We hope
that at least a rough estimate of this budget will be available
for discussion later this month.
In addition, the United Nations Development Program and the
World Bank have agreed to collaborate on a needs assessment
that should be available at the end of the summer.
On the resource side, Iraq itself will rightly shoulder
much of the responsibility. Among the sources of revenues
available are $1.7 billion in invested Iraqi assets; the found
assets in Iraq, which currently total roughly $600 million; and
$1 billion of unallocated Oil-For-Food money that will be
deposited in the development fund for Iraq.
In my written testimony I have described in considerable
detail the state of oil production and exports. The Iraqi CEO
of the oil ministry, Mr. Ghadhban, is making very good
progress. Mr. Ghadhban has produced production and export
estimates which for obvious reasons are subject to considerable
uncertainty.
Nevertheless, understanding the committee's interest in
having even a rough frame of reference, my testimony uses Mr.
Ghadhban's figures to suggest that Iraq's gross export revenues
from oil could be in the range of $5 billion for the second
half of this year. It also suggests that based on similar rough
estimates, that their gross export proceeds for 2004 could be
on the order of $15 billion. Looking further to the future, it
must be left to a new representative Iraqi government to decide
whether to expand productive capacity beyond past levels, which
have been roughly 3.5 million barrels per day; that has been
their past peak. Any significant expansion of baseline oil
product capacity would need to be accommodated by increased
demand in the international marketplace and in my view would
most likely be privately financed.
The administration is actively seeking support from other
countries. We began this process while the war was still going
on. With strong encouragement from the administration, UNBP,
the World Bank and the United States will be taking a leading
role in pulling together an initial meeting on Iraq
reconstruction issues in New York on June 24. While this
meeting is not a pledging session, it will set in motion a
process of collaboration in assessing needs and in mobilizing
the resources to meet those needs. We expect it will lead to a
major ministerial level donors conference, perhaps in
September.
I was privileged to attend the G-8 meeting that President
Bush attended over the last few case in France, and at that
meeting the leaders welcomed this conference and agreed that it
should be the starting point for pulling together an
international response to the challenge of reconstruction in
Iraq.
To date, other countries have already pledged an estimated
$1.7 billion, most of this for humanitarian assistance in
response to a United Nations appeal. Creditors also will need
to make a contribution. Official creditors have already
acknowledged that it's unrealistic to expect Iraq to make
payments on its external debt, at least through the end of
2004.
Mr. Chairman, we appreciate the strong interest and support
of the Congress in the important task of reconstruction. We
look forward to cooperating very closely with the committee in
the future. Thank you.
[The prepared statement of Mr. Larson follows:]
Prepared Statement of Alan P. Larson
INTRODUCTION
The liberation of Iraq was a triumph of American armed forces,
working with coalition forces. The reconstruction of Iraq must be a
triumph of the Iraqi people, working with the coalition and the
international community. Our military victory was swift and decisive.
The rebuilding of Iraq after decades of misgovernment will take longer.
Most of this work will--and rightly should--fall to the citizens of
Iraq. It is their country, and they must ultimately decide how it takes
shape. The United States and other friends of the Iraqi people will be
there to assist, and to advise. A free, democratic and prosperous Iraq
will remove an island of hatred that long threatened its neighbors and
the United States.
UPDATE
The situation on the ground in Iraq remains tense. Gunfire, looting
and the remnants of Saddam's regime continue to disrupt life in Baghdad
and elsewhere. To ensure stability, American troops continue to be
deployed throughout the country. In addition, we will stand up an Iraqi
national civilian police force within existing structures. In Baghdad,
there are already over 7,000 Iraqi police patrolling with U.S. military
forces. Until the security situation calms down, it will be difficult
for a genuine redevelopment of the Iraqi economy to gather momentum.
Many of the problems that had been widely anticipated did not
materialize. We did not see mass hunger, widespread medical emergencies
or floods of internally displaced persons. The military plans protected
the oil fields from sabotage by Saddam in his final moments.
Looking to the future, there are many things upon which to build.
Iraq has a large cadre of talented, dedicated technocrats anxious to
return to work. And we have offers from many, many countries ready to
provide technical assistance and to do business in Iraq.
We are beginning to see some bright spots. For example:
water in Baghdad is back at 75 percent of pre-war levels;
power is being gradually restored;
mail delivery has begun around parts of the country;
the Ministry of Health has been re-established and there is
currently no major health crisis;
primary schools re-opened May 4;
oil production is increasing;
the agricultural sector is reviving; and
shops are open and the retail sector is increasingly active.
My colleagues and I can all tell you of the fine work our people
have done on the ground in dangerous and difficult circumstances.
Ambassador Bremer, General Garner and their teams have worked hard to
bring order out of a chaotic situation. Ambassador Bremer is moving
quickly to establish coalition authority in the country. State, USAID,
Defense, Treasury, Justice and others have experts in the field looking
at key reconstruction issues. Ambassador Bremer has made real progress
in establishing communications with Washington, and in organizing his
own resources to meet the challenges ahead. We in Washington have also
organized ourselves to be as helpful to Ambassador Bremer and his team
as possible, as they progress from the current situation, where
stability and provision of basic services are critical, to a time when
we can address broader policy issues.
Some practical steps have already been achieved by the team in
Baghdad. For example, an early goal of ours was to re-start economic
activity by getting people back to work, and to employ the energy and
talent of the Iraqi people in rebuilding the country. In order to get
Iraqis untainted by strong links to the Ba'ath Party back to work, the
Office of the Coalition Provisional Authority (OCPA), in consultation
with Defense, Treasury, State and OMB, has begun making ``emergency''
salary payments to Iraqis in key sectors. These payments have brought
port workers back to work at Umm Qasr, and key civil servants back to
critical jobs at important ministries, for example the Ministry of
Trade. And putting cash back into pockets means giving people money to
spend on goods and services, which spurs economic activity.
UNSC RESOLUTION 1483: A FRAMEWORK FOR RECONSTRUCTION
President Bush has made clear his desire to work with the United
Nations, other international organizations and other nations to rebuild
Iraq. UN Security Council Resolution 1483 provides an important
framework for economic development in Iraq.
UNSCR 1483:
Recognizes the United States and United Kingdom as the
``Authority'' and charges us with carrying out the
responsibilities and obligations of this role for the welfare
of the Iraqi people.
Ends the economic sanctions in place for more than a decade,
allowing trade and financial transactions with the world.
Provides for a significant role for the United Nations in:
humanitarian and reconstruction assistance;
return of refugees;
restoring and establishing national and
local institutions for representative governance;
formation of an Iraqi interim
administration; and
coordination of humanitarian and
reconstruction assistance by a Special Representative
of the Secretary General (Mr. Sergio Vieira de Mello
has been named to this position).
Establishes a Development Fund for Iraq to be used to meet
humanitarian needs, for reconstruction and repair of Iraq's
infrastructure, and other purposes benefiting the Iraqi people.
Specific requirements include:
receiving proceeds of all export sales of
petroleum and natural gas from Iraq, along with
remaining UN funds designated for Iraq, and frozen
assets that had belonged to the Government of Iraq or
designated senior officials, including Saddam Hussein;
disbursing money in a transparent manner, at
the direction of the Coalition Authority, with
expenditures to be audited by independent public
accountants: the humanitarian needs of the Iraqi
people; rebuilding the economy and infrastructure;
continued disarmament; the costs of civilian
administration; and for other purposes that benefit the
people of Iraq; and
formation of an International Advisory and
Monitoring Board, comprising representatives of the UN
Secretary General, the IMF Managing Director, the
Director General of the Arab Fund for Economic and
Social Development and the World Bank President.
Supports efforts by the Iraqi people to form a
representative government based on equal rights and justice for
all Iraqi citizens.
Calls upon the international community and multilateral
institutions to assist with the reconstruction and development
of the Iraqi economy.
Provides for a six-month winding-down of the Oil for Food
Program (OFF), and removes restrictions on oil exports and
sales.
THE JOB AHEAD: KEY CHALLENGES OF RECONSTRUCTION
We speak about the ``reconstruction'' of Iraq, but that word is
misleading. We are looking not at reconstruction, but at construction,
not at rebuilding, but at building. The Iraqi people must overcome the
damage of 25 years of corrupt and vicious tyranny to build their
society into a lively and historic center in the Middle East.
As a result of Saddam Hussein's misrule, Iraq's economy
deteriorated significantly. GDP fell from almost $180 billion in 1979
when Saddam took power to around $50 billion in 2001. Twenty-five years
ago per capita income was approximately $17,000--on a par with Italy--
based on purchasing power. Today, per capita income is around $2,000,
comparable to El Salvador. Moreover, the United Nations Development
Programme's Arab Development Report 2002 ranked Iraq in 110th place
among 111 countries on its Alternative Human Development Index, which
measures such things as life expectancy at birth, educational
attainment and enjoyment of civil and political liberties.
Iraq's economy today not only has shrunk, it is distorted in the
way that the economies of Eastern Europe and the Soviet Union once
were. Central control removed incentives for production. Overcoming the
legacy of state planning and controlled prices will be arduous and time
consuming.There are many tasks ahead, including solving problems in the
most critical sectors, properly managing the newly created Development
Fund for Iraq, creating a healthy trade and investment climate and
transitioning the country off the Oil for Food Program.
Tasks in Four Key Sectors
Oil
The oil sector did not do well in Saddam Hussein's Iraq. The
infrastructure suffered from years of neglect, forcing Iraqi engineers
to exercise ingenuity and find creative solutions to keep oil
production levels as high as possible. The technologies applied to
boosting production have in some cases damaged the oil fields. The lack
of maintenance, equipment, and spare parts also affected the
infrastructure throughout the production chain--from the wellhead to
the gas-oil separation plants, to the power plants, to the pumping
stations, to the refineries, and to the pipelines.
Since the liberation, Iraqi and U.S. engineers have been working
around the clock to restore production so that Iraq will be able to
meet domestic needs and begin earning revenues through exports. A lot
of progress has been made already, but much more remains to be done.
Because the oil sector is of such central importance and the issues it
faces so complex, I will provide more details about it later in my
testimony.
Food and Agriculture
The complexity of the task of reconstruction and reintroduction of
market principles is well illustrated in the food and agriculture
sector.
Under Saddam, agricultural productivity suffered from low
investment, input shortages, poor agricultural and irrigation
practices, droughts and soil salinity. Returning Iraqi agriculture to
productivity and competitiveness is a major challenge we face.
Iraq has not been food-self sufficient, traditionally importing 60-
70 percent of its caloric needs. Thus as we rebuild agricultural
production to be competitive, we will also need to ensure that a
vibrant trading environment exists.
The government rationing system provided a majority of Iraqi's with
food. Procurement and production of staples, like grains, were by the
government. Neither production nor consumption reflected market prices.
Winding down the Oil for Food program does not mean the end of the
need to feed Iraqis, most of whom have received virtually all their
food through OFF. We are in the process of re-activating the food
distribution system to do this. Operational responsibilities of buying,
shipping, and distributing food and medicine will be transferred to us
as the occupying power at the end of six months.
In the short run, we must continue food assistance for the Iraqi
population dependent on it. In the longer term, we must move the Iraqi
economy from the distortions of the Oil for Food program to a market-
driven system with cash salaries so that people can begin to purchase
their own food. When freed of government control, the agricultural
sector is one of the most responsive to market forces.
Locally produced products, such as fruits and vegetables are now
traded freely in open markets. Our challenge will be to extend this to
grains, wheat and rice, which are the staples of the Iraqi diet.
USDA and AID have already, begun to think through and implement
steps needed to reintroduce competitiveness to Iraqi agriculture. For
example, USAID and USDA have already designed and are putting in place
a project to assist agricultural production and develop agricultural
enterprise, credit availability and infrastructure. In the 1980's the
United States was Iraq's largest supplier of agricultural products. We
now look forward to rebuilding cooperation between Iraqi and U.S.
agricultural sectors.
Transport
Critical to Iraq's reconstruction will be the transportation
sector, which faces numerous challenges. On May 23, the port of Umm
Qasr became the first reconstruction project transferred from military
to civilian administration. The basic infrastructure is sound, but has
not received proper maintenance for years. Rehabilitation priorities
include the port administration buildings, new lighting, utilities,
security fences, grain elevators, port dredging so that larger bulk
grain vessels can offload near the grain elevators. The adjoining
railroad system is also under review for repair to help move the large
amount of cargo projected to arrive through the port. Major roadways
have also sustained conflict-related damage and will need work.
In civil aviation, the aircraft of Iraqi Airways, the former
national carrier, are parked outside Iraq and are not airworthy.
Moreover, Baghdad International Airport has taxi lane craters, broken
runway lights, unexploded ordinance, plumbing difficulties, and
security access control problems. There is also no functioning civil
aviation authority to oversee airport security, flight safety
oversight, and the administration of civair services. Despite these
obstacles, the Coalition Provisional Authority hopes to resume civair
services before July to accelerate the flow of U.S. and foreign actors
involved in reconstruction efforts. We foresee that with the
improvement of Iraq's internal transport system, trade and investment
relations with its neighbors will also improve.
USAID contractors Skylink, Bechtel and Global Securities are making
preparations for the possible re-opening of Baghdad International
Airport to limited commercial traffic by June 15. As part of an interim
operation, Global Securities is to provide passenger and baggage
screening security, Bechtel a temporary passenger terminal and Skylink
airport management. Skylink has also been contracted to assess and make
preparations for the re-opening of the Basra Airport. USAID contractor,
Stevedoring Services of America, assumed operational responsibility for
the deepwater port of Urn Qasr from the British military on May 23.
Telecommunications
Telecommunications remains a critical requirement for OCPA and the
reconstruction effort. Prior to the conflict, Iraq had minimal
telecommunications--some three phones per 100 citizens. Although among
the lowest levels in the world, even this low figure overstates phone
penetration experienced by the average Iraqi since the ruling
institutions--Ba'ath Party, military and government offices--controlled
many of the phones. In addition, there was no wireless system, little
Internet and few computers.
In prosecuting the war, command and control systems, and
telecommunications centers, were targeted. The war and subsequent
looting and fires destroyed some 50 percent of the telephone switches
in Baghdad and severed all intercity and international links. Thus,
even though about two-thirds of the 800,000 lines in Iraq remain
serviceable; they can connect only with phones in their local
exchanges.
As part of its efforts to provide security and operations for OCPA,
DoD contracted with MCI for a small emergency wireless system for
Baghdad, initially involving some 2,000 phones. The United Kingdom
Ministry of Defense contracted through Vodafone for similar wireless
coverage in the south.
The Department of State has been active in developing a policy
response to address the larger telecommunications requirements. State
leads an interagency Telecommunications Support Team to coordinate with
and support the operations of OCPA's Joint Communications Advisory
Board. The interagency team has endorsed a three-phase approach for
telecommunications that addresses (1) emergency requirements, (2)
telecommunications needs assessments, and (3) development of a broad
policy framework for the telecommunications sector reconstruction and
development.
The interagency team has also taken the lead in responding to
specific telecommunications requests from OCPA, including that from
Ambassador Bremer for an emergency interim nationwide communications
system for Iraq. With interagency agreement, State has recommended that
USAID contract for the rapid restoration of critical emergency
telecommunications facilities. This contract would provide a coherent,
integrated management approach to emergency telecommunications that
would link 21 cities and provide international connections. It would
call for multiple technologies and not prejudge future decisions by
service providers about technology. It would support supervisory
control and data acquisition (SCADA) systems for other critical
sectors--power, water, refinery, transportation/airport, as well as
support medical, fire, police and other emergency response operations.
And, most importantly, it would provide these services within 30 days.
In other areas, members of the interagency team are developing a
spectrum management plan and a framework for the telecommunications
regulatory structure in Iraq that has as its goal a market based,
private sector-led telecommunications sector.
Looking forward, there remain several requirements for getting a
modern telecommunications system in Iraq. These include repair and
building the wireline system, as well as a registration system leading
to competitive licensing of wireless service providers so the Iraqi
people can benefit from this important technology. We are working, as
noted above, to establish the policy infrastructure for this action. It
is difficult to speak with precision as to when these actions can be
completed, but we hope within a matter of months.
As you can see from a very brief overview of key sectors, Iraq will
need assistance to get up and running. Not long-term aid, but shorter-
term aid until its economy can function well, and its citizens prosper.
MANAGEMENT OF THE COUNTRY'S FINANCES--THE DEVELOPMENT FUND FOR IRAQ
Security Council Resolution 1483 directs that oil proceeds be
deposited in a Development Fund for Iraq and be used for the
humanitarian needs of the Iraqi people, for rebuilding the economy and
infrastructure, for continued disarmament, and for the costs of
civilian administration. Ambassador Bremer already has created a
senior-level Project Review Board, to be chaired by former USAID
Director Peter McPherson, that would approve projects and allocate
funding sources. This process of reviewing and approving expenditures
will provide the basis for a national budget for Iraq; Treasury already
has budget experts on the ground in Baghdad working on these issues. We
also expect OCPA to design a transparent procurement mechanism for
Development Fund expenditures that is consistent with USG procurement
guides.
We have worked with other agencies to open accounts for the
Development Fund for Iraq in both the Central Bank of Iraq and at the
New York Federal Reserve Bank. The Development Fund for Iraq is now
open for deposits of oil sale proceeds and other revenues, including
transfers from the UN. State is also working closely with the
Department of the Treasury to support the work of the International
Advisory and Monitoring Board, which will bring representatives of the
UN and international financial institutions together to approve
auditors for the Development Fund for Iraq.
CREATING A HEALTHY CLIMATE FOR TRADE AND INVESTMENT
Removing economic and financial sanctions alone will not open
trade. We must reestablish Iraq's trade with its neighbors and the
world, and establish a healthy business climate for Iraqis and for
domestic and foreign investment. Our team in the field has already made
a preliminary identification of several key issues. These include:
establishment of a new tariff schedule;
removal of non-tariff barriers;
encouragement of foreign investment through drafting of a
more open investment code and loosening of restrictions of
foreign ownership of private property;
creation of an effective banking system, and other financial
services;
privatization of substantial means of production and
development;
adoption of effective copyright protections; and
eventual entry into the WTO.
MOBILIZING RESOURCES FOR IRAQ RECONSTRUCTION
UNSC Resolution 1483 lays a foundation for redevelopment of much of
Iraq's economy and more work will need to be done over and above that.
The American people and coalition allies paid the price in blood and
treasure to liberate Iraq. The cost of redeveloping Iraq's economy
should be shared by the Iraqi people, the international community and
by the coalition.
I cannot give you a figure on how much it will cost to rebuild
Iraq. This is a complicated question with a number of component parts.
First, there is a need for funding of repairs and rehabilitation
following this most recent conflict. Second, is the larger task of
undoing the damage done by decades of Saddam Hussein's misrule--
corruption, plunder and the distortions of central state planning.
Third, the Iraqi people will need financing--public and private,
domestic and foreign--to bring Iraq--isolated for decades--into the
information-rich, technology-driven global economy.
As my comments on the oil, agriculture, transport and
telecommunications sectors imply, it will be some time before we can
even begin to estimate accurately all the forms of damage this
country's economy has sustained. We are not talking about traditional
long-term financial assistance. Iraq needs help to get its economy on a
sound basis, develop a welcoming investment climate and integration
into regional and international trade. The global community has asked
the World Bank and UNDP to send a team of experts to Iraq soon to do a
thorough assessment. The instability of the environment hampers our
efforts currently, but to the extent we can, we stand ready to update
you at any time on this important issue.
There are a number of resources that we plan on mobilizing to
finance the rebuilding of Iraq.
Found and Vested Assets
First, existing Iraqi state assets and the ill-gotten gains of
Saddam Hussein and his regime will be made available for the benefit of
the Iraqi people.
After Saddam Hussein's invasion of Kuwait in 1990, the United
States acted quickly and decisively to deprive the Iraqi regime of the
means and materials to continue its regional aggression, further
develop its weapons of mass destruction programs, and continue its
repression of the Iraqi people. Consistent with UNSC Resolution 661,
the United States blocked all Iraqi state assets legally within its
control.
Today, the United States is using those assets for the benefit of
the Iraqi people, as they build a new and better Iraq. The President
vested $1.7 billion in Iraqi government assets in the United States.
The Secretary of the Treasury has already designated the Secretary of
Defense with the authority to use over $573.5 of these assets to meet
the immediate humanitarian needs of the Iraqi people.
Since the President signed the March 20 Executive Order vesting
Iraqi state assets in the United States, the State Department, in
cooperation with our interagency partners, is confirming the status of
assets declared frozen by foreign governments in 1991. We have reached
out to more than 20 additional countries that also may have information
regarding Iraqi state assets. With the unanimous passage of UNSCR 1483,
we are also reminding countries of their obligation under the new
resolution to make available any Iraqi state assets to the Development
Fund for Iraq.
We have had, and continue to have, extensive bilateral and
multilateral meetings with key jurisdictions. For example, the
administration took advantage of the IMF/World Bank meetings held in
Washington in April to hold several important bilateral meetings to
discuss the matter. Treasury and State officials have contacted their
counterparts in key jurisdictions. My colleagues and I have stressed
the need for all countries to search their financial institutions for
ill-gotten gains of Saddam Hussein and his regime.
The Department of State is working closely with the Departments of
the Treasury, Justice, Defense, and Homeland Security, as well as law
enforcement and intelligence colleagues across the government, to
identify additional assets and front companies that may be connected to
Saddam Hussein or his fallen regime. Our efforts are leading to the
identification of funds that can be made available for the benefit of
the Iraqi people. To date more than $1 billion in previously unfrozen
assets outside Iraq have been identified.
Revenue from Petroleum Production
Oil sales are the biggest potential source of revenue for the new
Iraq, as they were for the old, but this time Iraq's oil revenues will
benefit the Iraqi people. A top priority is to bring the industry on
line and to repair and rehabilitate the existing infrastructure. A
highly qualified team is ready to take on this work. Thamir Ghadhban is
the CEO of the Oil Ministry and is actively directing the process. He
has a team of experienced and well-qualified Iraqi managers and
engineers in place at the Oil Ministry, the State Oil Marketing
Organization (SOMO), and the South and North Oil Companies, and they
have technical support from the Army Corps of Engineers. Steps are
being taken every day by Iraqis working with the Army Corps to assess
the condition of wells, pipelines, pumping stations, gas-oil separation
plants, power grids, and refineries, and to make repairs. As the
security situation improves, the work will proceed at a faster pace.
Iraq's entire oil infrastructure was shut down in the face of the
American advance. The Iraqis and we have been working diligently since
the international coalition liberated Iraq, to bring the sector back on
line. Mr. Ghadhban announced on May 21 that Iraq was already producing
800,000 barrels of oil per day. While there are many variables that can
affect success in meeting production goals, he also said that
production could reach 1.4 or even 1.5 million barrels by June 15. On
May 28, Mr. Ghadhban announced that the northern fields around Kirkuk
have been producing 600,000 barrels per day since May 27 but are not
expected to increase production above that level in the near term. In
the south, the situation is not as far advanced, but again, progress is
being made. He also said that, as of May 27, oil production in southern
Iraq exceeded 200,000 barrels per day, so it seems that Iraq is well on
its way to meeting Mr. Ghadhban's production goals.
As a point of comparison, Iraq produced between 2 and 3 million
barrels per day in 2002. This is was down from 3.5 million barrels
produced at Iraq's production peak in 1990. During 2002, Iraq exported
an average of 1.7 million barrels per day.
Mr. Ghadhban also announced that the Basra refinery is--or soon
will be--operating at full capacity--140,000 barrels per day. The plant
is antiquated and the condition of the pipeline that runs to Baghdad is
still being assessed. Iraq's two other major refineries at Baiji and
Daura are also operating, but at below capacity, because of damage from
looting, the continued lack of stable electrical power, and a shortage
of heavy fuel storage.
Mr. Ghadhban has determined the first task is to ensure that Iraq
is able to meet its own domestic needs for motor fuel and liquefied
petroleum gas, which is used for cooking. Iraq's domestic needs for
refined products require a production level of some 250,000 barrels of
oil per day. But in creating gasoline, Iraq also generates considerable
heavy fuel, which is largely exported. As Iraqi oil production reaches
1.3-1.5 million bpd, this would translate into roughly 1 million
barrels of crude oil available for export every day, plus lesser
quantities of refined product/heavy fuel.
SOMO has placed the first crude up for sale and is in the process
of collecting and evaluating bids in expectation of oil listings
resuming in the next week, if not the next few days.
There is ample crude ready for export now through the port at
Ceyhan in Turkey, with over nine million barrels of oil already in
storage at the port, over eight million of which will be ready for
export as soon as contracts can be drawn up and signed by SOMO.
The Mina al-Bakr oil terminal is operational. However, there are a
number of problems that will need to be resolved in the south, not the
least being the need to repair an industrial water plant needed for oil
extraction, in order to raise production to pre-war levels of 1.2
million barrels per day.
In order to export these quantities, however, the legal framework
of contracts, guarantees, payments, and credits will need to be
finalized. SOMO has been working to draft a model contract. The head of
SOMO, Mohammed al-Jibouri, has announced that the new contracts will be
similar to those used under the Oil for Food program, but some
important changes are envisioned: most importantly, contracts will be
made transparently, unlike the past when Saddam Hussein sought
kickbacks from purchasers.
Al-Jibouri plans to sign direct sales contracts with traders and
refiners, cutting out the middlemen that facilitated the kickback
schemes. SOMO will also drop the UN's retroactive pricing formula,
moving instead to standard market pricing techniques.
The petroleum sector has seen virtually no new investment since
1991, and no new technology. Upgrades to protect the environment, to
enhance efficiency, and to meet commercial and safety standards are
badly needed, both upstream and downstream. There are a number of
estimates that have been made regarding the probable costs associated
with returning Iraq's oil production to previous levels. For example,
Cambridge Energy Research Associates recently put a ballpark figure of
$3 billion over two years to reach 3.5 million bpd through an intensive
program of rehabilitation and modernization. This would bring
production back to pre-1990 levels.
In the meantime, Mr. Ghadhban has announced that in the short term
Iraq would need not billions of dollars but ``several hundred million
dollars.'' Under a new Iraqi Government, Ghadhban has noted that, ``We
are going to open the doors for foreign investment but in accordance
with a formula that safeguards the interest of the Iraqi people.''
Oil Ministry officials hope to raise production to over 2 million
barrels per day by the end of this year. This will require more
rehabilitation of the Rumaila fields and production chains in southern
Iraq. Since the security situation is only slowly improving, it is
difficult to project the likelihood of success or the likely costs
associated with this work.
There obviously is considerable uncertainty surrounding these
production and export projections. But we can still use these numbers
as a rough basis for estimating potential revenue earnings from oil
exports. In the next few days, as Iraq begins to sell oil from Ceyhan
and the Gulf, we will have a better idea of the price Iraqi oil can
fetch, compared to other blends on the market. Recently, European oil
traders were tentatively pegging Kirkuk crude at a price of $3.65 to
$3.85 per barrel lower than Brent, which is the standard against which
all European crude is measured. Because of long-term damage to the
fields, Kirkuk crude is higher in sulfur than it used to be. Europe's
strict air quality standards will make the oil a hard sell there, which
is reflected in the lower price.
If, for purposes of estimate, we say that a barrel of Iraqi crude
sells for $20, and if Iraq is able to bring exports up at a stable rate
from 1 million bpd in mid-June to 2 million bpd at the end of the year,
Iraq's gross earnings--before costs are deducted--would be in the range
of $5 billion for the second half of 2003. If Iraq is able to maintain
stable production and export rates at 2 million bpd throughout 2004, it
could earn, again in gross revenues, about $ 14-15 billion. But
potential earnings are subject to a host of factors both inside and
outside the country, including the volatile nature of global oil
markets and whether there is sufficient demand for Iraq's sour crude to
keep the price at the projected range. The state of the global economy
is also hard to predict, and this too will have an impact on potential
earnings.
In looking toward the longer term, Iraq's oil ministry has begun to
assess its rehabilitation requirements and evaluate existing service
contracts against identified needs. Development contracts with Lukoil
and China are being held in abeyance until a new Iraqi government is in
place to determine their future. We would expect that the new
government would also need new contracts to upgrade facilities--
including refineries, gas-oil separation plants, power plants,
pipelines and pumping stations, as well as to rehabilitate wells and
open new fields to production.
Because Iraq has not had access to investments or new technology
over the last decade, analysts say that the country may not be able to
increase its production at existing fields even to pre-1990 levels,
because standard operating procedures used over the past decade may
have caused irreparable damage to the fields, especially in Kirkuk. The
status of these fields will need to be assessed.
Over the long term, Iraq will want to acquire updated technology,
and may want to open new fields (only 15 of the 73 known fields are in
production now). It is possible that Iraq will also be looking into
options for exploration in other regions.
Other parts of the oil sector infrastructure also need work.
According to recent reports, the Mina al-Bakr export terminal in the
Gulf has the potential to handle 1.6 million barrels per day, but we
estimate that it cannot be safely run at levels much above 1.1 million.
A second oil terminal, Khor al-Amaya, was destroyed in the first Gulf
War and only partially repaired. It lies in a calmer area of the Gulf,
however, and once rehabilitated will provide a useful alternative.
Many commentators are speculating about how much it would cost if
Iraq should seek to raise production above historical levels. For
example, experts at Deutsche Bank, PFC Energy Associates, and Energy
Compass, have looked at not only sector rehabilitation, but also new
field production. They have come up with large estimates of the
financial cost of raising Iraqi oil production far above its historical
peak.
But it will be up to the new Iraqi government to decide how far it
wants to go and just where it wants to target Iraq's future production
levels. Any large expansion of Iraqi production capacity would have to
be accommodated by increased demand in the international oil market;
such an increase in production capacity would, in all probability, need
to be privately financed. The focus now is on rehabilitation and repair
to help Iraq meet Mr. Ghadhban's more modest goal of 2 to 2.5 million
barrels per day.
Finally, new laws and regulations will be needed to foster
investment and facilitate foreign ventures in order to fund new
development.
OPEC will hold its next meeting on June 11 in Doha. Mr. Ghadhban
has indicated that Iraq has no plans to leave OPEC, which it helped
establish, but he also has no plans to attend the June 11 meeting.
Before the first Gulf War, Iraq was responsible for about 4 percent of
world oil sales. Under UN sanctions, Iraq was exempt from OPEC quotas,
and the other OPEC members, especially Saudi Arabia, adjusted
production to compensate for Iraqi oil sales through the UN Oil for
Food program and to maintain their target price of $25 to $28 per
barrel.
CONTRIBUTIONS FROM OTHER COUNTRIES
Despite the billions Iraq has in existing assets and expected oil
revenues, resources will remain far below what will be needed for the
next year or so to help the Iraqis achieve a stable economic base. We
expect that other countries--both individually and through
international organizations such as the United Nation--will make major
contributions to this effort. Many countries have come forward with
offers of assistance--either monetary or in-kind contributions. To date
these have been offers nearing $2 billion from third countries--much of
this pledged through the $2.2 billion UN appeal. The EU alone has
promised $107 million. There have also been many pledges of in kind
contributions--from Albania's 70 peacekeeping troops to Jordan's field
hospital to a medical team from Lithuania.
Even before the fighting stopped, the State Department, working
closely with colleagues from DoD and Treasury, launched a series of
quiet consultations with countries that share our interest in helping
Iraq rebuild. These consultations confirmed that there is widespread
recognition that repairing the damage of decades of misrule in Iraq is
an international undertaking.
We now are working with the United Nations and the World Bank on a
preparatory meeting on reconstruction that will involve a broad cross
section of countries. The preparatory meeting will examine not only
current needs, but also explore requirements in coming years. The
preparatory meeting will be organized by the UINDP, the World Bank and
the United States on June 24. One outcome of the meeting is likely to
be a major donors conference in the fall. The meeting should also
underline the urgency of undertaking a World Bank/UNDP needs
assessment.
DEBT RELIEF
In addition to the many costs Iraq faces to rebuild its economy, it
will also have to deal with the weight of huge amounts of debt
contracted by the previous regime. Treasury and State are working with
other creditor countries on a long-run solution to Iraq's debt burden
that is responsive to the full range of Iraq's creditors. Secretary
Snow has urged the need for a comprehensive, multilateral debt
treatment for Iraq. The issue was discussed at the spring World Bank/
IMF meetings and in the G-7, where nations agreed on the need to engage
the Paris Club, a group of creditor nations that meet regularly to
provide debt relief to debtor countries.
At the April session of the Paris Club, State and Treasury and
Paris Club colleagues discussed Iraq and began the process of debt data
reconciliation. In their recent meeting at Deauville, G-8 Finance
Ministers recognized that it would be unrealistic to expect Iraq to
make payments on its debt at least through the end of 2004. Currently,
Iraq is not making payments on its international debt. The G-8 also
asked the IMF to assess Iraq's debt situation.
PRIVATE SECTOR INVESTMENT
In the end, the single largest contributor to Iraq's economic
renewal will be the Iraqi people, their ingenuity and their
determination to improve their lives, now that the burden of the Saddam
regime has been lifted.
Ambassador Bremer has stressed that we must begin to create the
conditions for a free market economy in Iraq now. Our biggest
challenges will be creating a secure environment in which honest
Iraqi's can establish and run businesses, and the smooth transformation
of a state-controlled economy into a free market. But the Iraqi people
are talented and ambitious. And, despite decades of war, Iraq has a
small private sector, which can be nurtured back to health.
We have been studying the legal and economic reforms needed to
create a stable business environment in Iraq. Ambassador Bremer's team
has been cataloging such reforms--which range from lifting tariffs to
WTO accession to creation of a new legal framework. These and many
other practical issues must be addressed before international trade
activity with Iraq will resume and flourish.
In Washington, State's Assistant Secretary for Economic and
Business Affairs has hosted a series of interagency meetings to look at
key economic reconstruction issues for which Ambassador Bremer's team
in Baghdad needs Washington guidance. Last week, the group conferred
over necessary steps to revitalize business and commerce in Iraq
following the lifting of economic sanctions. The group also examined
action needed to successfully transition from the current centrally
controlled food distribution system under the UN's Oil for Food program
to a market-based food distribution system.
We have been drawing on the knowledge and expertise of our
embassies in the region, and are also working to engage regional
governments--the idea being to identify ``best practices'' and use
regional reform models where appropriate.
One of the most important steps we can take is to help Iraq re-
integrate with the broader regional economy. The upcoming June 21-23
special World Economic Forum event in Amman, Jordan, provides an
excellent opportunity to begin this process, as Secretary Powell will
undoubtedly underline during his discussions there. In addition, the
international development institutions and the donor community will
focus extensively on steps we can take to re-stimulate private economic
activity in Iraq during June 24 donor's meeting at the United Nations.
CONCLUSION
The transformation that will take Iraqis from life under a ruler of
unimaginable cruelty to a free and prosperous nation will take time.
The American people have committed to help Iraqis make this
transformation, but it will require much more work on our part. The
long-term future of Iraq depends on the establishment of rule of law,
representative government, and sustainable economic development. The
United States, our coalition partners, the United Nations, and most
importantly, the Iraqi people, must work together to finish the job, in
order to guarantee peace and stability in the region, and safety for
the American people.
The administration welcomes the strong interest of the Congress in
this issue and its strong support for the important task at hand. We
look forward to working closely with the Congress in the months ahead.
The Chairman. Thank you very much, Secretary Larson.
Secretary Zakheim.
STATEMENT OF HON. DOV ZAKHEIM, UNDER SECRETARY OF DEFENSE
(COMPTROLLER), U.S. DEPARTMENT OF DEFENSE
Dr. Zakheim. Mr. Chairman, Senator Biden, and
distinguished members of the committee, I am delighted to
participate in this important discussion. Let me echo up front
what my colleague Secretary Larson has said. We at the table
and our agencies are working exceedingly closely together to
speed Iraq's recovery. I can't underscore that too often.
As Deputy Secretary of Defense Paul Wolfowitz emphasized
before this committee about two weeks ago, the Department of
Defense is strongly committed to helping the Iraqi people
establish an Iraq that is free and at peace with itself and its
neighbors. We continue to work to stabilize the country and to
accelerate its recovery. In particular, we are focusing on
humanitarian assistance, reconstruction, and new governance.
DOD and other departments and agencies play a critical role
in ensuring that the Iraqi people get what they need to rebuild
their lives and their nation. Today, I will in brief address
DOD support for recovery in Iraq, the resources available to
achieve that recovery, and our efforts to enlist the support of
the international community.
Let me begin with the various sources of funding for Iraq's
speedy recovery. As has been mentioned, in the Emergency
Wartime Supplemental Appropriations Act of 2003 the Congress
appropriated $2.475 billion for the President's Iraq relief and
reconstruction fund, which is the primary source of
appropriated funding for Iraqi relief and reconstruction
activities. The Congress also made $489 million of the Iraqi
Freedom Fund appropriation available to be used if needed to
repair damage to Iraqi oil facilities and to preserve their
distribution capability.
Iraqi state assets are a second category. President Bush,
as you heard, has directed that Iraqi state assets under our
control, that is U.S. control, be used only for the benefit of
the Iraqi people and their nation's recovery. These assets fall
into two categories.
One we've termed vested assets, and that's about $1.7
billion in formerly frozen Iraqi state assets in the United
States, which the President has vested in the Treasury
Department for apportionment to federal agencies' requirements
that benefit the Iraqi people. We have shipped $199 million of
those vested assets already. We have another request in for
$358 million and almost all of those funds are for salaries for
Iraqi civil servants, pensioners and so on, and there was about
$30 million for ministry start-up costs.
The second category that I mentioned earlier, seized
assets. There are now, to update the estimate you heard, about
$798 million so far in Iraqi state assets that were brought
under U.S. control in Iraq by U.S. troops pursuant to the laws
and usages of war.
Now there are the international contributions, yet another
category. The UN, other international institutions, and the
United States and its coalition partners continue to urge all
nations to contribute to the recovery in Iraq in any way they
can. And the public pledges to date, again to give you an
updated estimate, are now about $2 billion. We anticipate other
contributions as well, including troop contributions to create
multinational divisions of peacekeeping forces.
As you heard, the UN Security Council Resolution 1483
adopted on May 22 directs certain monies to be placed in the
Development Fund for Iraq. These monies include the
unencumbered funds from the UN's Oil-For-Food escrow account,
including an initial transfer of a billion dollars that has
already been deposited in the Development Fund. Proceeds from
the sale of petroleum, petroleum products and natural gas, have
returned Iraqi assets from UN member states. And this is
significant. The Development Fund may be used only in a
transparent manner for the purpose of benefiting the people of
Iraq.
The funding is obviously not enough. We have to identify
the most pressing and promising requirements for recovery. That
is to say, programs, projects and other uses that will benefit
the Iraqi people and help transform that country. We look to
the Coalition Provisional Authority (CPA) to identify these
requirements. The presidential envoy, Ambassador Paul Bremer,
who is the administrator of the CPA, oversees and coordinates
all executive, legislative and judicial functions necessary for
temporary governments in Iraq, including humanitarian relief,
reconstruction, and assisting in the formation of an Iraqi
interim authority.
Now the CPA, this Coalition Provisional Authority, includes
representatives from both coalition nations and U.S. government
agencies, all of whom are involved in identifying and
prioritizing recovery requirements in Iraq. Ambassador Bremer
is also getting substantial input from the leaders of the Iraqi
people. Agencies or entities outside the CPA can propose
requirements, but these have to be submitted to Ambassador
Bremer for his review.
For funding from vested or seized assets, and again, vested
are the ones that were frozen, seized are the ones that were
found out in Iraq, the CPA submits its proposed requirements to
the Office of the Secretary of Defense and specifically to my
office.
Requests for funds appropriated through the Defense
Department from the $2.47 billion appropriation are also
submitted to my office, which as in all cases, evaluates them
and then forwards them to the Office of Management and Budget.
For funding for non-DOD appropriated funds, the CPA submits
its proposed requirements directly to OMB. OMB consults with
the Secretary of Defense and other appropriate federal offices
on policy and program issues.
Now my office has organized a liaison cell to help
Ambassador Bremer and his people fulfill its responsibilities.
This cell will be led by my office and includes representatives
from outside the Defense Department, OMB, AID, and the General
Accounting Office as well. Within DOD, the Inspector General,
the Joint Staff, and several defense agencies such as our
contract managers and our contract auditors will also have
representatives.
This cell will help the CPA expedite coordination and
approval of requirements for recovery in Iraq. It will provide
on-cite expertise in budgeting, financial plan development,
costing, accounting, and other needs.
Now the President has directed that the DOD in consultation
with OMB and my colleagues at State and Treasury, adopt
procedures to ensure that Iraqi state or achieved owned assets
are used only to assist the Iraqi people and support the
reconstruction of Iraq, and are properly accounted for, and we
at DOD have adopted strong measures to uphold the President's
direction. We are using longstanding proven safeguards for
handling and accounting for Iraqi state assets. We're
emphasizing transparency, rigorous accounting and auditing
procedures, and the process includes on-site audit testing, of
course the use of signatures, and standard financial and
management controls.
And toward that objective, on May 21, Deputy Secretary
Wolfowitz designated the Secretary of the Army as the DOD
executive agent for all support of the CPA. This includes
contracting support of all DOD agencies. Notably the Defense
Contract Auditing Agency, which is part of my organization, are
presently supporting all known Iraqi contracting requirements,
and will fully support the Army as it transitions to a
permanent contracting presence in the Iraq theater of
operations.
To the maximum extent practicable, vested and seized assets
are being administered and accounted for under controls that
are equivalent to those applicable to DOD appropriated funds.
DOD procedures cover the full range of asset handling, from the
initial seizure of assets all the way through final
disbursement of those assets. Safeguarding foreign national
assets is not new to the U.S. nor to the Department of Defense.
It's impossible to overestimate the importance of
accountability for Iraqi state assets under U.S. control. The
Iraqi people, the American people, and the international
community must be satisfied that these assets are being used
only to help Iraq recover and that funds go to the most
pressing requirements, and that a proper accounting be done.
With the recent delegation by Deputy Secretary Wolfowitz
naming the Army as executive agent, I am confident that the
Army will stand up a highly confident and practicable
organization to centrally integrate all current and future Iraq
reconstruction contracting requirements. I believe that the
Deputy Secretary's directive was the one key action needed to
ensure that there is no duplication of Iraqi construction
requirements and that appropriate financial controls will be
established and deployed.
I will be meeting with the Secretary of the Army and his
staff to offer my support throughout the efforts. I'm
personally and absolutely committed to an integrated well-
managed contracting process in Iraq, a transparent process
equal to the very best military acquisition centers in this
country. All financial and audit issues serviced by DCAA,
that's the Contract Audit Agency, and other DOD components will
be brought to my immediate attention, and have been, for
appropriate action.
I would like to give you some detail, because particularly
Senator Biden asked for it, without going on at length, about
the nature of the international contributions. These
contributions, both cash and in kind, are obviously going to be
critical to Iraq's recovery. I have been designated as the
Department of Defense coordinator for international assistance
in post-conflict Iraq. I work jointly in that regard with my
colleagues at this table, Under Secretaries Larson and Taylor,
and Mr. Natsios, and their offices, as well as some offices
outside the U.S. government.
We are working closely with multinational institutions,
notably the UN, the World Bank, and the IMF, who will play
critical roles in facilitating the assistance to Iraq recovery.
As you already heard from Secretary Larson, these international
institutions are developing needs assessments, which I think
goes to some of Senator Biden's concerns about coming up with
longer range estimates. It takes time and that is what they are
undertaking. And finally, I should add that we have daily
coordination with the Office of the Coalition Provisional
Authority.
As I mentioned, the international community has publicly
offered something over $2 billion for reconstruction assistance
for Iraq. About $800 million of that has been meant in response
to the UN flash appeal for urgent requirements, and the
remaining $1.2 billion has been offered outside the flash
appeal.
Let me give you some examples. Japan has agreed to
contribute more than $150 million in emergency humanitarian
aid. Australia has delivered more than $26 million dollars,
include 100,000 metric tons of wheat, shipping costs as well.
Australia is also providing agricultural expertise. Canada has
delivered more than 41 million U.S. dollars for critical water
sanitation, food, shelter and health requirements. The United
Kingdom has pledged $338 million in humanitarian assistance.
Spain has pledged $56 million, primarily in humanitarian
supplies, and Spain has also initiated its own needs assessment
which is certainly kind of preliminary to what could be done
from here on out, and the Spanish have just sent to the CPA
proposals for six new projects that they want to undertake in
Iraq. The Netherlands is contributing $14 million in response
to the flash appeal and that will be provided through Dutch
non-governmental organizations. Norway is donating up to $21.5
million for humanitarian assistance. The European Union has so
far pledged $107 million, of which $14.5 million has been
delivered, including 10 tons of medical supplies that has been
airlifted to Baghdad.
Jordan has deployed a field hospital to Baghdad for
emergency medical services. United Arab Emirates has set up
water purification plants. It has an adoptive program we have
worked on here as well as internationally, kind of like adopt a
highway that you're aware of, adopt a hospital, adopt a school,
adopt a day care center, and the United Arab Emirates has
adopted 8 hospitals in that way.
So these are just some examples of what the international
community is doing to respond to the humanitarian and
reconstruction needs. We, my colleagues and I here will
continue to engage the international community to come together
to assist the Iraqi people to rebuild their lives and their
country.
So, in closing, I want to emphasize that the Department of
Defense is intensely focused on advancing stabilization and
recovery in Iraq as rapidly and as smoothly as possible. We
recognize, as you do, that the stakes cannot be higher. The
emergence of an Iraq that protects the right of its citizens,
that represents all of its diverse ethnic and religious groups,
that prospers economically for the benefit of all its people,
all of that would be a profoundly important model for the
Middle East and the entire world. To help the Iraqi people meet
this challenge, President Bush has pledged America's commitment
to stay the course and there is no doubt, success will be very
expensive and it will take years and not months.
This committee is helping the American people and the
international community understand the criticality and
difficulty of building a new Iraq, and I look forward to
contributing to the important work and be of assistance as I
can. Thank you.
[The prepared statement of Dr. Zakheim follows:]
Prepared Statement of Dov S. Zakheim
Iraq Stabilization and Reconstruction
Mr. Chairman, members of the committee, I am delighted to
participate in this important discussion. As Deputy Secretary of
Defense Paul Wolfowitz emphasized before this committee two weeks ago,
the Department of Defense (DoD) is strongly committed to helping the
Iraqi people establish an Iraq that is free and at peace with itself
and its neighbors. We continue to work to stabilize the country and to
accelerate its recovery. In particular, we are focusing on humanitarian
assistance, reconstruction, and new governance.
The Department of Defense, working closely with other departments
and agencies, plays a critical role in ensuring that the Iraqi people
get what they need to rebuild their lives and their nation. Today I
will address DoD's support for recovery in Iraq, the resources
available to achieve that, and our efforts to enlist the support of the
international community.
Funding Sources for Recovery
Let me begin with the various sources of funding for Iraq's speedy
recovery and renewal.
Appropriations. In the Emergency Wartime Supplemental
Appropriations Act, 2003, Congress appropriated $2.475 billion for the
President's Iraq Relief and Reconstruction Fund, which is the primary
source of appropriated funding for Iraqi relief and reconstruction
activities. Congress also made $489 million of the Iraqi Freedom Fund
appropriation available to be used if needed to repair damage to Iraq
oil facilities and to preserve a petroleum distribution capability.
Iraqi state assets. President Bush has directed that Iraqi state
assets under U.S. control will be used only for the benefit of the
Iraqi people and their nation's recovery. These assets fall into two
categories:
Vested assets: $1.7 billion in formerly frozen Iraqi state
assets in the U.S., which the President has vested in the
Treasury Department for apportionment to federal agencies for
requirements that benefit the Iraqi people;
Seized assets: About $800 million so far in Iraqi state
assets brought under U.S. control in Iraq by U.S. troops,
pursuant to the laws and usages of war.
International contributions. The UN, other international
institutions, and the U.S. and its coalition partners continue to urge
all nations to contribute to recovery in Iraq in any way they can.
Public pledges from the international community exceed $2 billion. We
anticipate other contributions as well--including troop contributions
to create Multi-National divisions of peacekeeping forces.
Development Fund for Iraq. UN Security Council Resolution 1483,
adopted on May 22, directs certain monies to be placed in the
Development Fund for Iraq. These monies include unencumbered funds from
the UN's ``Oil for Food'' escrow account including an initial transfer
of $1 billion that has already been deposited in the Development Fund;
proceeds from the sale of petroleum, petroleum products and natural
gas; and returned Iraqi assets from UN Member States. Significantly,
the Development Fund may be used only in a transparent manner for
purposes benefiting the people of Iraq.
Determining Requirements for Recovery
Funding is not enough. We must identify the most pressing and
promising requirements for recovery: programs, projects, and other uses
that will benefit the Iraqi people and help transform Iraq. We look to
the Coalition Provisional Authority (CPA) to identify these
requirements. Presidential envoy Ambassador L. Paul Bremer--as
Administrator of the CPA--oversees and coordinates all executive,
legislative, and judicial functions necessary for temporary governance
of Iraq including humanitarian relief, reconstruction, and assisting in
the formation of an Iraqi interim authority.
The CPA includes representatives from both coalition nations and
U.S. government agencies that are involved in identifying and
prioritizing recovery requirements in Iraq. Ambassador Bremer also is
getting substantial input from leaders of the Iraqi people. Agencies or
entities outside the CPA can propose requirements, but these must be
submitted to Ambassador Bremer for review.
For funding from vested or seized assets, the CPA submits its
proposed requirements to the Office of the Secretary of Defense (OSD)--
specifically to my office. Requests for funds appropriated to DoD are
also submitted to my office which, as in all cases, evaluates them and
forwards approved requests to the Office of Management and Budget
(OMB). For funding from non-DoD appropriated funds, the CPA submits its
proposed requirements directly to OMB. OMB consults with OSD and other
appropriate federal offices on policy and program issues.
My office has organized a liaison cell to help the CPA fulfill its
responsibilities. This cell will be led by my office and includes
representatives from outside DoD: OMB, the U.S. Agency for
International Development (USAID), and the General Accounting Office.
Within DoD, the Inspector General, Joint Staff, and several defense
agencies will have representatives. The cell will help the CPA expedite
coordination and approval of requirements for recovery in Iraq. It will
provide on-site expertise on budgeting, financial plan development,
costing, accounting, and other needs.
Accountability for Iraqi State Assets Controlled by the U.S.
The President has directed that the Department of Defense--in
consultation with OMB and the Departments of State and Treasury--adopt
procedures to ensure that Iraqi state or regime-owned assets are used
only to assist Iraqi people and support the reconstruction of Iraq, and
are properly accounted for. DoD has adopted strong measures to fulfill
the President's direction.
The Department is using long-standing, proven safeguards for
handling and accounting for Iraqi state assets. We are emphasizing
transparency and rigorous accounting and auditing procedures. The
process includes on-site audit testing, and the use of signatures and
other strong financial and management controls. Towards that objective,
on May 21, 2003, Deputy Secretary Wolfowitz designated the Secretary of
the Army as the DoD Executive Agent for all CPA support. This includes
contracting support. All DoD agencies, notably the Defense Contract
Audit Agency, are presently supporting all known Iraq contracting
requirements, and will fully support the Army as it transitions to a
permanent contracting presence in the Iraq theater of operations. To
the maximum extent practicable, vested and seized assets are being
administered and accounted for under controls that are equivalent to
those applicable to DoD appropriated funds.
DoD procedures cover the full range of asset handling--from initial
seizing of assets, all the way through final disbursement of those
assets. Safeguards for foreign national assets is not new for the U.S.
government and Department of Defense.
It is impossible to overestimate the importance of accountability
for Iraqi state assets under U.S. control. The Iraqi people, the
American people, and the international community must be satisfied that
these assets are being used only to help Iraq recover, that funds go
for the most pressing requirements, and that proper accounting is done.
Defense Contract Audit Agency (DCAA) Support of Iraq Reconstruction
The DCAA mission is to provide all contract audit and financial
advisory services related to the Department of Defense acquisition of
goods and services. DCAA provides similar services, on a reimbursable
basis, to most civilian agencies including the State Department and
USAID. In total, DCAA has 3500 contract auditors at 82 field audit
offices, and a total of 350 resident DCAA locations. Thirty-six percent
of DCAA auditors are licensed CPAs and 21 percent have advanced
degrees.
DCAA is playing a major audit role in support of Iraq
reconstruction and is responding with real time audit assistance for
all known Iraq contracting requirements:
A team of seven DCAA auditors is currently reviewing over
500 United Nations Oil-for-Food contracts for price
reasonableness and value received. The review has identified
numerous inconsistencies with the contracts and noted
significant areas of potential contract overpricing. A total of
$11 billion is being evaluated, and a trip will be taken in
early June to the United Nations to evaluate UN contract file
documentation.
A team of six DCAA auditors is currently evaluating audit
documentation and contracting actions by Washington
Headquarters Services in support of CPA contract requirements.
DCAA is also providing related audit assistance to assure that
contractor proposal estimates are properly prepared, and that
ongoing contract awards are properly priced.
A team of nine DCAA auditors has been deployed to Iraq/
Kuwait to support current mission requirements of the U.S. Army
and the Corps of Engineers.
DCAA has selected ten additional auditors who will be
embedded with Corps of Engineers, Army Material Command, USAID,
and wherever future customer workload dictates. Three of these
auditors are now in-theater, with the remainder going through
required training.
DCAA is the contract auditor for USAID in Iraq. There are
currently eight USAID contracts valued at $1.0 Billion. Bechtel
National Industries has the largest contract, with a total
value up to $680 million for road, electricity, power, and
bridge reconstruction.
DCAA is a member of a financial oversight cell being
deployed to Iraq. A DCAA senior manger will provide the cell
with audit and financial counsel.
Finally, DCAA is building an audit universe of all known
Iraq/Kuwait related contract requirements, and will brief
senior DoD and CPA representatives in mid June. DCAA will use
this data for future Iraq planning and staffing requirements.
I have authorized the DCAA Director to stand-up a DCAA field audit
office in Baghdad and Kuwait as soon as practicable. This office will
not only service all in-theater reconstruction contracting, but will
initiate any assist audit requests at U.S. contractor locations, where
most contractors retain the accounting records.
With the recent delegation by Deputy Secretary Wolfowitz naming the
U.S. Army as the Executive Agent for all Iraq Reconstruction effort, I
am confident that the Army will stand-up a highly competent contracting
organization to centrally integrate all current and future Iraq
Reconstruction contracting requirements. I believe that the Deputy
Secretary's directive was the one key action needed to assure that
there is no duplication of Iraq Reconstruction requirements; and that
appropriate financial controls will be established and employed. I will
be meeting with the Secretary of the Army and his staff to offer my
support and assistance throughout this effort.
I am absolutely committed to an integrated, well managed
contracting process in Iraq--a process that is transparent and the
equal of the very best military acquisition centers in this country.
All financial and audit issues surfaced by DCAA or other DoD components
will be brought to my immediate attention for appropriate action.
International Contributions to Recovery in Iraq
Contributions from the international community--both cash and in
kind--will be critical to recovery in Iraq. I have been designated as
DoD coordinator for international assistance to post-conflict Iraq. I
work jointly in that regard with my colleagues at this table, Under
Secretaries Larson and Taylor, and with their offices as well as with
USAID. We also are working closely with multilateral institutions--
notably the UN, World Bank, and IMF--who will play critical roles in
facilitating the international assistance to Iraq recovery efforts.
Finally, we have daily coordination with the Office of the Coalition
Provisional Authority.
To date, the international community has publicly offered over $2
billion for humanitarian and reconstruction assistance for Iraq. About
$800 million of this has been in response to the UN Flash Appeal to
meet urgent requirements in Iraq. The remaining $1.2 billion has been
offered outside the flash appeal.
Examples of these international contributions include:
Japan intends to contribute more than $150 million in
emergency humanitarian aid.
Australia has delivered more than $26 million--100 thousand
metric tons of wheat, including shipping costs. Australia is
also providing expertise in agriculture.
Canada has delivered more than $41 million (US$), for
critical water, sanitation, food, shelter, and health
requirements.
The United Kingdom has pledged $338 million in humanitarian
assistance.
Spain has pledged $56 million, primarily in humanitarian
supplies.
The Netherlands is contributing $14 million in response to
the UN Flash appeal. Assistance will be provided to Iraq
through Dutch NGOs.
Norway is donating up to $21.6 million for humanitarian
assistance.
The European Union (EU) has pledged $107 million, of which
$14.5 million has been delivered, including 10 tons of medical
supplies that have been airlifted to Baghdad.
Jordan deployed a field hospital to Baghdad to provide
emergency medical services.
These are just several examples of the international community and
its response to the humanitarian and reconstruction needs of Iraq. My
colleagues here and I will continue to engage the international
community in coming together to assist the Iraqi people to rebuild
their lives and their country.
Closing
In closing, I want to emphasize that the Department of Defense is
focused intensely on advancing stabilization and recovery in Iraq as
rapidly and smoothly as possible. The stakes could not be higher. The
emergence of an Iraq that protects the rights of its citizens, that
represents all of its diverse ethnic and religious groups, that
prospers economically for the benefit of all its people--this would be
a profoundly important model for the Middle East and for the entire
world.
To help the Iraqi people meet this historic challenge, President
Bush has pledged America's commitment to stay the course. Clearly,
success will be very expensive and take years, not months. This
committee is helping the American people and international community
understand the criticality and difficulty of building a new Iraq, and I
look forward to contributing to your important work. Thank you.
The Chairman. Thank you very much, sir. That was very
helpful testimony. Secretary Taylor.
STATEMENT OF HON. JOHN B. TAYLOR, UNDER SECRETARY FOR
INTERNATIONAL AFFAIRS, U.S. DEPARTMENT OF THE TREASURY
Mr. Taylor. Thank you, Mr. Chairman, Senator Biden, and
members of the committee. My testimony is about the economic
and financial issues related to reconstruction and I want to
focus on some of the accomplishments and some of the plans for
the future.
The international community and the people of Iraq face an
enormous task in this reconstruction effort. A quarter century
of repression and economic mismanagement under Saddam Hussein
has cut the size of the Iraq economy to a small fraction of
what it was before his regime took over. In 1979, ADP in Iraq
was $128 billion. In 2001 it had declined to about $40 billion,
and income per capita has plummeted, people have been
impoverished, and this is during a period where the world
economy has expanded. The economy of Iraq has shrunk
drastically.
So the reconstruction task is challenging, but for the same
reason the challenges are great, simply restoring the economy
to what it was before Saddam will be a tremendous improvement
for the Iraqi people. But establishing a large economy based on
clear property rights, upon a sound rule of law, upon economic
freedom, I think will unleash a long tradition of
entrepreneurship and build on an abundant human potential and
natural resources of the country.
There is still much to do, to be sure, but I believe we
should mention some of the successes that we have achieved
since the end of the military operations. Over 1.5 million
workers and pensioners have received salaries and emergency
payments. Our financial experts in Baghdad report that Iraqis
and other observers consider this act alone to be a turning
point in the mood of many in the city. These payments have
enabled Iraqis to return to work to run the railroads, to teach
school children, and to help in the payment of other Iraqis.
There are other successes, some of which my colleagues have
already mentioned. Just since March 20th, $1.7 billion of
Saddam's assets have been vested in New York and made available
to the Iraqi people. Another $1.2 billion have been newly
frozen around the world. We have approximately $1 billion in
cash found in Iraq, excluding funds in the Central Bank.
Working intensely with the international community, we have
achieved the removing of the sanctions on selling Iraqi oil and
we have agreement with the international financial institutions
to provide needs assessments and provide technical assistance.
Later this month, as Under Secretaries Larson and Zakheim
indicated, there will be a donors conference. It's already
scheduled for June 24th, to make plans for international
support of the country.
I think it's also important to emphasize that we have
achieved successes by avoiding catastrophic events that could
have occurred, and in fact these were events we were concerned
about, events which we took actions to try to prevent. For
example, instead of collapsing, as many had feared, the Iraqi
currency has recovered from low levels at the beginning of the
war. Hyper inflation has been avoided, another concern we had
going into this. As has already been mentioned, oil fields have
been saved from destruction and there has been no humanitarian
crisis.
And I should add from the Treasury perspective, that the
crippling burden of debt service payments has been lifted at
least through the end of 2004, so that Iraq can focus on
reconstruction needs.
I believe these successes are due to the work of
experienced and dedicated people and to contingency plans laid
out months in advance of the war. We began selecting people for
our financial teams back in January. The first wave was
deployed to Kuwait in March. These were some of the first
people who went into Baghdad in April. We have since sent
additional financial experts with expertise ranging from
budgets to payment systems to monitoring policy.
And Peter McPherson has been designated the financial
coordinator. Peter McPherson is a former U.S. AID Administrator
and former Deputy U.S. Treasury Secretary. He is giving advice
to Ambassador Bremer on the ground. He and his team have
responsibility for working with the Iraqis to get the Central
Bank running again, the finance ministry running again, the
commercial banks and other institutions up and running. Their
very first task on the ground, which has largely been
accomplished, was to assess the conditions and evaluate the
basic economic infrastructure, including the payment systems. I
am in nearly constant contact with them through telephone, e-
mail, providing support and advice with the help of a financial
task force set up in Treasury by our Office of Technical
Assistance, and of many others stationed here in Washington.
I would like to spend just a minute in my opening remarks
with a description of the mechanism we put in place to restart
payments, because I think it indicates the kind of plans that
have been underway and which will continue to be underway. This
is the top reconstruction priority, that is, to make emergency
payments and salary payments to government workers and
pensioners. Starting late last year, we developed a contingency
plan for such payments. The plan called for paying workers and
pensioners in U.S. dollars on an interim basis. Making payments
in dollars, we thought on an interim basis was a good way to
get things started. It is not dollarizing the economy. On the
contrary, the plan calls for the continued use of the local
currency, the dinar.
But to make this plan operational, we had to have some
funds, some resources, so the first step in making this plan
operational was to invest the Iraqi regime assets that were
frozen back in 1990.
That plan also required an assessment of the payroll
system, how are you actually going to make payments to workers
in Iraq. Our priority was for our first wave of people to
assess what the payment system was like, how could you actually
get payments of dollars to people. I'm pleased to say that this
plan is basically on track and has been successful so far. On
March 20th, President Bush did vest $1.7 billion in assets,
placed them in an account in New York. Treasury representatives
in close cooperation with the New York Fed and the Department
of Defense have arranged for delivery of already $199 million
U.S. dollars, currencies from these vested assets, and to make
shipments from the storage facility in New Jersey, shipped down
the turnpike to Andrews Air Force Base, and off on an airplane
into the region.
A mechanism for making these emergency payments also had to
be set up, and was quickly established on the ground so the
payments could commence for dock workers, for rail workers, for
power workers and others. While this system will have to be
upgraded over time, it provides a basic infrastructure for
making salary and pension payments. So despite tremendous
logistical challenge, this system of payments has been a
success. Pensioners, civil servants, workers crucial to the
function of essential public services have received payments,
an initial financial lifeline for these people.
I will end with this example, Mr. Chairman, and will be
very happy to take your questions.
[The prepared statement of Mr. Taylor follows:]
Prepared Statement of John B. Taylor
RECONSTRUCTION IN IRAQ: ECONOMIC AND FINANCIAL ISSUES
Chairman Lugar, Ranking Member Biden, and other members of the
committee, thank you for inviting me to testify on the reconstruction
of Iraq. I will discuss economic and financial issues, focusing on
accomplishments since the end of major military operations and on our
plans for the future.
The international community and the Iraqi people face an enormous
task in the reconstruction of the Iraqi economy. A quarter century of
repression and economic mismanagement under Saddam Hussein cut the size
of the economy to only a small fraction of what it was before his
regime took over. In 1979, GDP in Iraq was $128 billion in Purchasing
Power Parity (PPP) terms; by 2001, it had declined to about $40
billion. And income per capita has plummeted, impoverishing the Iraqi
people. While the world economy expanded, the Iraqi economy shrunk. As
a consequence, the Iraqi people fell way behind, from a rank of 76 in
1990 to a rank of 127 in 2001 on the UN Human Development Index.
While the reconstruction task is significant, the opportunities are
great. Simply restoring the economy to what it was before Saddam will
be a tremendous improvement in the well being of the Iraq people.
Establishing a market economy based on clear property rights, a sound
rule of law, and economic freedom will unleash a long tradition of
entrepreneurship and build on the abundant human potential and natural
resources of Iraq. I am confident that if these resources are used
effectively, economic growth will soon be above, rather than well
below, the world average.
Though there is much to do, I believe that we have already achieved
important successes since the end of the major military operations,
especially in the economic and financial areas. Over 1.5 million
workers and pensioners have received salaries and emergency payments.
Our financial experts in Baghdad report that Iraqis and other observers
consider this act alone as a turning point in the mood of the city for
many. These payments have enabled Iraqis to return to work to run the
railroads, teach school children, or help in the payment of other
Iraqis.
There are other successes. Since March 20, $1.7 billion of Saddam's
assets have been vested; $1.2 billion have been frozen; and $0.9
billion in cash has been found in Iraq. Working with the international
community, we have removed sanctions on the selling of Iraqi oil and we
have agreed that the international financial institutions should
provide needs assessments and technical assistance. Later this month in
New York we will convene the first meeting of donors. I will provide
more details on these and other accomplishments later in my testimony.
We have also achieved successes in avoiding catastrophic events
that could have occurred; we were concerned about such events and took
actions to prevent them. Instead of collapsing as many had feared, the
Iraqi currency has recovered from its low levels at the start of the
war. Hyperinflation has been avoided. Oil fields have been saved from
destruction. There has been no humanitarian crisis. And the crippling
burden of debt service payments has been lifted through the end of 2004
so that Iraq can focus on reconstruction needs.
These successes are due to the work of experienced and dedicated
people and to the contingency plans laid out months in advance of the
war. We began selecting members for our team of Treasury advisors back
in January; the first wave was deployed to Kuwait in March and arrived
in Baghdad in April. We have since sent over a dozen additional
advisors with expertise in areas ranging from budgets, to payments
systems, to monetary policy. Peter McPherson--former USAID
Administrator and former Deputy Treasury Secretary--now serves as
financial coordinator and adviser to Ambassador Bremer on economic and
financial issues. He and his team have responsibility for working with
Iraqis to get the Central Bank, the Finance Ministry, commercial banks
and other financial institutions up and running. Their very first task
on the ground was to assess conditions and evaluate the basic economic
infrastructure, including the payments system. The work they are doing
is similar to some of the tasks that we undertook in Afghanistan;
indeed, while Treasury's work continues in Afghanistan, some of the
same people who worked there have brought their experience to Iraq. I
am in nearly constant contact with them through telephone and email,
providing support and advice with the help of our Iraq Financial Task
Force, Office of Technical Assistance, and others stationed here in
Washington.
A Plan to Pay Workers and Pensioners
A top reconstruction priority from the start was to make emergency
and salary payments to government workers and pensioners. Starting late
last year we developed a contingency plan for such payments. The plan
called for paying workers and pensioners in U.S. dollars on an interim
basis. Making payments in dollars on an interim basis was not an
attempt to dollarize the economy. On the contrary, the plan called for
the continued use of dinars as an acceptable means of payment. Using
dollars on an interim basis would create stability immediately after
the war, as the dollar is a stable medium of exchange and a good store
of value. By making sure that the spending on salaries was matched by
the revenues available, the dollar payment plan also was a way to
prevent inflationary financing.
To make this payment plan operational, financial resources were
required. Hence, the first step in the plan was to vest the Iraqi
regime assets that were frozen in the United States over a decade ago.
The plan also required some functioning payroll system, so a high
priority of our first wave of people on the ground was to assess the
state of this system.
This plan is basically on track and has been successful thus far.
On March 20, President Bush vested $1.7 billion of assets and
placed them in an account at the New York Fed to be used to support
reconstruction. Treasury representatives, in close cooperation with the
New York Fed and the Department of Defense, arranged the delivery of
$199 million of these vested assets in three shipments from a storage
facility in New Jersey to Andrews Air Force Base, where the currency
was loaded on a transport and flown to the region. A fourth shipment of
$358 million will be made shortly.
A mechanism for making emergency payments was quickly established
on the ground, so that payments could commence for dock workers, rail
workers, power plant workers, and others. At the same time, upon
arriving in Iraq, our advisors conducted an assessment of the existing
payroll system for salaries and pensions and found that adequate,
functional procedures already existed. While this system will have to
be updated over time, it provides the basic infrastructure for making
salary and pension payments.
Despite tremendous logistical challenges, the system of payments
has been a success. To date, over 1.5 million pensioners, civil
servants, and workers crucial to the functioning of essential public
services have received payments. Our advisors have played a key role,
working closely with counterparts from the Defense Department and other
agencies, in extending this initial financial life-line to the Iraqi
people.
Establishing a Stable Currency
One of the most important objectives in the near-term is to promote
the establishment of a stable, unified national currency. A currency
that has the full faith and confidence of the Iraqi people, and which
can be used as a store of value, is a prerequisite for establishing a
vibrant economy.
The pre-existing currency situation in Iraq makes this a complex
and difficult task. Iraq has not had a stable currency for some time;
several currencies circulate widely in Iraq, including the Iraqi (or
``Saddam'') dinar in central and southern Iraq, the Old Iraqi (or
``Swiss'') dinar in the northern part of the country, and the U.S.
dollar. The Saddam dinar has fallen dramatically in value over the past
dozen years due to the policies of the Saddam Hussein regime. One
dollar used to purchase only a third of a Saddam dinar under the
official exchange rate; now, it will purchase about 1,200 dinars in the
market.
One of our primary concerns was that the conflict and its aftermath
would result in a massive depreciation of the Saddam dinar and
hyperinflation. There were concerns about losing control over large
warehouses of Saddam dinar notes and currency printing facilities. And
with the fall of the regime, there was the risk that the currency would
cease to serve as an accepted means of exchange.
For these reasons, early action was taken to secure currency stocks
and currency-printing facilities and stop the printing of the Saddam
dinar. The military made public announcements that existing currencies
in Iraq would continue to be accepted as means of payment. These
measures helped stabilize the Saddam dinar and avert a monetary crisis.
In fact, the Saddam dinar has actually strengthened in recent weeks--
from a low of about 5,000 dinars per U.S. dollar during the conflict to
approximately 1,200 per dollar today.
This achievement notwithstanding, a stable, unified currency system
is essential for Iraq's long-run economic prospects. Several options
exist for currency reform, including the introduction of a new currency
or the replacement of Saddam dinars with Old Iraqi dinars. We stand
ready to assist in the implementation of whichever option the people of
Iraq choose through a representative, elected Iraqi government.
Development of an Iraqi Budget
Prior to the war, no Iraqi government budget was published. The
lack of transparency and accountability in fiscal operations made it
difficult to determine how resources were allocated or how revenues
were raised.
Development of an integrated and transparent Iraqi government
budget is necessary for ensuring that essential government services and
reconstruction needs can be financed without resorting to printing
money. Our advisors are working with personnel within the Ministry of
Finance to develop an interim budget and to implement a centralized
treasury mechanism for government spending. In addition, several
Treasury advisors with expertise in tax systems will be working with
Iraqi officials to revise the tax code and build the capacity of
revenue agencies.
Initially, budgetary resources will derive primarily from returned
Iraqi assets, oil sales, and donor contributions.
With the initiation of military action, the United States and its
coalition partners acted to secure the Saddam Hussein regime's assets
for the benefit of the Iraqi people. In addition to the rapid vesting
of $1.7 billion of assets in the United States, we have spearheaded
bilateral efforts that have led to the identification and freezing of
about $1.2 billion of Iraqi assets outside of the United States since
the beginning of the war. We are working with these countries to return
them to the Iraqi people, as required by UNSCR 1483. The United States
has deployed financial investigation teams to Iraq and other foreign
jurisdictions to identify and recover additional Iraqi assets.
Efforts have also been made to secure assets inside of Iraq. Since
the end of the conflict, approximately $900 million in currency has
been found in various locations, in addition to $350 million of
currency and gold discovered in vaults at the Central Bank of Iraq. All
of the vested assets in the United States, as well as the assets found
in Iraq, will be used to assist the Iraqi people and support the
reconstruction of Iraq.
Proceeds from the sale of Iraqi oil will be another critical source
of funds. The Security Council resolution introduced by the U.S., Spain
and the UK and approved unanimously last month provides immunity from
attachment for Iraq's oil and proceeds from its sale through 2007. Oil
revenues will be deposited in the Development Fund for Iraq, an account
of the Central Bank of Iraq. The Coalition Provisional Authority now is
working on the development of regulations to ensure transparency and
accountability in the use and administration of oil proceeds and other
revenues that will be deposited in the Development Fund for Iraq.
An important part of this effort will be the establishment of the
International Advisory and Monitoring Board, which will be responsible
for approving the auditors of the Development Fund for Iraq and
reviewing their findings. Representatives from four international
organizations--the IMF, the World Bank, the United Nations, and the
Arab Fund for Social and Economic Development--will participate on this
board. On May 24, Ambassador Bremer sent letters to the four
organizations to initiate the process of constituting the board; I will
chair a meeting later this month to finalize the terms of reference.
Role of the International Financial Institutions
Donor contributions will also play an important role in the
reconstruction of Iraq. Active participation by the international
financial institutions is important to mobilizing this international
support.
I am pleased to report that the international financial
institutions are intensifying their support for the process of
reconstruction and recovery in Iraq. IMF and World Bank officials are
traveling with the delegation of Sergio Vieira de Mello, the U.N.
special representative for Iraq, on his trip to Iraq this week. In
addition, IMF Managing Director Horst Kohler announced last week that
he was prepared to send out a team to Baghdad for a fact-finding
mission as early as this weekend. This team will work with the
Coalition Provisional Authority and Iraqi officials to identify
priority needs related to budget planning and execution, central bank
functions, payments systems and banking sector reform, as well as the
social safety net.
Later this month, the United Nations Development Program and the
World Bank will cohost a donor meeting in New York to launch a
coordinated, international effort to support Iraq's reconstruction
needs and lay the groundwork for a donor conference in late summer
after the World Bank has completed its needs assessment of Iraq.
Reforming the Banking Sector
Strengthening and modernizing the banking sector is central to
achieving overall economic progress in Iraq. We are still in the early
stages of assessing the banking system. We know, however, that Iraqi
banks were oriented much more toward the fulfillment of Ba'athist
political objectives than toward financial intermediation and other
economic services that one normally associates with banks. Essentially,
Iraqi banks were vehicles for storing and moving cash around the
country, and in some cases outside the country.
Our overarching objective in this area is to help Iraq restore its
banking sector and ensure that it begins to function in a commercially
viable way. We want Iraq's banking sector to be a vehicle for sound
economic growth, to meet the needs of the Iraqi people, and to reflect
regional as well as international best practices. For example, we
endorse the objective of Iraqis having access to financial products and
services that are based on Islamic principles.
Creating a sound supervisory and regulatory regime is a critical
step to establishing a sound financial system. We are working with the
Iraqis to help them bring this about. To this end, we will be working
with governments in the region that have strong systems and have
offered technical assistance for the banking sector.
Iraq's Foreign Debt
An issue that has garnered much attention and will clearly have to
be addressed is Iraq's capacity to address the potentially enormous
burden of its existing financial obligations. Estimates of Iraqi
external debt range from $60 billion to $130 billion. Whatever the
precise level, Iraq's external obligations are significant and must be
addressed in a comprehensive manner.
In the near-term, we have taken two important steps put to address
this situation. First and foremost, we have worked with our G-8
partners to provide Iraq with some breathing room. We achieved
agreement that given Iraq's precarious financial situation, creditors
should not expect Iraq to make any payments on its debt for at least
the next eighteen months. Secondly, we have put a lot of people to work
on what could be described as data forensics. On the creditor side of
the ledger, we proposed at the last meeting of the Paris Club, and
creditor governments agreed, to report the amount of debt they are
currently owed. We have also approached the IMF for its assistance in
determining the amount of debt owed to non-Paris Club governments. To
address the other side of the ledger, we have placed Treasury advisors
in Baghdad to go through Iraqi government debt records.
In the medium-term, once we have a better estimate of the true
level of Iraq's debt, we can move forward to develop a comprehensive
strategy to deal with Iraq's official debt. To supplement these
efforts, we are providing a Treasury advisor to work with Iraqi
officials to develop a notional strategy for external debt treatment.
Conclusion
Achieving our economic objectives in Iraq is central to achieving
our ultimate goal of a stable, unified, and prosperous Iraq--one which
provides opportunities for all Iraqis to forge a better future for
themselves and their children. The challenges are formidable. We have a
tough job ahead. Our achievements to date can be attributed to careful
planning, vigilance to potential problems, and early action by
dedicated and talented professionals to prepare for them. We will bring
the same spirit to our work in the coming months.
The Chairman. Thank you very much, Secretary Taylor.
Mr. Natsios.
STATEMENT OF ANDREW S. NATSIOS, ADMINISTRATOR, U.S. AGENCY FOR
INTERNATIONAL DEVELOPMENT
Mr. Natsios. Thank you very much, Mr. Chairman, for the
opportunity for us to testify before the committee. I have
longer testimony that I will submit for the record.
AID sent its team of AID mission staff and disaster
response team members, almost a hundred people, to the region
the week the conflict began, and into southern Iraq almost as
soon as combat operations moved north. We did not experience a
major humanitarian crisis, we avoided it. Part of that was,
Saddam was so shocked by the combat operations that he couldn't
carry out any of the plans that we understood he was
considering, like blowing up the dams, which he had done during
the Iraq-Iran War, the atrocities he committed against the
Kurds, and we felt might happen again against the Shiites in
the south and the Kurds in the north. That did not happen.
We did not have mass population movements and so we avoided
major catastrophe on the humanitarian side. We did have pockets
of need and so the disaster assistance response team focused on
those pockets to respond quickly.
What is it that the mission in AID is directed to do? First
is to conduct assessments of need, infrastructure building,
working with our partners in the NGO community, the UN
agencies, and private businesses. Secondly, design programs. We
have planners to plan out the requirements of each contract in
terms of time line and budgeting. We have our sector
specialists, agricultural scientists, economists, health
experts, education experts. We have people who oversee the
contract management and each subcontract granted in cooperative
agreement. We have contract officers who negotiate these
contracts.
Donor coordinators. The donor coordination AID does is not
at the macro level that Defense and State does. We work with my
counterparts in other ministries around the world; in fact not
just here but in other emergencies, other projects that we work
together jointly with Canadian CIDA, which is the AID of
Canada, DFID in Britain, and CSA in Sweden, for example. And
what we do is decide exactly which donor government will do
which sector in which province and which institution. And we
work very carefully with these matrixes we develop over a
period of time through other emergencies to directionalize this
process. And finally, we do program evaluation to make sure the
program is getting on track, or we can get it back on track.
The reconstruction itself actually began for AID on the
28th of April when the President declared major combat over,
because our contractors, particularly that are doing the
reconstruction primarily, had provisions in their contracts for
insurance purposes that said until the combat was officially
over, on a large scale they could not go into the country. So
we have been working at this for about five weeks, not in terms
of the disaster response which began earlier, but in terms of
actual reconstruction.
We took control of the port facilities from the British
Marines on May 23rd, and with our contractors are now
responsible for managing the port. We began the preparatory
work to upgrade the port to international standards, and we
have been working closely with our friends in the World Food
Program for the preparation of massive movements of food into
the country. They have moved already 440,000 tons of food into
the country and began the first national distribution of food
on June 2nd.
I just came back 2 days ago from Cyprus, where I met with
the UN officers there. They have, by the way, their best team I
have ever seen in any emergency. They've collected them, put
them in Cyprus and Iraq and Kuwait, and I am very pleased with
the quality of people who are running this. Romero DeSilva is
arguably the best logistician in the international system, and
he is in charge of the entire UN effort on humanitarian food
assistance side.
A million more tons of food will arrive by September and
the entire system will be up and running.
The airport administration will be taken over as well for
the international airports only. AID is not responsible for the
local airports. We are now doing the preparatory work to
upgrade them to international standards, and a civil aviation
conference is scheduled for June 14th with other U.S.
government agencies for the restoration of commercial air
traffic to international standards.
We began, on May 7th, a 24-hour, 7-day a week dredging
operation for the port of Umm Qasr. It is now down 9 meters and
we can bring in vessels that carry up to 15,000 tons of cargo.
In the next few months we hope to remove the four wrecked ships
that are at the bottom that we had not known were there until
we conducted our assessment. We expect that within three months
the port will be up to a standard it hasn't been in 20 years.
We have completed the engineering work for reconstruction
of the boilers at electrical generating plants, the repair of
the 400 KVA and 135 KVA high voltage initial transmission
repairs, the urban water system in the southern part of Iraq,
and 3 bridges which are critical to traffic around the country.
Most of this work has nothing to do with the war. This has
to do with the lack of investment over a 20-year period towards
this infrastructure in a country, by the way, that had western
standard infrastructure as late as the mid 1980s. Because of
the Iran-Iraq war and the success of destructive things that
Saddam did to his country, there was no investment and
maintenance of these. For example, Basra right now has better
electrical service than it had in 14 years. They have not had,
in most of the city, 24-hour electrical service. They do now
have that.
The only remaining problem we're facing in electrical
requirements is in Baghdad and we have made a great deal of
progress just in the last week to bring it up to pre-war
standards, at least.
In water and sanitation, we purchased, for the first time,
enough chlorine for all of the treatment plants in the country
for 100 days, purchased through UNICEF. The water and
sanitation system experts are now coordinating with Bechtel and
with UNICEF and the NGO community about local rehabilitation
and then longer term reconstruction of those systems.
We bought 22 million doses of vaccines and are beginning a
massive immunization program. We have established a
surveillance system to monitor potential cholera outbreaks--
which have not happened yet, but we are watching it--and set up
a tracking system for international medical donations.
We have begun our back to school campaign to encourage
students to return to school not only for education purposes,
but to get them off the streets. One of the first public safety
things we do in any reconstruction effort after a war is to get
kids off the streets by opening the schools up as fast as
possible. We have already provided enough school materials for
120,000 students in Baghdad during the month of May. We have
inventoried 700 schools with the Ministry of Education in
Basra, and finalized the purchase of 8,000 school kits for
teachers and students for 700 schools in Basra for the opening
of school, and we have begun giving grants for the
reconstruction of Basra schools which have been neglected for
more than 15 years.
We have awarded a contract to UNESCO that does high school
textbooks for the printing and distribution of 5 million math
and science textbooks. We have begun the process with UN
agencies to evaluate the textbooks generally, many of which are
full of ethnic, racial and religious vitrea against groups, not
just the United States I might add--he had a lot of people he
hated--and those textbooks need to be revised. UNICEF does
textbooks grades 1 through 6, UNESCO 7 through 12, and we want
the international system involved in this, so it's not an
American only effort we're funding.
Senator Biden. Mr. Natsios, I apologize, I didn't hear the
beginning of your statement. Has that process begun?
Mr. Natsios. Yes, it has begun, and the textbooks in fact
are being written now specifically for math and sciences,
that's the first category.
Senator Biden. Thank you.
Mr. Natsios. We have also begun a call for grants that's
been published on our web site for American universities to
begin a university and college partnership program between
American universities and colleges and Iraqi institutions,
which is being greeted very enthusiastically in the university
community in the United States in the areas of health,
education, agriculture, and engineering among others.
We have also begun a process of evaluating proposals from
the NGO community for community assistance and rehabilitation
at the local level.
And most importantly, I had a fascinating briefing by our
local government contractor from the Research Triangle in North
Carolina that was awarded a bid. They have begun to set up
neighborhood councils and we've been giving them small grants
to begin projects. One fascinating story in one city in the
north, we had a meeting of the Shiite, Suni and Christian
leaders in the community and they told us they had never sat
down, ever, in a cooperative way and talked about what they
could do in a common way to improve their society. This was the
first time they've ever had a meeting like that.
Senator Biden. Where was that?
Mr. Natsios. This was in the north, I think it was in
Mosul, I don't know. I can get the name of it. But they said
this is the only constructive meeting we have had without
suspicion and malice and acrimony in the meetings.
There's some moving stories. We opened the first Internet
cafe in Umm Qasr. We showed the local Hamas leaders and the new
village council what the Internet was. They said they'd heard
rumors of this thing but they had never seen it. And several
old men sort of broke down, I didn't quite know why, you know,
Internet cafes for us are quite common. And they said, we heard
stories that this thing called the Internet existed, we never
understood it until now. We showed them they could look up any
Muslim or Arab speaking newspaper in the world, instantly get
it, or English speaking or French or whatever, on the Internet,
look it up and read it every day. They had never seen this
before, they couldn't imagine that they could freely read
newspapers from other countries anytime they wanted to. It was
a very moving event apparently, from what our staff is telling
us.
We have begun the marshland initiative assessment process.
We haven't got a plan in place yet to do this, but there is an
assessment team working with the NGO community, international
organizations and the White House on how we will look at the
restoration of the marshes, to which enormous ecological damage
was done. 90 percent of them have been destroyed. There is one
great marsh that's still left, about 200,000 people in it. This
is the remnant of the classic Marsh Arabs that Wilfred Thesiger
wrote about in a wonderful book in the 1950s about living among
those Marsh Arabs, and is something I have always remembered in
the work I've done around the world.
And finally in the area of agriculture and rural economy, a
competitive procurement will be published very shortly for
assistance in improving agricultural production, world finance,
reducing water logging and soil salinity, and other areas in
the agriculture sector.
So, we have begun the process, it's accelerating quite
rapidly at this point, contractors, NGO staff, international
staff, and our own agencies. We have been working, by the way,
on this report of this conflict with the UN, I have never seen,
actually, such intense collaboration with UN agencies among
themselves or with the international donor agencies as I have
in Iraq, and I have been involved in more than 10
reconstruction efforts in the last 14 years. There are more
than 5 major UN agencies that have large funding from us to do
their work.
And one thing we do have, and I would just conclude with
this, we have never had a unified assessment system, an
international system for reconstruction. Usually we all have
different mechanisms to assess the situation. In January we
began training the civil affairs units, part of the U.S. Army,
and I'm a retired civil affairs officer myself, I served in the
first Gulf War, and they are very critical and we work very
closely with them. We use this template, the UN agencies use
this assessment template, the NGOs are trained in it, other
donor governments were, and all UN agencies are now using it.
So we now have one template for the first time in any
reconstruction effort, for assessing each sector in each region
of the country, so there's a common language that we can all
get to quickly without having to retranslate everything back
into a language we all understand. That's been a great benefit
from the start, and so, those conclude my remarks.
[The prepared statement of Mr. Natsios follows:]
Prepared Statement of Andrew S. Natsios
Chairman Lugar, Senator Biden, members of the committee, I am
honored to be here today to speak about the U.S. Agency for
International Development's programs in Iraq.
As you know, USAID is providing both emergency and reconstruction
assistance for Iraq. We are approaching these tasks, unprecedented in
size and scope, with six broad objectives in mind. They are to:
show the Iraqi people an improvement in their standard of
living and public services;
stabilize the population--reduce ethnic and religious
tensions, repatriate refugees, resettle internally displaced
people, and resolve property claim disputes created under
Saddam;
develop a market economy--produce new jobs and encourage
investment and agricultural and economic growth; create the
institutions of economic governance which will form the
foundation of the new Iraqi economy and the fiscal structure of
the national government;
support the de-Ba'athification of Iraqi society--eliminate
the palpable sense of fear that was a feature Saddam's rule;
and create a genuine civil society that can control the abuses
of the state, stabilize social order, and help reconstruction
take place;
create accountability and control systems to prevent oil
revenues from being diverted by future Iraqi governments and
ensure future revenues are used for public good; and
ensure a peaceful transition to a pluralistic democracy
representative of the ethnic and religious make-up of the
society.
I will discuss what we are doing and what we plan to do in Iraq in
the context of these six objectives.
Show the Iraqi People Improvements in Their Living Standards and Public
Services
The brutality of Saddam Hussein's regime is well-known, but his
rule was also characterized by the willful neglect of many areas, among
them basic infrastructure, education, health, governance, and the
economy. The highly centralized nature of the regime severely limited
opportunities for local or individual initiatives. The level and
quality of services people received was substantially lower than the
gross indicators of Iraqi economic development would suggest.
Prior to the 1990s, for example, Iraq had one of the best education
systems in the Arab world, achieving universal primary enrollment and
significantly reducing women's illiteracy. Those achievements have
eroded significantly since then, however. Primary school enrollment at
the time hostilities began was approximately 76.3 percent and secondary
school enrollment was down to 33 percent, with nearly twice as many
girls absent from the classroom as boys.
In health care, too, the downward trend is clearly evident. Today,
almost of a third of the children in the south and central regions of
the country suffer from malnutrition. Low breast feeding rates, high
rates of anemia among women, low birth weight, diarrhea and acute
respiratory infections all contribute to Iraq's high child mortality
rate--131 deaths per 1,000 live births. This rate has more than doubled
since the 1980s.
Emergency Humanitarian Relief
Thanks to early, prudent, and thorough contingency planning, the
pre-positioning of emergency supplies, and careful coordination with
U.S. and international humanitarian organizations, the humanitarian
crisis in Iraq that many had predicted was avoided. Many elements of
the U.S. Government were involved in this unprecedented effort--but
there are three units of USAID in particular that I would like to focus
on today: the Office of Foreign Disaster Assistance (OFDA), Food for
Peace (FFP), and the Office of Transition Initiatives (OTT).
The first challenge facing any relief effort, especially one of the
size and complexity of Iraq, is gathering accurate information so that
urgent needs can be identified and specific interventions designed that
make the most sense for a specific location. To this effect, USAID
assembled the largest Disaster Assistance Response Team (DART)--outside
of a few search and rescue missions--in history. The DART included more
than 60 people--doctors, public health professionals, water and
sanitation experts, food distribution and agricultural specialists,
logisticians, security officers and specialists in refugees, internally
displaced persons (IDPs) and abuse prevention. Most members of the DART
have had years of experience dealing with complex humanitarian
emergencies and international relief situations, and their assessments
of the conditions on the ground are vital to our humanitarian and
reconstruction efforts.
In the months prior to the war, OFDA began preparing for a possible
humanitarian emergency by stockpiling emergency relief supplies,
including water tanks, hygiene kits, health kits, plastic sheeting and
blankets. OFDA also provided funding to the World Food Program (WFP),
UNICEF, and NGOs to set up logistics operations, offices and relief
stockpiles. Because of this, our NGO partners were in a position to
respond quickly to urgent humanitarian needs and are now making repairs
to water and sanitation facilities in Ar Rutbah, Basra, and Erbil. OFDA
grants are also supporting urgent health care assistance: CARE is
working in Baghdad; Save the Children in Mosul; the International
Medical Corps in Basra, al Nasariyah, and Wasit; and World Vision in Ar
Rutbah. OFDA has also purchased medical kits, each containing enough
supplies for 10,000 people for three months. In late May, the DART
provided 33 of these kits to our NGOs partners for distribution in
several cities in Iraq.
Timely USAID grants from the Office of Food for Peace helped
prepare WFP to undertake the largest mobilization operation they have
ever carried out. The first country-wide distribution of food in Iraq
is already under way. Much of it comes from a $200 million FFP grant to
WFP which made it possible to purchase food in Jordan, Syria, and
Turkey for immediate consumption. In just the month of May, for
example, more than 360,000 metric tons (MTs) have arrived in Iraq from
neighboring countries. All of this is in addition to the 245,000 MTs of
U.S.-produced food that is already in the region or en route.
As a result of these careful preparations--and the fact that the
Iraqis received increased rations prior to the fighting--there has been
no food crisis in Iraq. We anticipate continuing U.S. food shipments
through October and perhaps longer, if needed. The long-term solution,
however, is the creation of a functioning market system. In the
meantime, our food specialists on the DART have been working with DoD,
WFP and the Ministry of Trade on issues like finding the 9,000 trucks
needed to haul the 480,000 MTs of food that we expect to arrive in Iraq
every month, assuring security along the corridors from Kuwait, Jordan,
Syria, Turkey, and Iran, and preparing enough silos, warehouses and
equipment to support these vital supplies.
The Office of Transition Initiatives (OTT) specializes in small,
``quick impact'' programs. OTT's flexibility and quick turn-around
times have proved invaluable in many situations. OTT grants are
currently helping the Town Council in Umm Qasr, Iraq's principal deep
water port, get up and running and funding sports activities for young
people there. One of the lessons we have learned from our work in other
failed and failing societies is the need to keep young people,
especially young men, off the streets, in school and in healthy
activities such as sports. Unless they are occupied, young men are
often a source of disruption, for they can be easily lured into looting
or organized crime and violence.
OTT has also provided grants to keep the electric generators at the
Mosul Dam running, so that the 1.7 million people who depend on it have
electricity. Other OTT projects currently underway include efforts to
repair a school in Umm Qasr; shore up the Mosul Dam; put 16,000 people
to work cleaning up garbage and debris in al Thawra; and supplying
water testing equipment, refurbishing the fire station, and supplying
new furniture and instructional materials to primary school in Kirkuk.
In addition, OTT has begun work on repairing ministries and public
buildings and supplying them with computers, copiers, communications
equipment, supplies and furniture, so that they can resume their normal
functions. One of the advantages of this approach is that it allows us
to work directly with Iraqi citizens and civil servants on practical
every-day matters. Already we have started programs with the Iraqi
Ministries of Justice, Irrigation and Finance, as well as the Central
Bank, and we are looking at the possibility of doing more. Indeed, we
have received proposals for 30 ministries and commissions for just such
services.
Other OTT projects envision repairing the Courthouse in al Hillah;
building concrete platforms for three radio and television broadcast
towers; assessing the needs of fire department throughout the country;
and designing more public works projects such as in al Thawra (ex-
Saddam City).
Infrastructure Restoration
Since the President declared an end to major combat operations in
Iraq on May 1, 2003, USAID's reconstruction efforts have focused on
critical areas that will each contribute to substantial improvements in
the lives of the Iraqi people. They are ports, airports, electricity,
water, sanitation, health, education, and local governance.
Through a contract with Stevedoring Services of America (SSA), we
have been upgrading facilities--silos, warehouses, and cranes--at Umm
Qasr, Iraq's principal deep water port. Administration of the port was
handed over to SSA by the British on May 23. This is the first
reconstruction project in Iraq to be transferred from military to
civilian authority. In the days ahead, SSA will phase in over 3,500
local workers as managers, heavy equipment operators, maintenance and
other workers and is working closely with the newly elected director
general of the Iraqi Ports Authority on staff training and port
revitalization issues.
At the same time, Bechtel is rebuilding port administration
buildings and analyzing the adjoining rail system for repair. Meanwhile
Bechtel's subcontractor, Great Lakes, has been dredging Umm Qasr since
May 7 on a 24-hour, seven days a week basis. This is dangerous and
difficult work: some 200 pieces of unexploded ordnance have been
removed from the harbor and ten sunken vessels discovered in the
harbor. As a result of the dredging, the channel is now nine meters
deep, and two ships, carrying 15,000 metric tons (MTs) of rice and
wheat respectively, were unloaded last week at Umm Qasr. Our goal is
for the work to have progressed enough so that the port can handle
ships carrying 50,000 MTs of food by the end of this summer.
Through our contract with SkylinkUSA, preparatory work to upgrade
Basra and Baghdad International Airport to international standards has
been done, and we are aiming to have the latter opened by June 15.
Restoring electric power is an urgent priority, a task made
considerably more difficult by acts of deliberate vandalism. On May 26,
for example, two 400 KY towers were torch cut and hauled down, bringing
the number of towers that have been damaged since the end of
hostilities to 8. In other cases, substations essential to the
restoration of power service have been totally destroyed by looters
looking for copper wire and other scrap to sell on the black market.
In parts of the north and south of the country, however, there is a
surplus of electricity. For the first time in more than a decade, Basra
has electricity 24 hours a day, a marked improvement in the life of the
country's second largest city. At the same time, electrical shortages
continue in the center of the country. We are working hard to rectify
these problems. Bechtel has completed its assessments and we have
approved task orders that will enable them to repair the 400 KVA and
135 KVA high voltage transmission lines.
We are also funding new boilers for electrical generation plants. A
further problem is that much of the country's power generation depends
on natural gas, diesel and bunker oil, which Saddam's regime failed to
produce in sufficient quantities. With the lifting of U.N. Security
Council sanctions and the gradual restoration of the country's oil
field capabilities, this problem should ease.
Another way Saddam punished the people of southern Iraq was by
withholding chemicals to treat and purify drinking water. This
contributed greatly to the unnecessarily high death and illness rates,
particularly among children and other vulnerable groups. USAID has
begun addressing this by providing funds to UNICEF to purchase enough
chlorine for 100 days of water treatment for the southern governates of
Al Muthanna, Al Basra, Dhi Qar, and Maysan. The International Rescue
Committee, acting on another USAID grant, will work to improve the
rural water systems in 59 areas in An Najaf Governate.
Other infrastructure work includes the restoration of bridges at Ar
Rutbah, Al Ramadi, Mosul, and one just southeast of Baghdad.
Health, Education, and Agriculture
Initial evaluations of the health sector show that services have
been disrupted and equipment, medicine, and supplies have been looted
from some hospitals and warehouses. While there have been no major
outbreaks of communicable diseases, the potential for such outbreaks
remains a source of concern. USAID's goal in this sector is to meet
urgent health needs as well as normalizing health services rapidly. To
this effect, we have worked through UNICEF to supply 22.3 million doses
of vaccines to prevent measles, pediatric tuberculosis, hepatitis B,
diphtheria, whooping cough, tetanus and polio. This is enough to treat
4.2 million children under the age of 5 as well as 700,000 pregnant
women.
We have also established a surveillance system with WHO, UNICEF,
and ABT Associates to monitor cholera, worked with the Iraqi Director
of Public Health on a diarrhea survey, established a database for
tracking and coordinating international medical donations, and helped
prepare public service announcements about sanitation and breast
feeding. In addition, we have made grants to CARE, Save the Children,
the International Medical Corps, and World Vision for emergency health
projects in Baghdad, Mosul, Basra, al Nasariyah, Maysan, Wasit, and Ar
Rutbah, respectively. Our grant to ABT will enable them to address
other medical needs, such as pharmaceuticals and equipment and
coordinating donations of medical supplies. ABT will also work with the
Iraqi Ministry of Health to improve their administration of medical
services throughout the country.
In the education sector, we have launched a ``back to school''
campaign with UNICEF and delivered 1,500 school kits that helped
120,000 students in Baghdad return to their classrooms in May. Through
a contract with Creative Associates, we have inventoried all 700
schools in Basra with the Ministry of Education, begun making grants to
refurbish a number of schools there, and finalized plans to distribute
8,000 school and student kits for Basra schools when the new school
year starts in September. The next step is to do the same in Dhi Qar
Governate. We are also funding UNESCO to print and distribute 5 million
math and science texts on time for the beginning of the school year,
and we are in the process of soliciting proposals to link U.S. colleges
and universities with Iraqi institutions of higher learning on various
health, education, agro-industry, engineering, and other projects. A
USAID technical advisor is also working with the Ministry of Education
on ways to deliver sufficient equipment, material, supplies for the new
school year.
We are also about to launch a competitive procurement for
assistance to Iraq's agriculture sector. This program will address
issues such as increasing agricultural productivity, rural finance, and
reducing water-logging and soil salinity.
Stabilize the Population: Refugees, IDPs and Abuse Prevention
The emergency humanitarian assistance and early reconstruction work
cited above are only one part of USAID's overall strategy for Iraq.
Stabilizing the ethnic and religious tensions within the country,
resettling TDPs, and ultimately helping resolve some of the complex
property disputes created during Saddam's 24 years of corrupt and
abusive rule are important goals.
Our first step began with the DART, which, for the first time ever,
included specialized abuse prevention officers. Our Agency has years of
experience in post-conflict situations. A priority for the DART was to
identify key contacts with the U.S. armed forces, civil affairs units,
the International Committees of the Red Cross, NGOs, the media, and
local leaders and brief them on the kinds of lawlessness and human
rights abuse that occur in the immediate aftermath of a conflict so
that suitable responses could be fashioned. As part of this effort,
each of our abuse prevention officers distributed USAID's Field Guide
to Preventing, Mitigating and Responding to Human Rights Abuse, which
was designed for just such situations.
Another important goal of our abuse prevention officers was to
identify mass grave sites. Iraq tragically has plenty of these sites:
clerics have told us there are 146 of them in and around Najaf and
another 29 in Karbala. The presence of mass graves is an important
reminder of the nature of Saddam Hussein's regime. Other mass grave
sites have been found near Musayeb, Kirkuk, Basra, Al Hillah, and
elsewhere. Should any of Saddam's immediate circle be tried for major
human rights abuse or crimes against humanity, the sites will be prima
facie evidence.
These abuse prevention officers are also monitoring the situation
of IDPs in northern cities like Kirkuk, Dohuk, Zamar, and Domiz, where
upwards of 100,000 Kurdish families were driven from their homes as
part of Saddam's Arabization campaign. Many of these Kurdish families
are now returning to their homes--or trying to--and this makes for a
potentially destabilizing situation. Our role, for the moment, is to
try and sort out the dynamics of these conflicting property claims, so
that ultimately, they can be resolved by legal means, somewhat like
they were in Eastern Europe after the fall of the Berlin Wall.
Elsewhere our abuse prevention officers are working with several
NGOs to identify and train local groups in human rights monitoring and
grave site protection.
Another early USAID grant supports the International Organization
on Migration (IOM), which is providing relief supplies for up to
500,000 IDPs in central and southern Iraq and coordinating the
distribution of supplies for another two million Iraqis in the same
region. As you know, after the first Gulf War, Saddam deliberately
targeted the Marsh Arabs, or Madan people, for destruction. Tens of
thousands were killed, land and water mines were sown throughout the
region, and some 200,000 people were driven from their homes. The
systematic draining of these marshes reduced them to a tiny fraction of
their former size, destroyed a way of life that had survived for
millennia, and caused an environmental catastrophe of unprecedented
size and cope. This month, we hope to send a team of hydrologists,
environmental specialists and economists to the region to study what
might be done to begin restoring some part of this region and how to
include the Marsh Arabs in the process.
Develop a Market Economy and Create Institutions of Economic Governance
Under Saddam, the Iraqi economy was highly centralized and
exceedingly corrupt. All the country's heavy industries, and much of
its light industries are government owned. So, too, is the oil
industry, which is the main source of the country's revenue. With the
lifting of U.N. sanctions and the gradual improvements in the oil
sector, some revitalization of legitimate economic activity should
follow naturally, along with a reduction of black market activity which
has in the past fueled criminal syndicates. Yet much more must be done
to make a solid break with past practices and put the country on a
solid economic and commercial footing.
One of the keys to doing this will be to harness the power of the
private sector and give the economy the jump-start it needs to create
jobs and raise incomes for millions of Iraqi citizens. We are about to
seek bids for a contract that would begin this process. We also expect
to provide technical assistance under the policy guidance of the
Treasury and State Departments to Iraq's Central Bank, Ministry of
Finance, and the private banking sector. Within a year, we hope that
the Ministry of Finance will be able to handle government payrolls,
Iraqis will begin tackling some of the tough economic choices that lie
ahead, a legal framework will be established that encourages the
private sector, and access to private commercial banks will be
widespread.
An early focus on economic governance is essential if the new Iraqi
government is to be successful. Many laws and institutions need to be
changed or created from scratch: a framework for fiscal and monetary
policies must be put in place and legal and regulatory reforms shaped.
Customs and tax policies must be devised so that the government has
revenue from more than just the oil sector and the proper incentives
are given for the private sector. Property rights and the repatriation
of profits must be assured, clear tariff structures created and free
trade encouraged. USAID, working with other USG agencies and
appropriate international organizations and partners, will support
Iraqi efforts in all of these sectors to transform Iraq's economy and
establish a model for the region and beyond.
De-Ba'athification of Iraqi Society
Ambassador Bremer's recent decision to remove 30,000 members of the
Ba'ath Party from all positions of responsibility in post-Saddam Iraq
was a wise and necessary step. Clearly, the top echelons of the Party
can hardly be counted on to take the country in the proper direction.
Indeed, until such time as they are jailed or thoroughly reformed,
these people can be expected to obstruct progress in whatever way they
can. Many of them have long experience with smuggling, black
marketeering, and armed repression. One of the great dangers is that
they will turn, as others have done in Serbia and Russia, to criminal
syndicates or armed paramilitary organizations whose ties to extremist
elements could make them very dangerous to both Coalition Forces and
ordinary Iraqis. Some will turn to crime--extortion, murder, and
robbery. Others will foment tensions among contending ethnic and
religious groups or hire themselves out as mercenaries and enforcers.
While it is obviously not USAID's job to provide security or police
protection, we do have experience in many post-conflict situations with
rehabilitation and reintegration programs following demobilization and
disarmament. And, as I mentioned above, we do have human rights
monitors in the country already, and they are preparing to expand our
capabilities substantially in this domain.
De-ba'athification also hinges on the success of our larger goals
in Iraq: the establishment of a stable society, with free market
economy and an honest, competent democratic government that represents
the entire spectrum of Iraqi citizens.
Creation of Accountability and Control Systems in the Oil Sector
Iraq has the second largest proven oil reserves in the world. Oil
is the country's primary foreign exchange earner and the major source
of government revenues. It can be a source of great wealth and hope for
the Iraqi people, but it can also be a source of great temptation to
the unscrupulous. The way oil revenues are used, therefore, will become
an extremely important political and economic question in the country
as soon as a new government is established. How the industry is managed
will likely set the pattern for the way the country is governed
economically and politically. Simply put, ensuring the transparency and
accountability of every facet of the oil industry is crucial to the
country's transformation.
The natural resources of the country belong to the Iraqi people.
This puts a huge premium on questions of economic governance. Yet
unless the new government is honest, technically sound, and strongly
democratic it will be very difficult, if not impossible, to break with
the corrupt practices of the past. We must, therefore, make it crystal
clear that a new day has dawned and that there will robust systems of
accountability and transparency in place from the beginning.
Ensure a Peaceful Transformation to a Pluralistic Democracy
The three most important tasks the U.S. must accomplish if we are
to be successful in Iraq are security, democracy, and a free market
economy.
No one with an understanding of Iraq's history should expect that
the country can be immediately transformed into a fully functioning
democracy. As we have seen all over the world, the process of
democratization is often slower than we would like. And yet, the slope
of history points in one direction only--toward more democracy and more
democratic governance in every part of the world. Even in the Middle
East, there are unmistakable signs of progress, but so too are there
formidable obstacles.
Iraq, of course, presents a special case. The brutality with which
the Ba'ath Party ruled has left a legacy of suspicion and fear.
Individual initiative has been discouraged if not crushed outright. The
centralized, autocratic nature of the regime afforded little
opportunity for anyone to develop the local governance skills that are
so essential to the daily functioning of a working democracy. There has
been no freedom of speech, no freedom of thought, no freedom to
organize interest groups of any kind, no freedom to develop political
views or skills or parties. All of this has left a legacy that can and
will be overcome with time. Our job is to accelerate the pace at which
this happens.
Our first step has been to work with Coalition forces to identify
key local leaders with whom we can work and connect them to
opportunities for relief and reconstruction assistance. This has been
an important part of our DART's responsibilities, as well as those of
our NGO and private sector partners.
In April, we awarded a contract to Research Triangle Institute
(RTI) to work with local communities in secure areas and respond to
their priorities, and help build up local governments so that they can
respond to their constituents and deliver basic services like potable
water, schooling, and health care. Already RTI and its subcontractors
have about 20 people in the country, working closely with the Coalition
Provisional Authority, and that number is expected to reach 50 by the
end of this month. RTI's technical experts are setting up neighborhood
advisory councils in Baghdad and working with appropriate local
administrators to improve the delivery of essential services.
Last week we awarded cooperative agreements to five U.S. NGOs--
Mercy Corps; International Relief and Development, Inc.; Agricultural
Cooperative Development International and Volunteers in Overseas
Cooperative Assistance; Cooperative Housing Foundation International;
and Save the Children Federation, Inc.--as part of our Iraq Community
Action Program. This, too, is specifically designed to promote grass-
roots citizen involvement in the affairs of some 250 communities
through Iraq.
One of the hallmarks of a free society is an open, pluralistic
media, and we are working to create one in the new Iraq. Already, we
have given funds to Radio Sawa to support their reporting of
humanitarian and reconstruction efforts and to Internews to help
support a symposium that brought Iraqi, Arab and Western media experts
together to develop a set of recommendations on fostering a free,
pluralistic media in Iraq.
Conclusion
One of the strengths of USAID is our ability to enlist the American
private sector in projects of great importance to the country. Neither
we nor any other government agency has the expertise on hand that we
have been able to bring on board through our relationships with the
private sector in just the past two months. This was a major reason we
were able to position enough supplies and technical expertise in the
region to deal with a potential humanitarian crisis and start our
reconstruction efforts quickly and aggressively.
But if we are nearing the end of the emergency phase of our work,
we are a long way from completing the reconstruction, for our goal is
nothing less than the transformation of Iraq into a functioning, stable
state that poses no threat to its own citizens or its neighbors and
serves the interests of the Iraqi people. Rebuilding the physical
infrastructure of the country is but one part of this. Helping the
Iraqis build the institutions of an honest, democratic state that
represents the broad spectrum of Iraqi society at the local, regional,
and nation level and a functioning, transparent economy based on the
power of the private sector will be at least as important. We have no
illusions that this will be quick or easy. The President and Secretary
of State have made it clear that the United States is in this for as
long as necessary.
Thank you.
The Chairman. Thank you very much. Let me just indicate
that we will now have a question period in which we will have 7
minutes on the first round so all can be heard. We may then
need to proceed through additional questions.
I would just say at the outset that this was an apropos
comment made by my colleague Senator Biden as you were
proceeding, and I agree with him. He said these gentlemen
really mean business; we're getting somewhere. As a matter of
fact, the testimony is impressive. I would commend to all of
our colleagues the four papers you have presented plus the
additional information you have furnished, because it does have
a structural soundness to it, a tactical and strategic emphasis
that I believe is very important for all of us to understand
and to build upon. Sometimes people feel they are almost being
harassed by our insistence. I think that we feel excited that
you are proceeding in so many ways and with such success.
Let me just say that each one of you has played a role as
part of the administration, and I once again mention Senator
Biden's earlier quote about how he found it impressive that the
President of the United States was meeting one on one with the
leaders of the Arab world, expressing as a matter of fact that
we are going to have success with the road map. Now skeptics of
that process abound everywhere. They ask, are we really staying
the course and is there longevity to this? My own judgment, at
least from my knowledge of President Bush, is that there is.
People will be surprised, as they will be, I think, with Iraq.
We are now talking about a successful Iraq down the trail.
You're saying we are going to take the time and spend the money
and do the planning so that, as a matter of fact, in the war
against terrorism, there will not be a nation out here
harboring young men who fly airplanes into our World Trade
Center or into our Pentagon, a nation that has seen a festering
mass of difficulty for the last 20 years. As you have
explained, the government not only tortured its own people and
ran down its economy, but from time to time attacked others and
used weapons of mass destruction against others. This is a
matter of record. Now it's gone, what is coming in its place is
what you're trying to describe.
Let me just say that there are two technical challenges
that I am curious about in my time frame. The first has to do
with the debt. You pointed out, Secretary Taylor, that you have
had success in getting forbearance with regard to demands for
payment for servicing that debt through 2004. That's important,
because the dimensions of the debt are difficult to define,
quite apart from what is to happen with it.
It is all well and good for people to argue that the Iraqis
ought to govern themselves, Iraq for Iraqis. Yet the fact is,
whoever is in Iraq now is faced with dimensions that are very
substantial. So, without there being someone to more or less
wipe the slate clean, whatever fledgling government that comes
along could be crushed by international pressure, by demands
for payment of this debt, whatever it may be.
You may not be able to go further than you have in trying
to define the dimensions of it, or precisely what kind of
conversations we're having. Yet I hope that we're having
conversations with European countries, with Russia, with other
countries, that indicate that they are going to need to settle
this situation for very little. In other words, we are not
going to have a case in which America tries to put together a
country to finance the debts of other countries that really
need to take a differing view.
My second question is an internal one that any of you may
want to answer. Congress did appropriate the supplemental of
about $2.475 billion. There was a first report to Chairman
Young, but it doesn't have much in it. It's not really clear to
me, in other words, what Ambassador Bremer has asked for and
what he has been granted, and how far $2.475 billion takes us.
That part of our internal housekeeping seems to remain either
vague or nonexistent. If any of you could comment on the first
matter that I raised, or the $2.475 billion and who's asking
for it, who's getting it, and where that will take us, I would
appreciate it.
Mr. Taylor. Mr. Chairman, I'll take the first one, or at
least get it started. You are correct to emphasize this very
important problem. I think the success we have had so far, of
having an agreement that we can't expect service payments at
least through the end of '04, has been significant, because it
was a concern as we make plans for the budget for this year and
next year that we can effectively zero out that alone.
I think in answer to your question about discussions with
Europeans, many of these discussions have taken place in the
context of the G-7 or G-8 apparatus that we have, and
particularly the meeting of the G-8 finance ministers including
Russia that occurred in France a few weeks ago delved into
these issues. There was quite a bit of interest in resolving
them, first as you say, to get an estimate of the size of the
debt. There is a lot of uncertainty. The estimates we got
originally, we see have to be revised. There's quite a range,
$60 billion to $130 billion, it is a huge amount, and the range
of uncertainty is huge.
What we are doing first is having the so-called Paris Club
survey all its members to find out what their estimates of the
debt are. Second, we have had the IMF survey the non-Paris Club
countries which also have a lot of debt, particularly some of
the Eastern European countries and countries in the Middle
East. Those two things together will provide us with estimates.
We also have people on the ground in Iraq going through
records to estimate, trying to get a better sense of what the
debt is.
As soon as that is together, we are going to sit down and
try to find a way to have what is necessary, and that is
substantial reduction in the value of the debt, and we will
work on that cooperatively. So far it seems to me that things
are going better than I could have expected and it does show
cooperation, but there are going to be differences of opinion
amongst the various debtors.
Dr. Zakheim. Let me start with the answer to your second
question, Senator, and I think Mr. Natsios may want to talk
about this as well. In terms of the appropriated funds and how
we look at those as opposed to the other funds, clearly there
is a sense that if we are not paying monies directly to the
Iraqi people, for example, funds to set up the original Office
of Reconstruction and Humanitarian Assistance, ORHA, which has
now been folded into the CPA, we have already spent or
committed $250 million of appropriated funds to setting up, or
covering rather, the operational expenses. We spent or
committed $175 million of appropriated funds for natural
resources risk remediation, that's to remove unexploded
ordnance and emergency repairs and so on. So these are the
things that we spend money on or contract essentially to help
ourselves administer or to do some things that we are really
doing.
When you then look at payments to Iraqis, for example, it
makes a lot of sense not to tax the American taxpayer in effect
by using appropriated funds to pay Iraqis when you have Iraqi
funds to do so. So that is a general rule of thumb, and as I
mentioned earlier, we have spent $195 million, of which we
spent about, as I said, $30 million or so, a little less than
that, on ministry start-ups. The rest were spent really through
salaries, and we requested $258 million, again, overwhelmingly
for salaries for Iraqis.
The Chairman. That's very helpful. The business plans for
Iraq still are not clear to me, and maybe not to you. You're
still forming them, but at least you've put some pieces in,
made some estimates regarding the oil revenues, made some
decisions as to whether to pump more oil or not, and started to
determine how much investment is required for that and other
sources of revenue. At some point these funds that are now
impounded and have been found are going to be exhausted if they
are not recurring, so in an ongoing procedure that goes on for
months and years, the cash flow situation here is important. We
are trying to figure out for us at least, two people who are
going to be voting on appropriations as they go down the trail,
what we might anticipate for the American people. Therefore
this is still, in my mind's eye, something that I would like to
see fleshed out a little bit more.
Likewise, the debt situation, as you say, maybe $70
billion, maybe $130 billion, maybe more than that. Some have
made estimates; everybody is trying to divine what we think is
owed there. All I'm saying is that to leave the Iraqi people
facing all of that as the rest of us leave and say do your
best, would be ridiculous. Having undertaken the responsibility
of nation building in Iraq, we're going to have to build the
debt structure to end it in one form or another, or there will
be no viability after these cash flows that I'm talking about
finally come along. We know what they are, and we either
supplement them, or we get the French, the Germans, the
Russians, somebody else to also contribute to the cash flow,
which is a pretty good idea. One reason I would sort of like to
see what kind of flow there is going to be is that we then
could become rather poignant in asking them to do those things.
You know, as I visit Russia to talk about arms control, I
could also talk about debt, and about their obligations.
Senator Biden and others have visits and we do some of this
work from time to time. Sometimes it's impressive to people
that we're worried about it and we might be voting on it. This
is why these are not abstract questions which the
administration answers in dribs and drabs until we find out
what we're talking about. This is a team effort now, in which
we understand we're in there for a long while, and we try to
get some construct.
Having said that, you have filled in a lot of blanks today.
I thought it was very, very impressive, and I appreciate that
very much. Even as I raise these additional questions, I do so
in good faith; because as you know, we all need to be thinking
about them. This is not an antagonistic situation or a
competition; it's looking for the best thing that we can put
together at this stage.
Senator Biden.
Senator Biden. Thank you very much, Mr. Chairman. I want
to echo your view and express the cliche, we're all in this one
together. The American people are not going to stick with us on
this unless we are able to come up with a coherent and uniform
view.
I would begin my questioning by saying I think we suffered
from an overwhelming expectations game. On the ground in Iraq,
I'm sure, Mr Natsios, as you have found, the average Iraqi
looking at the awesome military power we had, does not
understand why we can't reconstruct Iraq as rapidly as we can
deconstruct it. I mean that sincerely. I see when I am
traveling, and I always kid about this, but it's true. I find
that we are the totality of their problems and the totality of
their solutions, from their perspective. And so the Iraqis are
sitting there saying if the United States really wanted to do
this, the water and the lights would be on, it would be like
the Lord on the seventh day, you know what I mean, and so
that's a difficulty.
The other expectation game is, with all due respect,
Secretary Taylor, and I do think you have made good progress,
the idea that we accomplished no one seeking any payment on
debt to 2004. This is no accomplishment at all in the sense
that nobody expected anything. They know there's nothing to
get, there's no way to get it out now, and I think the
expectation game is going to get very very very tough in terms
of the debtor community when in fact things start to roll a
little bit more. That means we are going to have a real hard
time making it clear that this has to be worked out. So I think
your real work is cut out for you, and I know you know that,
but I think the expectation game is real in terms of the debtor
community, particularly the smaller and the poorer countries,
or large countries like Russia with real needs, and I think
they're going to find it very much difficult to work it out. We
look forward to working with you to help in that effort.
Let me ask one question, Mr. Natsios. You mentioned the
success in Basra, and I'm not being a wise guy when I ask this.
Did we get the electricity on or was that the Brits? I mean,
was it you guys, was it AID who did this, or the Brits?
Mr. Natsios. I would like to give you any success story
attributable to us; however, it's almost never just one
institution. It was the British Marines with their engineers,
with UNICEF, UNICEF did some of the work, with AID, and DFID,
which is the British aid agency, all worked together on this.
Senator Biden. So you worked together on this. What I'm
trying to get at, again, is expectations. Was the bulk of that
led by AID?
Mr. Natsios. No. It was led by the engineers. What we led
with was funding, but that started before Bechtel arrived on
the ground and before the contract was activated. They started
that very early on and Bechtel has taken over much of that
responsibility.
Senator Biden. Now, let me ask Defense, you have given us
a pretty detailed estimate of the resources that we can bring
to bear right now to help build Iraq and as I listened I added
it up, and it's about $15 billion now roughly, based on your
statement, including congressional appropriations, Iraq assets,
UN and international donations, and projected oil revenues. Add
them all up in the near term, next 12 months roughly, and
you're talking about $15 billion. What I still don't have a
sense of from all this testimony here is what are the costs
going to be over that same period of time, matching those
revenues? Do we have an estimate of the cost?
I'm just going to lay it out and any one of you can jump
in, if you could speak to this. We're going to have, and I
don't want to get into a debate about how long, but at least
for the remainder of this calendar year, and my guess is the
next fiscal year, we are going to have somewhere over 100,000
American troops in the region and we're going to have probably
close to 150,000 troops. I would like to know what the annual
cost of maintaining just those troops is, which as I understand
it is not being paid for out of any Iraqi assets frozen, any
Iraqi assets in the future, any Iraqi assets at all. And
although there will be contributions, God willing and the creek
don't rise, from NATO forces and others to supplement those
forces, there will be no in-kind contribution that I'm aware of
to pay for the maintenance of those U.S. forces. So what is the
cost of that, of our current deployment?
[The following information was submitted by Dr. Zakheim on
August 8, 2003 in response to Senator Biden's question:]
Dr. Zakheim. Based on current mobilization levels and
projected demobilization schedules, the total estimated cost of
maintaining the current mobilization and military operations
now in Iraq is approximately $3.9 billion per month. However,
projecting annual costs out into the future cannot be done with
any certainty at this point--and it may be misleading to
suggest that any such estimate is valid. The drawdown of troops
in support of Operation Iraqi Freedom is currently underway and
will continue through next year. The U.S. Central Command's
stability operation plan for Iraq is still evolving to meet the
dynamic situation within the country. The number of troops and
the pace of demobilization are still to be determined.
Therefore the annual cost of supporting the troops cannot be
estimated with any degree of certainty.
And second, what are the additional cost estimates that we
have in the near term, meaning the next 3, 6, 12 months, for
all the things that you've talked about, and how do they match
to revenues that are pledged, we have appropriated, or
represent assets of the Iraqis?
[The following information was submitted by Dr. Zakheim on
August 8, 2003 in response to Senator Biden's question:]
Dr. Zakheim. The costs for the current post-combat
transition-stability period is approximately $3.9 billion per
month. However, this level of spending can change significantly
if the level of operations (OPTEMPO) or the number of Reserves
deployed were to change. A limited drawdown of troops in
support of Operation Iraqi Freedom is currently underway. The
environment within the country remains dynamic, however, and
the U.S. Central Command stability operations plan continues to
evolve. The number of troops and pace of demobilization over
the next few months has not yet been determined.
Projecting costs for the next few months is difficult due
both to the dynamic environment within Iraq today and to the
continuing identification of reconstruction needs. We are
continually assessing both the needs and our ability to garner
the appropriate resources. To date the international community
has offered to contribute over $2 billion in cash and in-kind
assistance for Iraq reconstruction and humanitarian assistance.
This amount is expected to rise significantly in the next
several months in response to further UN appeals for
assistance, an informal international consultation meeting on
the heals of the UN Flash Appeal, and a formal international
donors conference planned for September 2003.
In addition, the United Nations Security Council Resolution
(1483) calls for certain monies to be placed in the Development
Fund for Iraq (DFI) which will be disbursed at the direction of
the CPA. The DFI now has an initial deposit of $1 billion
derived from the UN's ``Oil for Food'' escrow account. It is
expected to also accept proceeds from the sale of petroleum,
petroleum products and natural gas and returned Iraqi assets
provided from UN member states.
Approximately $1.7 billion in formerly blocked and
confiscated Iraqi state assets in the U.S. have been vested in
the Treasury Department for apportionment to Federal agencies
for requirements that benefit the Iraqi people. In addition,
about $800 million in Iraqi state assets have been brought
under U.S. control in Iraq. The seized assets, which include
primarily U.S. dollars are being verified for authenticity.
Finally, in the Emergency Wartime Supplemental
Appropriations Act, 2003, Congress appropriated $2.475 billion
for the President's Iraq Relief and Reconstruction Fund which
is the primary source of U.S. government funding for Iraqi
recovery activities. Congress also made $489 million to the
Department of Defense within the Iraqi Freedom Fund to be used
if needed to repair damage to Iraqi oil facilities and to
preserve a petroleum distribution capability.
Dr. Zakheim. Let me start with the military costs. The
Congress gave us a supplemental of approximately $62 billion,
most of which was for maintaining operations, and those were
assumed to the end of this fiscal year. We have already
allocated and essentially paid back something slightly over $30
billion to the services for operations that they had
essentially forward financed.
We are still going through our mid-year review of expenses,
and what costs we project out to the end of the fiscal year,
and we believe that the supplemental will be adequate.
Senator Biden. The end of the fiscal year being this
October?
Dr. Zakheim. Yes, sir, September 30th. It will be adequate
to cover within reason whatever number of troops remain. The
reason for that is that we had built in some estimates for
moving troops back and there is a cost to that, and the pay for
the troops, of course, is a constant wherever they are. So the
real issue is, how much more are you paying to keep the troops
out there, as against how much are you paying to bring them
back, and it looks at present to be in balance.
We will be able to get you better numbers for the record a
little later on when we finish this review, but it looks like
the supplemental will be covering the cost of troops through
the end of the fiscal year. Beyond that, I am not in a position
to predict right now.
Senator Biden. Well, I have not heard anybody even
postulate that we are likely to bring home the bulk of American
forces in the next 12 months, not the fiscal year. We're now
doing the appropriations process, we are in that cycle, and we
are going to appropriate money for the Defense Department,
which is already well underway. Can you give us the estimate as
to the cost for the next fiscal year, because you have to be
doing that now? What is the cost for the next fiscal year of
maintaining the projected military presence, whatever that is?
I know you don't know for certain, but that's part of the
budget process now and there probably will be a supplemental
come January of next year again if past is prologue, and that's
not a criticism, it's an observation. So, can you give us a
sense what we're going to need for the next fiscal year just to
maintain troops which comes out of direct Congressional
appropriations?
Dr. Zakheim. Regarding the statement you just made about a
supplemental in January, I cannot talk to the future. The
reason is that last year the supplemental came quite a few
months into the fiscal year. Right now, to estimate the timing
of a supplemental we have to do two things. First, we cannot
forward finance again until we get our estimates right, and
then we have to get our estimates right and get them up to
Congress. So at this stage, I would not be doing any justice to
anyone by giving you a concrete estimate on that.
Senator Biden. With all due respect, and I know my time is
up, if you guys don't have an idea in June of 2003 what the
cost of maintaining forces is going to be in Iraq for fiscal
year 2004, then it's not the Defense Department that I
remember. You guys have to have an estimate now. If you're
going to wait until next January to present us with a proposal,
that is, I would argue, irresponsible, irresponsible. You've
got to give us your best estimate now; and so I assume that's
in train, and if it's not in train then it's derelict.
Dr. Zakheim. I don't think we are derelict, Senator. I
think I indicated that it was in train. All I simply said was
that in putting this estimate together, and particularly as you
yourself indicated, with regard to troop levels and bringing
troops back and so on, that does take a little time. It is not
a question of whether we wait until January, it is simply a
matter of assessing where you are and projecting out where it
is apt to be. You cannot predict perfectly. We have done pretty
well with the supplemental, but we cannot predict perfectly and
we want to have our estimates right.
Senator Biden. What is the current cost of maintaining
deployment per month now, just now?
Dr. Zakheim. Probably in the region, if you include the
cost of reserves, in excess of $3 billion per month, but I can
get you that figure accurately.
[The following information was submitted by Dr. Zakheim on
August 8, 2003 in response to Senator Biden's question:]
Dr. Zakheim. Based on current mobilization levels and
projected demobilization schedules for Operation Iraqi Freedom
(OIF), the total estimated cost for the remainder of the fiscal
needed to maintain the current force level is approximately
$3.9 billion per month. This estimate includes the following
costs:
The Department anticipates that on average approximately
124,501 reserve component members will be mobilized on active
duty for OIF during FY 2003 at an estimated incremental cost of
$0.8 billion per month. This cost estimate includes all pay and
allowances as well as personnel support costs (e.g., medical,
temporary duty costs) associated with mobilized Reserve and
Guard members.
In addition, approximately $500 million per month is
estimated for the incremental cost for imminent danger pay,
family separation allowance, foreign duty pay, subsistence,
defense health care costs and other military personnel support
costs for personnel directly supporting OIF.
Also, the Department estimates that ongoing operations
during the transition and stability period will cost
approximately $2.6 billion per month. Included in this category
are various necessary consumable items, such as subsistence,
fuel, spare parts, and transportation costs and other ground,
air and naval operational costs.
Senator Biden. Thank you. I will come back.
The Chairman. Thank you very much, Senator Biden. Senator
Hagel.
Senator Hagel. Mr. Chairman, thank you, and gentlemen,
thank you for appearing this morning.
To follow on with Senator Biden's questions on costs of
maintaining our forces in Iraq, Dr. Zakheim, would you clarify
where we are with force structure now for example, which
countries have troops in Iraq, are providing additional
security, what the numbers are? For example, I think when
Secretary Wolfowitz was up here a couple weeks ago, he noted
that the British had 20,000 troops in Iraq. My understanding
now is we have 10,000 in Iraq. Are they demobilizing, who's
there, what do we anticipate in addition to allied troops? Are
you factoring those in, at what numbers. To replace our troops?
Would you clarify that picture for us?
Dr. Zakheim. Well, Senator, most of that I will really
have to do for the record, but let me say this. The number of
the troops that are out there and that would be coming out
there obviously would be less than those that were fighting the
war, and that explains to some extent the turnover in British
forces. I will get you for the record the exact numbers as to
where the British are right now. In terms of other
contributions, again, this has to be worked through Ambassador
Bremer and the Coalition Provisional Authority (CPA), but we
have quite a few offers, some of them are well-known. For
example, the Spanish have offered forces, the Italians have
offered forces, as well as many smaller countries.
Senator Hagel. Pardon me for interrupting, but could you
tell us who is on the ground there, which countries have forces
there?
Dr. Zakheim. The British have forces on the ground, the
Polish have had forces on the ground.
Senator Hagel. They had?
Dr. Zakheim. I believe there are still some there but I
would have to check on that. There are some smaller units and I
will get you that for the record, Senator.
Senator Hagel. To go back to the British forces, are my
numbers correct that there are 10,000 troops, British troops
there now, versus 20,000?
Dr. Zakheim. I'd have to check into that.
Senator Hagel. You're not sure?
Dr. Zakheim. I'm not sure.
Senator Hagel. That's a little puzzling, don't you think,
if you're coming up here to testify about the issue of
reconstruction and security, anticipating questions that
Senator Biden asked, that the Chairman has asked, and others
will ask, and you have no idea how many British troops are
there?
Dr. Zakheim. You are talking about a transition; so if I'm
going to give you something, I want to be sure that it's
accurate to the day.
Senator Hagel. How about a ballpark? Can we get you on the
record to take a wild guess?
Dr. Zakheim. I don't like----
Senator Hagel. Are 20,000 still out there?
Dr. Zakheim. No, 20,000 are not still out there.
Senator Hagel. What is your position at DOD?
Dr. Zakheim. I am the comptroller, Senator.
Senator Hagel. That means controlling. As I listened to
your testimony, everything has to go back through you; is that
right?
Dr. Zakheim. Well, certainly with respect to resources,
that's correct, Senator.
Senator Hagel. Well, troops are classified as what?
Dr. Zakheim. But they are British troops.
Senator Hagel. And that's not factored in as to what may
be a factor as to troops we'll need, more or less, because our
allies have troops or will have troops, that hasn't factored
into your equation?
Dr. Zakheim. Force planning, sir, is normally done by the
Joint Staff, and requests of other nations for forces are done
in conjunction with our policy people. The last time I checked,
sir, the British government does not run those kinds of things
through me, and it would be presumptuous, quite frankly, to do
anything other than try to get you the facts on the ground as
opposed to talk about their decisions. That is not my theme,
sir.
Senator Hagel. All right. Let's try another witness and
maybe we will get some answers.
Mr. Larson, the June 24th meeting that you described, tell
us about what's going to happen there and what you anticipate,
what are the objectives? Is this to get allies to commit to
resources?
Mr. Larson. This is not a pledging conference as such.
Senator Hagel. International donors?
Mr. Larson. Yes. It's beginning the process of preparing
for a pledging conference that I would hope to have in
September. What we found is that a good way to get this sort of
mobilization of resources underway is to have a meeting at
officials level, basically the level of those of us at this
table, and to task out work. One of the things that we want to
do and it's already underway is make sure that there is an
international assessment of needs, and the United Nations
Development Program and the World Bank are going to work on
that together. We will take stock at the conference of where
that work stands.
We believe it is going to be possible to have some
representatives of the Coalition Provisional Authority from
Baghdad attend this meeting to give a firsthand account of what
they're thinking at that stage, of what the nature of the needs
are, what the budget will be, a lot of the questions that
senators are asking today, recurrent needs for salaries,
investment needs for these various sectors that need to be
rehabilitated.
Then we will set in motion planning for a ministerial
level, cabinet level donors meeting, as I say, in September. We
are frankly pleased that the United Nations has been willing to
step forward and work on this with us. We were pleased that at
the G-8 meeting just ending yesterday, there was a positive
reference to this conference, and an understanding that the
international community is going to need to pull together.
Senator Hagel. So you're looking at September as the
meeting to get people to pledge and commit; is that right?
Mr. Larson. I think that's fundamentally right. There will
be a blend, Senator, between the humanitarian needs where there
has already been a fairly strong international response, and
reconstruction. We expect this June 24 conference to come
immediately after a meeting that is planned to focus on
reconstruction needs. I think that--excuse me, on humanitarian
needs. I think we will get pledges on humanitarian needs at
both conferences and then we will have to have that roll over
to a September meeting.
You know, donors will want to see what the needs are, and
that will come out of the assessment that is being worked on as
we speak.
Senator Hagel. Let me ask you this question. I know that
decisions are made at levels higher than yours, although your
level is pretty high, under secretary. It strikes me that
waiting until September--I mean, we are just now into June. I
don't know what the mystery is here as to the help that we need
in order to bring stability and some security to that country
and anticipating what those needs are, and then why it takes so
long for assessments.
Mr. Larson. Let me respond quickly. This is a rolling
process. Even as the military operations were underway, we were
meeting and having consultations with allies. We were going out
and making requests for things like help in policing, as well
as humanitarian support. So we are not just sitting around and
waiting until the fall. On those things where it's possible to
move forward, we are moving forward, and we're getting
responses, as Under Secretary Zakheim and I and others have
indicated.
But we think to carry this to the next level, we're going
to, in order to get the sort of commitments that we would like
to get out of European countries, for example, we are going to
have to go through a process that will give them some
benchmarks, and part of those benchmarks will be the needs
assessments that have been done internationally by the World
Bank and UNDP, and those can be meshed with the needs
assessment that the Coalition Provisional Authority.
Senator Hagel. Just a quick point, since my time is up. By
September, the world is going to change considerably in Iraq,
and all the crack planning that has been done obviously is
missing some of that, and we'll come back around to this in the
next round. But as I fade off in the sunset in my first round
of questioning, Dr. Zakheim, could you provide this committee
with a number of American troops in Iraq?
Dr. Zakheim. I believe the actual number right now is a
classified one.
Senator Hagel. You're kidding? We have newspaper reporters
at the tables here, and they may want to tell you, because we
read about it almost daily in every major newspaper. Deputy
Secretary of Defense Wolfowitz gave us a number when he was
here. So that's your answer?
Dr. Zakheim. That's my understanding. I will get you the
number.
Senator Hagel. Maybe some of the reporters want to give
you the numbers, but we will see the next round of questions.
Thank you, Mr. Chairman.
The Chairman. Senator Sarbanes.
Senator Sarbanes. I pass for now.
The Chairman. Senator Feingold.
Senator Feingold. Senator Sarbanes, you are very
courteous, thank you.
Why don't we start with Mr. Zakheim. The administration has
rightly emphasized the idea that Iraqi resources will be used
for the Iraqi people. This is a very important idea, but I'm
sure you agree that just articulating it is not enough. So my
question has to do with the transparency of this. How are the
Iraqi people supposed to know how found funds and seized assets
and oil revenues are used? You did mention that there are
careful accounting procedures, but what is the proactive effort
that is being made to ensure that this information is actually
available to the Iraqis? Since the United States is now engaged
in nation building in Iraq, doesn't it make sense to do
everything we can to establish a culture of transparency and
accountability right away?
Dr. Zakheim. I completely agree with you, Senator, and I
think as you are well aware, the presidential envoy, Ambassador
Bremer consults with Iraqis, there are Iraqis working back at
the ministries and therefore, anything that is going to be
public for us will be public for them. There is no particular
reason to hide from them what is being done with their funds,
it's quite public.
What I have told you this morning regarding the expenditure
for salaries, for example, is that we are giving them the
numbers, we are providing them. It is no more, no less than
that. There is every reason to provide the same level of
accountability to the Iraqi people, since they are going to
want to know what happened to their money, as it would be to
the United States Congress and the American people who want to
know how we are treating that money as custodians.
Senator Feingold. What are you actually doing proactively
to get that information out?
Dr. Zakheim. As I understand it, the Coalition Provisional
Authority is in constant contact with leading Iraqis. There are
efforts to stand up the ministries. We put monies into that so
that there are Iraqi civil servants working who would have
access to information. We are also funding two daily
newspapers, which will provide announcements and information
for Iraqis. As you know of course----
Senator Feingold. Is that kind of information currently in
those newspapers?
Dr. Zakheim [continuing]. I doubt it probably is as yet,
but it could be. It is probably most useful for Iraqis in the
civil service sector. Again, we are rehiring people, paying
them, and once they are on board, they will have that
information.
Mr. Larson. Senator, your question also touched on the oil
aspect of this. Just to say briefly, the Security Council
resolution sets out a relatively clear process for having
transparency with respect to the use of oil proceeds that are
deposited into the development fund for Iraq. It includes an
international advisory monitoring board that would have
representatives of the UN Secretary General, the managing
director of the IMF, director general of the Arab Fund for
Economic and Social Development, as well as the World Bank
president. So with respect in particular to the development
fund, which will be the repository of oil proceeds, there is a
process that will ensure accountability and transparency in the
use of those revenues.
Senator Feingold. Let me ask anybody on this panel more
about just the expected cost of overall stabilization and
relief and reconstruction. Obviously the percentage at this
point that the United States is enormously greater than the
other possible contributors. I would like to know how much the
United States has spent to date. Do we expect the relative
percentage of what we're spending versus other donors to
change? What can we expect the percentages to be once that
happens. Mr. Zakheim?
Dr. Zakheim. As I indicated in my testimony, we are
clearly providing the largest percentage. That will change,
because once more donations come in and particularly given the
conference that will take place, as Secretary Larson said in
September, we expect that the size of our percentage will
change, although we may remain the largest donor. That is the
case in Afghanistan and again, there our initial percentage was
much larger. With the influx of other contributions, that
percentage diminished. I expect a similar pattern with respect
to Iraq.
Senator Feingold. What do you anticipate the pattern will
be, what's the goal? Where are we at now and what is your plan
and our plan, given your role as comptroller, for what
percentage we will be paying and others will be paying? I would
like to get some number estimates of what the goal is.
Dr. Zakheim. The first thing to do, as Secretary Larson
noted, is get the needs assessments done. Quite frankly, the
international financial institutions were reluctant to send
teams out to Iraq until there was a Security Council resolution
passed. These needs assessments take some time. Once we have
them and we know the size roughly of what we are trying to
achieve, we would then go out and solicit support from
countries that are wealthier and countries that are not. Small
countries have contributed already. Organizations like the
European Union are likely to significantly increase their
contributions over the long term once those needs assessments
are done.
Until that point, I think it is very difficult to make an
estimate of just what our percentages are likely to be.
Senator Feingold. But I'm asking you what our goal is. My
constituents want to know how much we're going to pay. They
want to know as much as possible what the total will be and
what can be expected as a percentage by other countries. I
understand that that can be affected to some extent by what the
needs are, but you must have an objective in mind with regard
to how much the United States of America is going to pay here
and how much other countries are going to pay. I want to know
what that objective is.
Dr. Zakheim. Our objective is clearly to solicit as much
as we can overseas. Just to give you another example why it is
so tough to predict, we cannot give you the revenues from oil
which are not simply going to be available for reconstruction.
Sixty percent are still going to be used for food. As that
situation improves in Iraq, oil revenues will be available,
that will lower the overall numbers. It's tough to predict
that, we have to do some serious analysis by lots of people. So
to say, ``Well, here's a cap on our numbers or here's a cap on
our percentage,'' when we clearly don't know the size of----
Senator Feingold. I wanted to know, though, not a cap.
What's your goal? What would you like to see happen? Would you
like to see the rest of the world do 90 percent of this or 10
percent of this? What's a realistic goal that I can tell my
constituents, we're going to try to get other people to help us
with?
Dr. Zakheim [continuing].----I think the realistic goal is
to get them to contribute as much as they possibly can.
Senator Feingold. That is a complete non-answer. You must
have some goal. You must have some documents or papers that say
you know, our goal here is to try to push the donors and
everybody else to contribute X percentage. You don't have such
a goal?
Dr. Zakheim. I just do not think it's easily answered that
way, Senator.
Senator Feingold. Thank you, Mr. Chairman.
Prepared Statement of Senator Russell Feingold
I thank the Chairman and Senator Biden for holding this important
hearing, the second in a series scheduled since the regime of Saddam
Hussein fell and the U.S. became responsible for Iraq. These hearings
help to establish where we stand today and to clarify the sometimes-ad
hoc policies and procedures in place, so that we can meet our
responsibilities to the American people and exercise oversight without
constantly groping in the dark for the most basic information. So first
and foremost, these hearings are giving all of us the tools we need to
do our jobs.
Equally important is the role that these hearings can play in
helping to inform the American people about the magnitude of the task
ahead. The men and women of the United States military performed
brilliantly throughout the military engagement in Iraq, but that was
only one piece of the puzzle. The U.S. mission in Iraq is not yet
accomplished. Our work has only just begun. We still have not secured
the weapons of mass destruction and the means to make them that were at
the heart of this Congress's reasoning for taking military action. A
repressive order has been replaced with simple disorder. The American
people deserve to know what will be asked of them in terms of the costs
of reconstruction and the amount of time during which our military sons
and daughters, husbands and wives, and mothers and fathers will be on
the ground.
The hearings also help to raise some critically important issues.
Over the weekend the New York Times Magazine ran a very disturbing
article about conditions in Afghanistan, the last country where the
U.S. forcibly removed the government in power, rhetorically committing
to stay the long and difficult course of stabilization and
reconstruction in the aftermath of the conflict. I supported our action
in Afghanistan wholeheartedly. The Taliban government colluded with the
Al Qaeda network, and the President was right to use force against
these enemies. but as the article put it, reconstruction in Afghanistan
to date has been ``a sputtering, disappointing enterprise, short of
results, short of strategy, short, most would say, of money.'' This is
about more than failing the people of Afghanistan. It is even about
more than damaging our international credibility. It is about our
security. We know what disorder and international indifference bred in
Afghanistan in the recent past. And yet our resolve to do the hard work
of reconstruction has been called into question repeatedly over the
past year.
Now we face a new challenge in Iraq, and we are asking the donor
community, the Iraqi people, and the rest of the world to believe that
reality will match our rhetoric, and to believe that we will stay
committee to reconstruction in Iraq. There is ample reason to be
skeptical. Hearings like this one help all of us to assess whether or
not we are on the right course.
The Chairman. Thank you, Senator Feingold.
Senator Chafee.
Senator Chafee. Thank you, Mr. Chairman. I would like to
thank the distinguished panelists also. As we try and look at
the situation there in Iraq and judge what we have in front of
us, I didn't hear too much on the most important area, in
drinking water, and we're getting some reports from the media
on the ground that it's not very good, that most of the
citizens are getting their water from sewage choked waterways,
there's been an epidemic of cholera. What exactly is the
situation? I think Mr. Larson said that 75 percent of Baghdad
has drinking water, but didn't refer to the rest of the
country. Mr. Natsios addressed some obscure cities in the south
that had 100 days worth of drinking water available. What
actually is the situation with that most basic of needs,
especially if much of our food needs to be mixed with good
water. I guess, Mr. Natsios, you raised your hand. Give us an
assessment of where we are and that will help us know where
we're going and how bad it is.
Mr. Natsios. Our first priority is the drinking water and
the reason for that is that about 400,000 children have died
needlessly in the last five years, mostly from dirty water. It
is unconscionable that a country of this wealth has child death
rates of the size that Iraq has had. And Saddam successfully
blamed the international sanctions regime, which is nonsense.
This deliberately planned effort by the central government to
kill off the children of his opponents, the Shiites and the
Kurds.
Senator Chafee. But where are we, never mind who's to
blame?
Mr. Natsios. No, let me just go through this because we're
dealing with a very different position in different areas of
the country. The central part of the country, the water system
is in reasonably good shape. The areas in the north where the
Kurds are were independent of the central government, they are
in recently good shape; there are pockets here and there. Our
focus is on the 60 percent of the population who are Shiite in
the southern 60 percent of the country.
We just completed an assessment using Bechtel engineers of
the water pumping stations, and there are a total of 673 water
pumping stations and 253 treatment plants. The treatment plants
have had no chlorine for years. We have enough chlorine now
that we just purchased through UNICEF for 100 days so that all
of those areas in the south will have chlorine very shortly.
It's been ordered, it's on its way. That will at least clean up
temporarily the condition of the water system in the south so
we can drive down these death rates. The death rates in India,
for example, which has the largest numbers of poor people in
the world, 101 per 1,000 die before they are 5. The rate of
death is Iraq is 131. The death rate in Jordan among children
is 50. Iraq is considerably richer than Jordan, so we're hoping
to get the death rate down in the next six months to a year,
fairly quickly, and the water system will be the principal
means by which we do that.
In order to do this more systemically over the longer term,
in addition to fixing the water system we have to also fix the
sewer system. The sewer system doesn't treat sewage in the
south, it simply flows into the Tigris and the Euphrates Rivers
untreated and that's where the water comes from, for the most
part. There are also wells, but they're not in good shape
either.
So we are now in the process of taking the assessment we've
done to determine the facilities that need rehabilitation or
reconstruction first, and then the ones that are in reasonably
good shape, we will do those last. And Bechtel will begin that
process in terms of actually doing the reconstruction very
shortly. Congress just released to us $234 million last week,
and a good portion of that money will go into the Bechtel
contract and they can begin construction in this area.
We have improved the situation in Basra fairly dramatically
over what it was before the war or during the war, but it still
is nowhere near where it should be.
Senator Chafee. Thank you very much. You've painted a
picture of an extremely impoverished country with no access to
good drinking water pretty much, so I think that let's us know
the magnitude of the task in front of us, what we have as we
try to bring some stability and order to this country, starting
with that.
Moving, if I have the time, to the next precious liquid,
the oil, and Mr. Larson, you said that their capacity at peak
was 3.5 million barrels per day. Do we have some kind of goal,
I've heard that Iraq has the second largest reserves in the
world, known reserves in the world, as to what we want for
price per barrel? If we're able to generate close to 3.5 and
perhaps more in the near future, would that glut the market?
And I suppose there are competing dynamics here. We'd like to
have a lower price of gas here and help our economy, but we
also want a higher price per barrel to help the Iraqis. Do we
have an idea of what we want for a price per barrel on the
world market, and can we affect that in the years to come with
controlling the second largest known reserves in the world?
Mr. Larson. I think in the short run our focus is very
much on getting the existing capacity up as quickly as
possible. Mr. Ghadhban, who is serving as the CPO, indicated
last month that production had reached 800,000 barrels a day
and he expressed hope that it could get up to 1.5 million
barrels a day by the middle of this month. If so, that would be
very good progress. He also said he'd like to see it
approaching 2 million barrels a day by the end of the year and
then be sustained at that level or somewhat above that level in
2004.
We are in the first instance working very hard. The Iraqis
and the Army Corps of Engineers are working very very hard to
make sure that those sorts of goals can be met.
I think that the decisions about whether to increase
production well beyond the levels that had previously been
possible in Iraq is something that a new representative Iraqi
government is going to have to decide. For the purposes of my
calculations, I used the figure of $20 a barrel. It's a very
rough guess. It represents the fact that Iraq produces a sour
crude that sells at a discount of 3 to $4 dollars per barrel
under other types of crude oil. I don't think that we should
have a goal with respect to the price of oil. I don't think
that we can or should try to aspire to be controlling it. There
are lots of other factors, shifts in demand in many parts of
the world, production from Russia, from Kazakhstan, from
Venezuela, from West Africa, that all have a bearing on that.
Senator Hagel has been conducting a series of hearings
about the international energy market and the effect of this on
global energy security. One of the points that we had tried to
make in those hearings is that you can't focus on just one
major supply region to understand how the oil market works, you
have to understand that there are several big areas that
interact together.
Senator Chafee. Thank you.
The Chairman. Thank you very much, Senator Chafee. Senator
Sarbanes.
Senator Sarbanes. Thank you very much, Mr. Chairman.
I would like to ask about a product I recently saw. I was
at a conference over the recess and I learned that Proctor &
Gamble has a packet that you put in a 10-liter can of water and
it cleans it up. It seems to me that it was sort of a very
significant breakthrough in terms of providing clean water. I
understand that you all are dealing with them about that; is
that correct, and what does it offer in terms of addressing the
water problems?
Mr. Natsios. I had to demonstrate the technology to them
and I actually drank the water.
Senator Sarbanes. You don't look any worse for wear.
Mr. Natsios. No, I'm still here. I was a little disturbed
as to what the water was. They didn't tell me what it was when
I cleaned it up, they told me after I drank it what I had just
drunk. And as I said, I'm still here, although a little upset
about what I had just taken in. It's an extraordinary
technology and its very useful for us in emergency situations.
We may purchase some of it, we're looking at that now. I think
UNICEF is looking at purchasing some of this technology.
However, in terms of cost, over the longer term, we tend to
look at systemic solutions to water problems, which is to say
we want the water system itself to be functional or we want the
treatment plant, and we want the processing to take place in
the treatment plant and the clean water to run through the
system. That's the cheapest way so far. This is more expensive
than that, but in the case where it would take too long to do
that, in the interim, this is an appropriate technology where
the treatment takes place at point of use, so we are intrigued
by it and I can tell you, it does work.
Senator Sarbanes. Now, when is the donor conference?
Mr. Larson. June 24th, Senator.
Senator Sarbanes. Who is the point person for foe donor
conference?
Dr. Zakheim. It is a joint effort; the three of us in
particular are working on it.
Senator Sarbanes. I want to follow up on what Senator
Feingold was asking. Are we going to the donor conference with
no framework or guidelines of what it is we want to get in
terms of the allocation or a percentage of contributions?
Mr. Larson. I was looking for an opportunity, Senator
Sarbanes, for an opportunity to clarify a little bit about
that, our thinking on how we get the best possible contribution
from other countries.
Senator Sarbanes. What I understand Mr. Zakheim's answer
to be is well, we will get what we can get.
Dr. Zakheim. It is not exactly that. Let me clarify that
please, sir. Basically, the point is that there are a variety
of sources, including, Iraqi sources. If we lay out
percentages, we do run the risk of scaring some people off. The
June conference, in any event, is a technical one; in effect it
is a planning conference for September where there will be a
full-blown donors conference. Even then, if we say, ``Well,
we're doing X percent and we expect you to do Y,'' some people
will say, ``we just might not do what you ask of us.''
We found regarding Afghanistan, and I was involved there
with many of my colleagues here, that in raising the funds for
Afghanistan, we got several billion dollars of support. I found
that it was much more effective not to come up with fixed
percentages and instead push people to do more, rather than
say, ``Here's a percentage,'' because the first thing they will
say is, ``Who are you to determine the percentage.''
Mr. Larson. If I could just amplify slightly, Senator
Sarbanes, we found as we started approaching other countries on
this that some certainly in the coalition, but also some
outside the coalition were very very willing to be involved in
this sort of work. Japan, for example, is very very interested
in being involved. But we also want it understood that we have
a political process to get some of the other major contributors
into this game. Part of that process was getting the United
Nations Security Council resolution, because that was really a
signal that we could move forward.
A second part of the process is getting an assessment of
what the needs really are and making sure that the focus is on
helping the Iraqi people.
A third part of the process is helping, is trying to get
some distinction between the sorts of things that governments
have to do, humanitarian support, basic types of
reconstruction, from what will probably be done by the private
sectors. We have talked in this hearing about needs in the area
of telecom and possible big oil investments. I assume that
those are the things that the private sector is going to have
to step in and do.
I believe that politically the way to get countries on
board is to make them part of the preparatory process, to bring
them in on the 24th, make sure they feel that they are a part
of identifying what the needs are, and then I think based on
the experience that we have had in Afghanistan, that we, you
know, have a real shot at getting some significant support from
them, but if we came out with a percentage goal now, I think it
would be counterproductive to what clearly all of the senators
here and all of us at the table are trying to accomplish.
Senator Sarbanes. What is the percentage that we're
putting into Afghanistan?
Mr. Larson. I would like to get that for you for the
record. It's the plurality but it's not over half. We have
gotten very significant contributions from the European Union
for our work in Afghanistan.
[The following information was submitted by Dr. Zakheim on
August 8, 2003 in response to Senator Sarbanes' question to Mr.
Larson:]
Dr. Zakheim. At the Brussels conference in March, the
United States Government committed $600 million out of a total
international commitment of $1.8 billion, i.e., 30 percent. I
note, however, that the USG's total commitment for fiscal year
2003 was subsequently revised and will be on the order of $900
million (versus the $600 million pledged in Brussels). If other
countries do not make additional pledges, our overall share
will rise.
Senator Sarbanes. Now, I would like to ask Mr. Zakheim.
Secretary Rumsfeld said in a hearing before the Senate
Appropriations Committee, and I'm quoting here: ``Let me be
clear. When it comes to the reconstruction, before we turn to
the American taxpayer, we will turn first to the resources of
the Iraqi government and the international community.''
I'm interested, first of all, in ascertaining what are the
resources of the Iraqi government to which he is referring.
They are presumably seized Iraqi assets and oil revenues, I
would like to know the magnitude of those. And secondly, he
talks about the international community; what is he referring
to?
Dr. Zakheim. I think that's right in terms of the Iraqi
resources, it is the seized and the vested assets.
Senator Sarbanes. And how much is that ?
Dr. Zakheim. As I said, the amount seized is roughly $800
million, it is actually $798 million right now. That is
excluding gold that has been seized, and that is being assayed
with the help of the Treasury Department and the U.S. mint, and
we will know what the value of that is.
In addition, as you heard earlier, the vested assets, that
is, the monies that were essentially frozen in this country,
total about $1.7 billion.
So right there you have approximately $2.5 billion, which
is about the equivalent of what the Congress gave us in
appropriated funds. That gives you a rough sense of the
proportions.
Senator Sarbanes. And the oil revenues?
Dr. Zakheim. That is over and above that, Senator.
Senator Sarbanes. How much do you have to spend to get the
oil on line? I've heard a figure as high as $20 billion.
Mr. Larson. That's very exaggerated, Senator Sarbanes. The
CEO of the oil ministry that's working on this is suggesting
that it will take in the hundreds of millions of dollars to
achieve the goals he set out for this year, that is, to get
production up in the range of 1.5 million barrels per day
sometime this month, and to 2 million barrels a day by the end
of the year.
Where you begin to get these very large numbers is when you
begin to talk about actually increasing the baseline productive
capacity, going beyond where Iraq has ever been in the past.
And that's where I believe that one is really talking about how
much foreign investment can Iraq attract in order to increase
its baseline capacity.
Now there's a middle ground between 2 and some
significantly larger number, and that is, what would it take to
get them back to 3.5 million barrels a day. My testimony quotes
Cambridge Energy Associates with a figure of $3 billion. It is
a figure, I don't mean to endorse it, but it's sort of a
reasonable estimate of what it could take to get to 3.5 million
barrels a day.
Senator Sarbanes. My time is up, but I want to pursue just
for a moment, Mr. Chairman.
There is a story in the Washington Post today entitled,
``Iraq Is Ill Equipped To Exploit Huge Oil Reserves.'' The
story develops, in part, on the basis of a report by the
Council on Foreign Relations, spelling out some figures. And
this story is sort of miles apart from what we're being told
from the witness table. Now, you know, maybe this is all wrong,
but somehow we have to get to the point where we have a set of
facts that people are more or less agreed upon in terms of
being able to evaluate the situation.
Mr. Larson. Senator, I'll make two quick comments on
today's story. First of all, with respect to the cost that it
will take to get production up to the levels I indicated, 1.5
million barrels per day this summer, 2 million barrels per day
by the end of the year, I put my faith in the people who are
the ground actually assessing the physical state of the
infrastructure. No one knew before they were able to get on the
ground and take a look at these things exactly what had to be
done and exactly what it would cost. Now the numbers that I
have quoted to you today may turn out not to be right, but I
think they are closer by a considerable degree than any
estimates that were done at a desktop in New York.
The other piece of this article that I think was confusing
is that many of the comments were sourced to the French oil
company Total, and they were talking about what needs to be
done to get $5 billion or more new investment to develop new
capacity. And those are important issues, but they are issues
in my judgment that are not today's issues, they are issues
that will only really become serious issues at the time we have
a representative Iraqi government that is in a position to
decide whether they want to increase oil productive capacity
beyond what it has ever been in the past.
The Chairman. Thank you, Senator Sarbanes.
Senator Biden. Can I ask for a point of clarification?
Daniel Yergin, from Cambridge that you referred to, he told us
in the meeting that you and I attended that it would take $5
billion, not $3 billion, to get to 3.5 million barrels per day.
Your statement says $3 billion. We called to check. He said $5
billion, not $3 billion.
Mr. Larson. If we misquoted the Cambridge study, we'll
certainly clarify it, but I think Daniel Yergin would agree
that any of these estimates are very approximate, there's a
range, but if his point estimate is 5, we then we should change
our testimony.
Senator Biden. Yes, but it's a 67 percent increase, or
difference, so that's why I raised it.
[A follow-up to Secretary Larson's response follows:]
United States Department of State,
Under Secretary of State for Economic, Business, and
Agricultural Affairs,
Washington, DC 20520-7512,
June 11, 2003.
Hon. Richard Lugar, Chairman,
Committee on Foreign Relations,
U.S. Senate.
Dear Senator Lugar:
Thank you for allowing me to testify before the Foreign Relations
Committee on economic restructuring in Iraq on June 4. As always, it
was a pleasure to appear before the committee and to speak with you and
your colleagues. I look forward to continuing our dialogue on Iraq
reconstruction as we move forward to support Iraqi efforts to undo the
terrible legacy of Saddam's misrule.
Senator Biden asked a question about the numbers I had used in my
testimony concerning the costs associated with raising Iraqi oil
production to a rate of 3.5 million barrels per day. I cited a figure
of $3 billion for the Cambridge Energy Research Associates (CERA)
annual conference in mid-February, but Senator Biden recalled that CERA
has more recently used a higher figure of $5 billion to reach that
level of production. In response to his question, we have confirmed
with CERA that they have in fact increased their estimate of the likely
costs associated with raising Iraqi oil production to 3.5 million
barrels per day. The new estimate is at the high end of their late-
February estimate: $5 billion, raised from the lower level I cited in
my testimony earlier this week.
The fact that CERA's numbers have been updated reflects how
difficult it is to project potential costs associated with raising oil
production. Given the uncertainties, it is possible that CERA and other
analysts will revise the numbers further. It is important to note,
though, that even at $5 billion, the resources required to restore
Iraqi production to its highest historical levels do not approach the
tens of billions of dollars being discussed in the media.
I also want to make sure you were aware that the State Oil
Marketing Organization has announced a tender for the crude oil now in
storage in Ceyhan, Turkey, and in southern Iraq, with bids due June 10.
The first liftings should take place about a week after that. Restoring
oil exports under Iraqi management sends a clear signal of progress to
Iraqis and the international community and provides much needed
financial resources for the Iraqi people.
Please contact me or my staff if we can be of further assistance.
Sincerely,
Alan Larson
The Chairman. Senator Alexander.
Senator Alexander. Thank you, Mr. Chairman. I have
listened to the four of you and I thank you for your testimony.
My opinion is that your progress is impressive and specific,
and it answers a lot of questions. I have three questions I
hope to get in.
Mr. Larson, you just came back from France. The pictures
looked good. The president seemed to have a one-day good visit
there, but if I am not mistaken, France agreed to help with the
reconstruction of Iraq, and what might we expect from France,
and what could France do at this conference at June, for
example? What might we expect from France as we look ahead,
specifically regarding the Iraqi debt?
Mr. Larson. I think that the G-8 meeting was a very
important milestone in the process of reconstruction, because
the leaders were able to discuss privately the challenge of
reconstruction in Iraq. And in his concluding statement,
President Chirac's concluding statement, he referenced the
importance of this conference and the importance of working
together on reconstruction for Iraq.
We believe that France is very important in two respects on
donor issues. One, they are an important donor and contributor
in their own right. And secondly, as a large member of the
European Union, they will have a very very strong voice in
determining the extent and way in which the European Union gets
involved in reconstruction.
Finally, on the debt aspect of your question, the French do
preside over the Paris Club, the institution that Under
Secretary Taylor mentioned. Treasury and State represent the
United States in the Paris Club, and as Under Secretary Taylor
mentioned, we are pressing the issue in the Paris Club right
now. At this stage it's
basically a data collection issue, but I think that everyone
agrees not only with the point that if we cannot expect Iraq to
be servicing debt, at least until the end of 2004, and I they
at least privately would agree with Under Secretary Taylor's
statement, that when the time comes, it's going to be necessary
to get substantial debt relief to Iraq.
Senator Alexander. Mr. Zakheim, let me take the discussion
a different sort of direction. The administration now says
we're there for a long haul. The committee seems reassured by
that. I agree with that. However, not everybody is excited
about that and one group are spouses of many of the men and
women who are serving in our military. Last Friday, Senator
Chambliss and I each held hearings in our respective states,
and Senator Dodd and Senator Nelson will do so in the next
week, and then we will have a joint hearing later this month on
issues affecting military parents raising children. And what we
have is more missions, longer deployments, fewer soldiers, a
few more women in the service, more spouses working, and a lot
of pressure on our volunteer army.
And if family readiness isn't in good shape, it affects
readiness of our military. One witness before our subcommittee
on children and families last week pointed out her great pride
in her husband's work, but that they had a 17-month old
daughter and he's been in Afghanistan or Iraq for 15 of the 17
months, and most of the time he was home, he was training with
helicopters. He's a volunteer and he also volunteered for the
marriage, but there is a lot of pressure there.
And I wonder as we think about the future in this long haul
that we're all there for, we need to also be thinking, and I
hope you're planning as a part of all this, how we--the size of
our force structure and the length of our deployments, and how
that affects military readiness by not putting too much stress
on families.
Dr. Zakheim. Senator, we certainly do that, and the best
evidence of that is that re-enlistments are still very very
high. We have probably historic retention rates. We are doing a
number of things in terms of the pay and benefits that we are
providing our forces. Thanks to the Congress, we are able to
provide them with really healthy benefits and pay, not
necessarily yet fully competitive with the equivalent in the
civilian world, but certainly a lot closer than they were some
years back.
Second, we are looking very carefully--and the Secretary of
Defense has talked about this--at how we can realign--
particularly reserve and active missions--or rather, the
functions of the reserves and the actives. It turns out that
there are some things that are almost uniformly reserve
activities (civil affairs is a good example), because there was
some sense in the past that this is what reserves ought to do.
It is quite clear that this should not only be a reserve
activity.
Of course of all our forces are voluntary, but in a sense
with
respect to the reserves, some of them were more voluntary than
others, if you will. So we are looking very carefully at the
missions
and the taskings we are giving to our reserves. Some of those
might migrate over to the active force to provide a little more
relief in that regard, so reserves are not deployed for
excessively long periods. We are also looking at personnel
tempo, which affects the active forces as well. The course we
are taking is very much under advisement.
Senator Alexander. My last question has to do with
contracting authority. I want to make sure I have this right.
We've got the resolution, the United Nations says the UK and
the United States have the authority. There is an organization
which you call the CPA, Bremer's in charge. He reports to the
President; is that right?
Dr. Zakheim. That is correct.
Senator Alexander. He reports directly to the President?
Dr. Zakheim. He does report to the Secretary of Defense.
Senator Alexander. He reports to the Secretary of Defense,
so he's not the President's representative?
Dr. Zakheim. No, he is the President's envoy, but he
reports to the Secretary of Defense.
Senator Alexander. Oh. How does that work?
Mr. Larson. This is very similar to the situation of an
ambassador in another country. You know, the ambassador reports
to the President through the Secretary of State, and I think
this is similar.
Senator Alexander. I will leave that to the President.
Let me get on down to the next level. The next level is,
you had designated the Army to handle the contracts.
Dr. Zakheim. Yes, Senator.
Senator Alexander. So if someone wants to be a contractor
for drinking water, for a variety of--for all contracts going
into Iraq, they call the Army? Is that how you find out what to
do?
Dr. Zakheim. Well, what they do, the Army administers the
contract.
Senator Alexander. Who does the contractor call?
Dr. Zakheim. The contractors will go to the CPA. That is
their address.
Senator Alexander. Where is the CPA?
Dr. Zakheim. That is Mr. Bremer's organization.
Senator Alexander. So you call Baghdad ?
Dr. Zakheim. No. There are officials here as well.
Contractors also work for AID, for example, and then AID puts
proposals to Ambassador Bremer, so Ambassador Bremer and his
staff in Baghdad are the ultimate authority deciding what is
done, and then the various agencies.
Senator Alexander. I don't want to overstay my time, Mr.
Chairman, but I'm trying. I thought you simplified this and I'm
now a little more confused. So what does the Army do about
contracting?
Dr. Zakheim. The Army is essentially managing the
contracts; its role is simply to make sure that the contracts
are drawn up properly and are audited properly. It is basically
responsible for contract management. It will issue those
defense contracts that it is executive agent for. The Army will
not, for example, issue contracts that are issued by AID.
Senator Alexander. So the Army only does Army contracts. I
thought the Army was working for Mr. Bremer and the CPA.
Dr. Zakheim. Yes, but the Army is the executive agent for
the Defense Department and for the CPA.
Senator Alexander. Isn't the CPA in charge of everything?
Dr. Zakheim. Yes, it is.
Senator Alexander. Well then, why wouldn't they be in
charge of AID contracts?
Dr. Zakheim. I will let the director of AID answer that
one.
Mr. Natsios. The contracts that we let, we let 9
contracts, are AID contracts. They report to us, we spend the
money, we are responsible, we are audited by the GAO, the
Inspector General. All the money we spend is money that you the
Congress appropriated. We do not have any of these other
sources of money. All our money is appropriated money. The
contracts are by AID, they are AID contracts, I am responsible
ultimately as the CEO of AID.
We have a fixed set of things we are supposed to do that
was agreed to by an inter-agency process beginning last
October, and we are carrying these functions out. There has
been one or two more things that were added along the way that
we weren't planning to do, but the inter-agency process said we
want you to do this, please do it, and whatever we are asked to
do, we do.
Senator Alexander. Thank you, Mr. Chairman.
Senator Sarbanes. Mr. Chairman, could I ask one follow-up
to that? Who makes the decision on whether these contracts are
going to be non-bid contracts?
Mr. Natsios. For AID?
Senator Sarbanes. Well, no, for anybody.
Mr. Natsios. Our contracts, we have one contract that's
just for hiring some technical personnel people that we issued
last October, I think we hired 20 people, and was not bid. All
our other contracts are approved through what is called under
the FARS, Federal Procurement Act, limited competition. This
was done in January when there was debate before the Security
Council as to whether or not other countries would endorse
this, and so we were told by the inter-agency they wanted this
done quietly within the confines of federal law. And we did it
exactly according to the federal act and the FARS act.
A limited competition means you go to nine companies or
eight companies. In the case, for example, of the engineering
construction contract that Bechtel ultimately won, there were
seven companies, the largest engineering and construction
companies in the United States as prime contractors that were
asked to bid. They bid. There were two final bidders. We asked
for last best offer. We chose Bechtel because they had the
lowest price with the highest technical review, and they were
awarded the contract. But those were bid. They were bid using
this limited competition which we also used, by the way, in
Afghanistan and was also used in Bosnia.
It's a much faster process. Our process normally takes six
months from the time you bid the thing publicly to the time you
award the contract. We did not have six months, we were told we
have two months. I said then we must use a truncated process,
which there is a provision for in the FARS, which is what we
used.
Senator Sarbanes. Did the military do the same thing or
are you doing non-bids?
Dr. Zakheim. The way it is going to work is that--and this
is also in answer to Senator Alexander, so I can be clear on
this. When there is a requirement by the CPA in Baghdad, the
Army will be issuing the solicitations, contractors will
respond, and then the Army, once the decision is made, will
simply issue the award. Will the contracts necessarily be sole
source? No, not necessarily at all. Again, it is a function, as
Mr. Natsios said, of the urgency and the need.
Senator Sarbanes. You have been doing primarily sole
sourcing up to now; is that correct?
Dr. Zakheim. There has been, as you just heard, an urgency
there. We are caught really----.
Senator Sarbanes. No, no, I understand Administrator
Natsios' procedure and that seems to be in conformity with
existing law and seems to retain a competitive bidding
dimension, although circumscribed from what might ordinarily be
the case in order to address the urgency of the situation, but
it's not my understanding that that's what the Defense
Department has been doing.
Dr. Zakheim [continuing].----I'm sorry, sir, what do you
think we have been doing? You've lost me here.
Senator Sarbanes. Have you been following the procedure
that Administrator Natsios was just outlining?
Dr. Zakheim. What we have done, we have issued contracts,
some of them sole source. Again, because some of the things
that were needed, for instance supporting the ORHA people in
Baghdad, were exceedingly urgent.
Senator Sarbanes. Thank you, Mr. Chairman. I will pursue
it.
The Chairman. Thank you very much, Senator Sarbanes.
Let me start the second round just by making an
observation; you're welcome to comment. I have heard a
discussion of the technical conference on June 24th with a
potential pledging conference in September. This is an overall
point of policy of our government; and it is important that we
try to emphasize to other nations that we are all involved in
the war against international terrorism, all of us. The Iraqi
situation, as the President has stated on other occasions, is
one chapter of that, but it is only one chapter. Afghanistan is
another chapter. It is an ongoing story, and we do not know how
many chapters we are going to have.
One part of it, which precedes the Mideast, is the problem
of the leftovers from the Cold War with the Soviet Union. There
are huge stores of weapons and materials of mass destruction
that are potentially obtainable by terrorists. They could
obtain them from other sources, but Russia and the United
States have more than 95 percent of the stores. Already we have
drawn the attention of the G-8 to that issue, both at last
year's conference and in preparation for the G-8 conference
this year, attempting to pin down what was an overall pledge at
the time, that the United States was doing roughly a billion
dollars worth of work in this area in threat reduction and
other programs, and the G-8 would do a billion.
Throughout the past year, some of us, as we have visited
with the British and the French and others, have been asking
how much are you going to do? They began thinking about it, and
began to put some figures on this. We've had a hearing or two
here. I believe Mr. Larson was in one. Ideally you would have a
chart with 10 years of projects. Countries would be invited to
take on projects in terms of their own self interests and
geography. For example, tactical nuclear weapons or Russian
submarines that are not strategic but, nevertheless, would foul
up the waterways of the northern seas in a big way and so
forth, would be an important objective.
In any event, together we are moving toward cleaning up the
materials and weapons of mass destruction, the fissile
materials that might be a part of this intersection of fissile
materials and terrorists, would be the final bottom-line
existential event.
Now Afghanistan is an important part, and Dr. Zakheim has
said there have been pledges made. We have heard testimony that
some of the pledges have not been kept as yet, or at least
there has been some reticence in being forthcoming with the
monies that we might have anticipated. Maybe they felt we were
too reticent, that our plans were not comprehensive enough for
Afghanistan. Ours are becoming broader. The involvement of NATO
certainly is a breakthrough for that organization as well as
our overall diplomacy with European countries.
I sketch all this because I think it's relevant to whatever
you're going to talk about on the 24th of this month and
subsequently. This is not simply a cafeteria course on whether
you want to sample Iraq and get a little bit here and there. It
is really a question of our overall diplomacy in getting an
idea out there that the intersection of terrorism with weapons
of mass destruction, is a potential existential event for all
the participants, not just the United States. This was not just
an idea in which we became aggressors and decided to become
universal enforcers and so forth.
We have suffered here. Other countries have too, but maybe
not in the same dramatic way. They might sometime unless we all
work together and round up the rest of the terrorists. There
are a good number of things that we are doing. I hope that is
the context for the conference you are preparing for and for
whomever will represent the United States at this conference.
It seems to me that that's the kind of context we're going to
have again and again as we approach these issues.
Otherwise, whether it's debt servicing or who contributes
this or that, or what have you, it becomes an ad hoc matter of
the moment; and that really won't be good enough. We will be
back again in this conversation in which people ask Senators
representing Americans, how much are we doing, how much are
others doing, and how much are we asking others to do?
Now if the thought is, do as much as you can, make your
best effort. That isn't good enough. Ultimately this entire
situation is going to falter through mistrust of others,
whether they are allies or whether they just happen to be other
countries in the world that might be affected by terrorism. So
I just ask any of you, do you generally agree that this is a
reasonable context and if so, is that the way you're
approaching it?
Secretary Larson.
Mr. Larson. Thank you, Senator. I think it is, and in
answering, I would like to commend you for all the leadership
that you have shown on the issue of the Global Partnership and
cooperative efforts to reduce the threat posed from these
materials left over from the Cold War.
This provides, I think, an excellent example of what we are
trying to do. As you indicated, last year at the Canada G-8
summit, we were able to push through after a great deal of
diplomacy and effort, a plan that really was sometimes called
10 plus 10 over 10. In other words, to get a commitment for $20
billion over 10 years, of which the United States might provide
half. At this most recent G-8 summit yesterday and a few days
before, there was a reaffirmation of the commitment of the G-8
to that plan. We were able to bring in some additional
partners, Norway, Sweden, Poland. So we are growing this out
from the G-8 so it isn't just a G-8 initiative.
I think it is a good model or template, but to be able to
get that sense of commitment to other countries to a share of a
global effort, we first of all had to get them to accept that
it was a global effort, and I think the Security Council
resolution and the G-8 statement of a few days ago will be very
helpful in that regard. We had to give them a sense of what the
magnitude is. We had to give them a sense of the $20 billion as
being a rough estimate of what really ought to be done over the
next 10 years. And then we had to get into the hard work of
convincing countries that they needed to do their share of
that.
We do have a similar idea here. It's just that if we had
started with our partners with the $10 billion, we need you to
contribute $10 billion without having laid that foundation
beforehand, we wouldn't have had the success that we did on the
Global Partnership. And so, here in the case of Iraq, I think
we need to follow much of the game plan that we followed on the
Global Partnership.
The Chairman. I appreciate that response. It implies of
course that we are able to furnish to them a construct that
you're trying to provide for us today of the budgets, the cash
flow, the other aspects that indicate why we are doing what
we're doing and why we are anticipating that they would want to
do their part.
Senator Biden.
Senator Biden. Thank you very much, Mr. Chairman.
Gentlemen, there was an Office of Reconstruction and
Humanitarian Assistance organizational chart, that is obviously
no longer relevant. Is there a chart we can submit in the
record as to who reports to whom and so on? Is that available?
Dr. Zakheim. Certainly, Senator, and it is actually a
combination of charts so that there is more clarity, and we
will certainly submit it for the record.
[The following chart was submitted by Dr. Zakheim on August
8, 2003.]
Senator Biden. I appreciate that. Secondly, one of you and
I can't recall who, I think it was you, sir, indicated that a
national budget is being prepared for Iraq. Who's preparing
that budget?
Mr. Larson. I will take the first crack at this and maybe
Under Secretary Taylor may be able to amplify, but as Under
Secretary Taylor indicated, Peter McPherson is working with
Ambassador Bremer as the key person in Baghdad.
Senator Biden. Does he work for Bremer?
Mr. Larson. Yes.
Senator Biden. Okay.
Mr. Larson. And a main part of his job is really to
prepare, in consultation with the Iraqis and with the other
parts of the Coalition Provisional Authority, a notional
budget. Because it's through that budget that one can identify
what the immediate and investment needs are.
Senator Biden. I'm not trying to cut you off, but you said
a notional budget?
Mr. Larson. Well, what I mean is that you are going to
have to accept, we all are going to have to accept that in the
first instance, this will be a rough and ready budget,
because----
Senator Biden. But it will have numbers?
Mr. Larson [continuing]. It will have numbers, but it's
the sort of budget that if you scratch it too deep, any of us
would be able to raise questions about it, and he understands
that.
Senator Biden. Got you.
Mr. Larson. That has to be a starting point for coming to
the international community or anyone who wants to be a part of
this to see what the priorities are.
Senator Biden. When is that budget due? What's the time
frame?
Mr. Taylor. Let me add a few things about it. There is not
a set deadline for this, but the meeting in New York is an
important event to have as much information for that. What you
have been hearing from us in this hearing are pieces, some
different sources of funds from the assets, from the oil, and
the budget that's being put together by our team in Baghdad
working for Ambassador Bremer is the government's budget, and
the government's budget is the salary payment, the payment to
teachers, et cetera. But broader than that will be the whole
budget for reconstruction, which is going to include whatever
it has to do for roads, hospitals, et cetera.
And both of those are being done. There is actually a lot
of work on it going on right here in Washington.
Senator Biden. How many Iraqi ministries are there? You
know, when we sit down and do our budget, I think we can make
that comparison, we have certain functions, we have 13
appropriations bills. I mean, how many ministries were there
and how many ministries are we attempting to maintain? Not the
personnel, but is there a ministry for education, a ministry
for transportation? How many ministries are there?
Dr. Zakheim. I know that there were a total, I believe, of
24 ministries before the war. Some of those ministries are not
going to be stood up as quickly as others. The Ministry of
Defense obviously is a later one, agriculture is probably an
earlier one. My understanding, and we will get you an answer
for the record on that, is we are talking initially about a
half dozen more technical ministries that will be ramped up
earlier to deal with some of the more immediate, or what you
might say less national security types of problems like defense
or intelligence.
[The following information was submitted by Dr. Zakheim on
August 8, 2003 in response to Senator Biden's question:]
Dr. Zakheim. Prior to the war, there were 23 ministries. As
part of the restructuring of the Iraqi government, it is
anticipated that four of these ministries will be dissolved due
to their past history of abuses or misuse. These include the
Ministries of Intelligence, Information, Higher Education and
Scientific Research, and the Military Industrialization
Commission.
Senator Biden. Are there ministries that you would
consider functioning? Not that we should or shouldn't, I'm just
trying to get a sense of what's on the ground. What ministries
are up and running now, if any, and which ones are the
priorities to get up and running? Agriculture, you said is one.
Can you tell us which ones?
Mr. Taylor. I can tell you the Central Bank is up and
running and that's important. These economic ministries we want
to move very quickly on.
Dr. Zakheim. Regarding the Agriculture Ministry, they are
bringing back the civil servants. Obviously the more senior the
civil servants, the greater the problem; because these people
got to the top as part of their connection to the old regime.
Then there is a problem with just getting the buildings up to
speed because some of them were destroyed.
Senator Biden. I'm just trying to get a sense of the time
line. January 1st is the date that every witness has basically
said from the Defense Department on, that is really the time,
though there was a lot of preliminary planning before that, the
administration began to really focus on the reconstruction of
Iraq after Saddam is gone. And one of the things that we had
heard in this committee and in our private conversations at the
White House as well as State and other places, was that there
was a game plan that existing ministries were going to be able
to be preserved, if you will, because there were very well
educated civil servants who were competent, who were within
those various ministries. And once you got rid of the bad
apples at the top, so to speak, they would be able to get
functioning relatively quickly. Or at least that was the
expectation in November and December of last year--that we had
assigned counterpart persons from departments in the United
States.
So there were Department of Education people from the
United States named and assigned to help get up and running the
Department of Education, if there is such a department stand-
alone in Iraq, and there were going to be some from the
Department of Agriculture, et cetera. So we were going to take
American personnel who were going to be the de facto ministers
functioning, getting these agencies up and running.
I would like, since my time is up, for the record, to know
what ministries there are that you believe that are, that exist
in Iraq, what American counterpart personnel by name have been
assigned to those ministries, what their functions are, and
what the needs that remain are as you're assessing them now, so
that we get, or at least I get a sense of how this is going to
be stood up, how we're going to deal with this.
I know my time is up, but I would also ask Mr. Natsios, for
the record, you had identified on February 19th, in a vision
statement, benchmarks and a range of sectors in Iraq for
reconstruction. If you could update those for us, it would be
very very helpful. And I realize this does not cover the
problem we would all agree is maybe the most important thing
that's going to hold it all together, what the transition
government is going to be and who is in charge of doing that
and how that will be stood up, et cetera.
But one of the big pieces is the reconstruction of the
justice system. Who would be the person, if we wanted to get
the most knowledgeable person in the administration to talk
about the state of the existing Iraqi justice system, what
plans we have, preliminary or otherwise for reforming or
getting that system functioning, who is the person we should
talk to? Who do I pick up the phone and call? I'm not being
facetious now. I'm trying to get a sense of who is in charge of
the justice system, the justice department for Iraq.
Mr. Natsios. Can I answer your earlier question, Senator?
Senator Biden. Yes, you can. Does anybody have a name for
who that person is? Okay, so we don't have it. Mr. Natsios.
Mr. Natsios. There is someone, I just don't know his name.
Senator Biden. Oh, okay.
Mr. Natsios. We were asked to make functional, and when I
say functional, many of these ministries were looted and so
there was nothing there. We were given a list of the five
essential ministries, five or six, one of them was the Central
Bank, which is not a ministry.
Senator Biden. Can you tell me what they are?
Mr. Natsios. Justice, finance, trade. Now, I will explain
why trade is important. Irrigation and agriculture, and the
Central Bank. There is, I think one more, I just can't recall
from my memory what the other one is.
What we were asked to in AID, and we have done, is put
together what we call--and we did this is Bosnia, Kosovo,
Afghanistan--ministries in a box. We buy the computers that are
put in the network through the whole system, we put up the
electric lights. Many of the ministries in Kabul had the roofs
blown off, so we repaired the buildings. We bought fax
machines, we made the phone system functional, all of the
office equipment that you need to communicate. The materials
you need, the desks and that sort of thing. We repaired the
buildings so people could function in them. And so, that's one
thing we did.
The second thing we did is through our contracts put in
place, if it was necessary, the training of people in certain
disciplines. Now, there is a controversy in the education
ministry. We went in and said we really are not enthused about
the way in which subjects are taught in schools, highly
authoritarian, very propagandistic, a problem with textbooks,
the way the teachers were trained. So we went in and said we
want to retrain your teacher force, which is one of our
benchmarks.
The initial response was we don't need any retraining, we
like this the way it is. We said well, we don't like it, and
we're going to work with you. We had a long debate and once the
senior people were removed, the people at the school level said
we want the training, help us. So we're now at the point where
we're designing a curriculum to retrain the teachers, and the
mid-level people who were not really drawn into the Ba'athist
party.
So that's the capacity building part of our job. We don't
appoint the people who run the ministries, that is another
division of CPA that Ambassador Bremer appoints, and they
report to him, but we do the capacity building and the making
of the functions so the place can run.
The trade ministry is important for this reason. You may
ask, why are we doing the Ministry of Trade? They run the food
distribution system, and without them we can't set up the
44,000 distribution sites for people to get the food that
people depend on. So, the most important ministry is trade,
because people have to eat.
Mr. Taylor. If I could just add a couple sentences to
Senator Biden's questions. In the case of the Finance Ministry,
our people are working with the civil servants in that ministry
and have been from the day they arrived. And they've had to
work on how the payment system is working, and they are
actually functioning quite actively.
Same with the Central Bank. They are engaged with the
people who have been employed for 30 or 40 years in the Central
Bank, very qualified, dedicated people. They are thinking about
the currency and what monetary policy should look like. So
that's all going pretty much along the lines of what we
indicated we were thinking about last January, at least with
respect to these economic issues.
Senator Biden. That's all I want to know, how each and
every one of the ministries is working, relative to the way you
just described the Central Bank.
Mr. Natsios. Could I just add one thing? Senator, we will
have to you the updated benchmarks. We adjust them every two
weeks and we do have a chart with all these benchmarks on it
and dates, and the last time it was updated was two weeks ago,
it's time for another update, and we will send that to you.
Senator Biden. I appreciate that, thank you.
The Chairman. I want to recognize the three senators who
are here for the second round. My hope is that the hearing will
conclude in roughly 21 minutes or so. We will obviously have
leeway, as there are important questions and answers. That's
the purpose of this hearing.
Senator Hagel.
Senator Hagel. Mr. Chairman, thank you. Dr. Zakheim, for
the record, let me--I have a couple of excerpts, one from a May
20th press conference with Secretary Rumsfeld and the Chairman
of the Joint Chiefs of Staff, General Myers, and this is
General Myers speaking: ``We continue in that broad range of
security and stability operations and to support the
increasingly effective humanitarian operations in Iraq, as the
Secretary said. We currently have some 150,000 U.S. troops in
Iraq. Approximately one-third of those forces are in and around
the greater Baghdad area.''
Two days later, Doctor, at this hearing as a matter of
fact, with the Deputy Secretary of Defense and the Vice
Chairman of the Joint Chiefs of Staff, General Pace, our
colleague Senator Sarbanes asked this question, and I quote
from the transcript. He asked this question to General Pace:
Senator Sarbanes. How many U.S. troops are in Iraq now?
General Pace. 145,000, sir.
Senator Sarbanes. Ah-ha. And are we expecting to increase that
number?
General Pace. The number is being increased as we speak, by about
18,000 with the arrival of the 1st Armored Division and then beyond
that, there are no current projected deployments.
Senator Sarbanes. So, we're going to go up to over 160,000?
General Pace. Potentially, sir, although some of the troops that
are there now, the ones who did all the fighting earlier, as General
Franks sees the opportunity and the security environment allows, he
will bring home who got there first.
I wanted to make sure that's on the record so there is no
question about what's classified and what's not classified.
Dr. Zakheim. Senator, you are absolutely right. I saw
those numbers on a classified document and that is why I told
you what I told you. I asked my staff whether in fact the
actual numbers were unclassified, and I have an answer for you.
As of yesterday, sir, U.S. forces in Iraq, just over 146,600.
You also asked me about the British forces. As of yesterday,
sir, British forces in Iraq, 13,000.
I was not trying to obfuscate at all. What I saw was a
classified chart. The numbers are not in this case.
Senator Hagel. Thank you very much.
Secretary Taylor, Secretary Larson mentioned, as you did
generally, the Paris Club, negotiations or responsibilities
that we are going to have to work our way through, for all the
reasons you both understand. Are there currently plans now
underway to organize a Paris Club meeting to deal with the debt
that Iraq now holds?
Mr. Taylor. The Paris Club representatives met and
discussed the first task, which was to collect the data on that
as best we can for the Paris Club members, and that has already
taken place and it's underway. Since there is debt held by
countries not in the Paris Club, we have asked the IMF to do
the same kind of activity, to go to the countries and ask what
kind of debt do you have. And then third, since we want to get
information from the perspective of Baghdad, our people on the
ground are working with the records to see what their records
are of the debt that they owe.
So that is what's underway now, and as soon as we get some
clarification, better estimates of the size of the debt, then
the actual discussions of how much of value will be reduced and
who participates and that actually, the dates for that have not
been set at this time.
Senator Hagel. But that planning is underway to set the
date and to take it to the next step to try to resolve?
Mr. Taylor. There certainly is a plan to take the next
step as soon as we get the information.
Senator Hagel. Okay, thank you.
Secretary Larson, did you have something to add to that?
Mr. Larson. No, sir.
Senator Hagel. A question on the issue of oil. Does anyone
at the table know what our position, the U.S. government
position would be on advising the interim authority or
government or whatever comes at some point in Iraq, what their
position should be regarding membership in OPEC? Get out of
OPEC, stay in OPEC, have you thought it through?
Mr. Larson. I think that we are very aware of the fact
that oil and nationalism are very closely intertwined in Iraq
and that we will want to make sure that any decision on their
future participation in OPEC is a decision that the new
representative government takes. I'm sure that our team on the
ground will be able to help them think through some of their
options.
If I could just add quickly in response to Senator Biden's
question earlier, that we do have a very functioning
administration in the oil ministry as well, because as I
mentioned, Mr. Ghadhban and including many well qualified
Iraqis. They are doing a strategic review of the options for
the oil sector and the contribution it can make to the economy.
We will have to evaluate, Senator Hagel, that question, but
I think it's one where we need to be careful not to be seen as
steering them, because it does need to be seen as a decision
they make in the interest of Iraq.
Senator Hagel. This certainly could have a bearing on
previous questions about oil pricing and how much they increase
production, and all that are going to have an impact on
revenues coming from oil in Iraq, which you all know. Anyone
want to add anything to what Secretary Larson said?
My last question goes back to the Iraqi military situation,
high unemployment, problems that we have because of that
unemployment, obviously spilling over into social issues. Who
can explain to this committee the plans we have in place to
deal with that issue, the Iraqi military unemployed, out on the
street, eventually will cause a lot of trouble, and some
trouble is being caused now. But what are our plans to deal
with it?
Dr. Zakheim. As you know, Ambassador Bremer has made it
very clear that because as you say, some of them are being
troublesome, he is not going to bring back the wrong people or
address them in the way they perhaps would like to be
addressed. Clearly, it just adds to the unemployment problem
and it goes back to the overall economic recovery of the
country. At some point, of course, there will have to be a
reconstituted Iraqi military and some of the former military
may well be requalified. It really depends on what they did
before. The more senior people, are less likely to be
requalified, the less senior ones are more likely to be. But at
this stage of the game, I think it is a little premature for me
at least to speak about how that military might be restructured
when we still have our operations that we conduct.
I would reemphasize what Ambassador Bremer has said; the
fact that they are unemployed and the fact that some of them
are noisy about it should not in any way deter us from getting
the wrong people out of uniform and doing it as soon as
possible.
Senator Hagel. Well, in the interest of time, I will not
pursue that, but yes, Mr. Natsios?
Mr. Natsios. We have found in the aftermaths of conflicts
and civil wars that if you don't get young men working, and I
don't mean senior officers, I mean young men, we have trouble
on the streets. So we developed a set of mechanisms through our
Office of Transition Issues, OTI, to do mass employment
programs. In a country like East Timor, we recruited a third of
the work force through these programs. They don't pay a lot of
money, $2 a day, but for many of these countries, that is a
living wage.
We started these programs three weeks ago, and the first
one was Sadda City, which is the poorest slum area in what used
to be called Saddam Hussein City, but it's a Shiite city and
they hated him so much, the first thing they did was to change
the name. It was full of, and this is not garbage from the
conflict that wasn't picked up, it has been like that for years
and years--old trash, garbage, trash; it was just very
depressing. So we decided to make that our first mass
employment program. We employed 16,000 people, I think it was
$2 a day, to begin a mass cleanup of the area. It was a huge
morale boost for the city, which had been completely neglected
for a very long period of time. I think 180 trucks left with
the garbage and the trash and the refuse from years on the
first day alone, and there has been this very big community
uplift that has taken place there. I think we are in four other
neighborhoods now of the city, and we will be extending these
mechanisms throughout the country in order to get particularly
younger men off the streets.
Senator Hagel. And this includes former military?
Mr. Natsios. It does, but it's not the officers. We don't
employ those people, and they tend not to want to do a lot of
physical labor; I just wanted to say that.
Senator Hagel. Thank you very much.
Dr. Zakheim. Senator, just to add and amplify, because of
your question, we in fact have in the solicitation phase, which
means we are very early on, we are soliciting contracts for
retraining and reshaping the Iraqi military. Now again, it is
early, we are just soliciting the contracts. By the way, in
response to an earlier question, while we did have sole source
contracts before, the new contracts are all being competed
because the kind of FAR regulations that justify sole source as
a compelling activity, are not as applicable now. So we are
soliciting contracts, we are going to compete on those
contracts, and that will include developing, retraining and
supplying the army. Obviously it is too soon to determine who
will actually be brought in, but there is a process in train
that goes hand in hand with what AID is doing.
Senator Hagel. Thank you.
The Chairman. Thank you, Senator Hagel. Senator Sarbanes.
Senator Sarbanes. Thank you, Mr. Chairman, I just have a
couple follow-up questions.
I'm glad we clarified this level of the military. I was
very much taken aback when I arrived at the hearing to hear
Senator Hagel asking you about that and being told that the
figure was classified. I take it that means that you were not
aware either of Secretary Rumsfeld's statement or those of
Deputy Secretary Wolfowitz before this subcommittee; is that
correct?
Dr. Zakheim. At the risk of saying it is not correct, it
is not correct. As I mentioned when I answered the original
question, the numbers change. I had seen a number on a
classified chart. I did not feel that I could reveal that. I
checked that, and the numbers I provided, 146,000 for us and
13,000 for the British, 146,006 actually, are as of yesterday,
so that is the most up-to-date number. I wish again to
emphasize I was not trying to obfuscate or fail to give a
straight answers to straight questions.
Senator Sarbanes. How can we avoid drawing that conclusion
when we have both the Secretary of Defense and the Deputy
Secretary of Defense publicly giving us figures and then have
you come in and say that the figure is classified?
Dr. Zakheim. Again, because the number I saw, and the
numbers do change daily, was on a classified chart. I gave you
the number as of yesterday.
Senator Sarbanes. On your bidding process at AID, for what
duration do you give those contracts?
Mr. Natsios. The contracts we did were 12 to 18 months,
not all of them. There were some shorter ones. I think the
personnel one was for 3 months or something like that, but the
longest one was 18 months. I can get back to you, Senator, with
precise dates for each one.
Senator Sarbanes. I wanted to lay the basis for my
question to Mr. Zakheim. It's my understanding that some of the
contracts the Defense Department gave on a sole source basis--
none of your contracts were sole source, were they, in the AID?
Mr. Natsios. The personnel contract, that small one. Other
than that, no, they were not.
Senator Sarbanes. My understanding is that the sole source
contracts that were given by the Defense Department have a
multi-year duration to them; is that correct?
Dr. Zakheim. As I understand it, they are 90-day contracts
with 90-day options.
Senator Sarbanes. The previous ones you gave were 90-day
contracts with 90-day options?
Dr. Zakheim. That is what I am being told, 90 days and
then 90-day options, so we are talking about a total of 6
months if the option is picked up.
[The following information was submitted by Dr. Zakheim on
August 8, 2003 in response to Senator Sarbanes' question:]
Dr. Zakheim. Virtually all post-war Iraq contracts awarded
by DoD were short duration (e.g. 90 days) sole-source contracts
with 90-180 day option periods. DoD's present objective is to
transition all post-war Iraq contracting, wherever possible, to
full and open competition. Federal Acquisition Regulation
6.302-2, Unusual and Compelling Urgency, was cited as the
rationale for the initial sole-source awards. Even in such
cases, senior executive approvals are required to fully
document any sole source awards, and that all ``agencies shall
request offers from as many potential sources as is practicable
under the circumstances.''
Senator Sarbanes. Well, I'm looking at a New York Times
story of April 11th. The Pentagon contract given without
competition to a Halliburton subsidiary, that's Kellogg Brown &
Root, to fight oil well fires, is worth as much as $7 billion
over 2 years.
Dr. Zakheim. That is if all the task orders are picked up.
We have actually spent a few tens of millions of dollars and
what they do in any event is called in the terminology wildcat,
and that is for contingencies anywhere, it is not just for
Iraq.
Senator Sarbanes. Well, was it a two-year contract or a
90-day contract?
Dr. Zakheim. The contracts specifically for work in Iraq
that were let specifically for Iraq are 90-day contracts with
90-day options.
Senator Sarbanes. What about this contract?
Dr. Zakheim. That is a contract that is not purely for
Iraq, it is worldwide. It is based on a series of contingencies
that might take place and then we pick up task orders. We let
lots of multi-year contracts. This is by no means the only
multi-year contract.
Senator Sarbanes. Do you let a lot of multi-year contracts
on a sole source basis?
Dr. Zakheim. No, sir. What I am saying is we generally let
a lot of multi-year contracts.
Senator Sarbanes. No, no, no. It's not responsive to the
point we're pursuing to say to me that you let a lot of
multiyear contracts if those contracts were being let on a
competitive basis. That's not what I'm pursuing. Do you let a
lot of sole source contracts on a multi-year basis?
Dr. Zakheim. We let some sole source contracts on a multi-
year basis. This is not the first of its kind, no, sir.
Senator Sarbanes. Why don't you submit something to the
committee that develops that?
Dr. Zakheim. Certainly. I am told that even this one was
competitive within the contract as well, but I will get you
something that clarifies it.
[The following information was submitted by Dr. Zakheim on
August 8, 2003 in response to Senator Sarbanes' question:]
Dr. Zakheim. Halliburton-Kellogg, Brown & Root (KBR), was
awarded the competitive Logistical Civil Augmentation Contract
(LOGCAP III) in December 2001. LOGCAP III is the third
competitive multi-year award for U.S. Army logistical support.
DynCorp Corporation was awarded the previous multi-year
contract award from 1997-2001.
LOGCAP III, as presently written, is a ten-year Task Order
Contract, with a one-year base period, and nine one-year
options. There were five bidders on the 2001 contract awarded
by the U.S. Army Support Command, Rock Island, Illinois.
Funding on this contract is by task order.
In late May, the U.S. Army issued a LOGCAP III Statement of
Work (this will result in a new contract task order) to provide
logistics support for up to 110 thousand personnel in Iraq (for
a three-to-five-year span). Internal Government budgets are
approximately $1.0 billion for this new work.
A separate task order was executed in November 2002 under
the above competitive LOGCAP III contract. This task order
required KBR to develop an Oil Restoration Contingency Plan.
This plan included extinguishing oil well fires; capping oil
well blowouts; and assuring continuation of the operations of
the Iraq oil infrastructure.
The Oil Restoration Contingency Plan resulted in a new
contract solicitation. KBR was the sole-source, contract
awardee for this new work. This sole-source award was for one
year with three one-year options, and was based on the U.S.
Army's determination that KBR was the only contractor that
could commence and deliver this complex Contingency Plan on
extremely short notice. Total contract value (cost plus award
fee) is presently $172 million.
Senator Sarbanes. Thank you.
The Chairman. Thank you very much, Senator Sarbanes.
Senator Chafee.
Senator Chafee. Thank you, Mr. Chairman.
Mr. Larson, you really dialed in on the oil, and I
congratulate you. You really know your facts and figures on
this and where we are going. And as I look at it, and the cost
and where we're going, am I right that if we generate, or if
Iraq generates the 2 million barrels per day that you hope for
by the end of the year and you get the $20 a barrel, that's
only $40 million a day, and $14 billion a year, is that about
right, minus what it costs to produce it?
Mr. Larson. Right. The rough estimate that I put in my
written testimony was 14 to $15 billion a year of gross
revenues based on a lot of assumptions, including the ones you
just gave.
Senator Chafee. That's a long way, if we keep 160,000
troops, that will cost about, according to the CBO, about $40
billion a year?
Mr. Larson. Yeah. And we believe that the funds from oil,
the oil proceeds need to be put into this development fund for
Iraqi use for the Iraqi people. They are not contributed to the
cost of keeping our troops on the ground.
Senator Chafee. So we are saddled with an enormous cost
here, no denying that, just to keep 150,000, and it's actually
going up, according to the testimony, up to 160,000 U.S.
troops, and that the CBO estimates, I think $200,000, $225,000
per peacekeeper per year, and we're up to $40 billion per year,
without addressing any of the reconstruction. That's just
peacekeeping, let alone getting the citizens away from the
sewage filth, drinking water, and establishing schools, and
other indications of order. As we look at it, how are we going
to afford this?
Mr. Larson. As some of the senators have said, which is
the focus of these meetings, is that we identify the
reconstruction costs and that we get a strong international
support for that. It is to work together as well to get other
countries to contribute to the cost of maintaining security
over time. Dr. Zakheim has touched on many efforts that we have
made to get on the ground support from other countries in this
regard, and Poland is a notable example.
Senator Chafee. You don't dispute the math, though, about
$40 billion per year for peacekeepers?
Dr. Zakheim. The CBO's estimates presuppose a certain
level for a certain duration and there is just no way we can
predict that. I think there were predictions before the war
started that we needed more than 300,000 troops and that
clearly was not the case. The predictions regarding how long
and how many troops will have to stay are all over the place as
well. I used to work at the CBO, and they make some pretty good
estimates; but those estimates do not always bear out. I think
it is fair to say that while the cost will be substantial, I do
not know what it is actually going to be, and I do not think
anybody can honestly tell you that it is going to be $40
billion.
Senator Chafee. I don't know if any of you have an answer
to this, but looking back, how we treated the United Nations
and the Security Council probably was a mistake, and with these
enormous costs, why should they help with this burden? They
were opposed to it.
Mr. Larson. I think one of the missions that we also have
moved forward on is to build international support for the task
that lies ahead. I think the United Nations Security Council
resolution of a couple of weeks ago, which was unanimous, with
only Syria not voting, was a very strong signal that the
Security Council has said whatever differences there may have
been in the past over Iraq, there is an assignment that the
international community has that it can't shirk from, and
that's helping the Iraqi people reclaim their country.
I think the announcement out of the G-8 summit was another
sign that the major countries of the world have recognized this
responsibility.
We have in the most recent Security Council resolution a
framework for reconstruction that brings in the United Nations,
it brings in the World Bank, and calls for other countries to
play their part, and so we're going to use that as a foundation
for moving forward.
Senator Chafee. There is a long way to go from expressions
of support and contributing valuable resources. One of the
testimonies, Denmark, the Netherlands, are committing $100,000
here, a few million there, and I think probably what we can
expect and assume is that we are going to be saddled with the
cost unless any of you can dispute that, because looking back,
certainly the Security Council and the United Nations wanted us
to pursue the inspections and let the inspections process work
before we embarked on this endeavor.
Mr. Larson. I think Senator Lugar pointed us in the right
direction by comparing this to what is now called the Global
Partnership, which is designed to reduce the risk from chemical
or nuclear materials left over from the Cold War from falling
into the wrong hands. And there, the first step was to get
everyone to agree that this is a problem, to get them to agree
that it's a global problem, not just for the United States, and
then to begin to set up a framework for working together to
accomplish it. Because of the provisions in the international
community that existed earlier this year about what should be
done in Iraq, it has taken some hard work to get to where we
are. We would agree with you, Senator Chafee, that having
gotten the acquiescence or support of countries for the most
recent Security Council resolution is not a guarantee of
financial support, but it's an important milestone towards
that, and it's our responsibility to use these needs
assessments that are being developed, to have the Iraqi people
through their representatives begin to make the case for the
help that they need, not to recover from the war but to recover
from 25 years of being oppressed by Saddam Hussein. That there
will be a growing appreciation that this is something that
countries have a moral responsibility to be involved in, but it
will not be easy, I'm not trying to suggest that it will.
Senator Chafee. Just a follow-up on that. In the first
Gulf War, by presenting our case accurately and with enough
patience that we did get the Security Council, they did
participate in the cost. I don't think that will be the case
here because of the way it unfolded.
I just have one last question or note. Somebody mentioned
the book about the Marsh Arabs. What was the book?
Mr. Natsios. It's called the Marsh Arabs, by Wilfred
Thesiger, the last of the great British explorers, about his
time from 1950 to 1957 with the Marsh Arabs.
Senator Chafee. And you recommend?
Mr. Natsios. I strongly recommend it.
Senator Chafee. Thank you, gentlemen.
Mr. Natsios. If I could just add, we have an update every
day on our web site. It's called Iraq Humanitarian and
Reconstruction Assistance Fact Sheet, and it has on it a chart
of every country in the world that has contributed, how much,
what it's valued at, and the current level is $1,185,000,000.
That changes each day or as people make further pledges.
The Chairman. That's an important announcement, because
people may want to follow on the web site with running totals.
These hearings are evolutionary; they move on from our
testimony today to the actual facts.
Let me just indicate in conclusion, I think Senator Chafee
presents a point of view that many Americans may have. There is
some pessimism out there. When we go out of this committee now,
or to some other debate with questions about Medicare reform,
prescription drugs for the elderly of America, and problems of
shoring up Social Security and how to make ``leave no child
behind'' work, these are very important issues for the American
people. Although we are focused today on international
relations and security in this committee, and these are
paramount considerations for us, there are lots of others.
I am somewhat more optimistic. I take my cue again, playing
off Secretary Larson's thoughts, that when the United States
and Russia, say 12 years ago, took a look at the fact that the
Russians had produced 40,000 metric tons of chemical weapons we
could have taken the position, and some Americans did, that
they made their bed, let them sleep in it, it's not a great
problem, and all these things, it's their tough luck. It was a
horrible stock, and the Russians had no money with which to
destroy it, or likewise, biological things which are much more
murky. Nuclear is quite obvious. Of course it's a pretty small
world, and we came to the conclusion that it could be our bad
luck too.
As a matter of fact, other countries may not have stepped
up to the plate until the G-8 meeting that we have been talking
about today in the same manner, but I think they do understand
that. We had an agreement 12 years ago, and there is a
recognition that there are disasters out there. Now Iraq is
potentially that sort of situation and we're going to have to
be successful. There really is no compromise in the event that
we are not successful with the weapons of mass destruction, in
getting them either secured or destroyed, nor is there any
halfway option with regard to Iraq or Afghanistan.
Other nations may not come to this conclusion instantly. I
appreciate the problems that you have as our negotiators,
actually sitting at the table with them. Yet all of us really
have to be on the same page in indicating that these are
potentially existential events for them as well as for us, and
that it's out there and it has to be solved, and that we are
leaning upon them. Now they may not like that. It's not a
popularity contest in terms of leadership of this sort, but it
seems to me that more and more are coming to that conclusion,
whether they like it or not, and they are beginning to see many
of the same things through the same prism that we do.
It is tough going, and I think this committee appreciates
that. I personally appreciate your testimony today, your
response to our questions and your appearance. I hope that you
understand the importance that we place in the oversight
function and requesting these hearings from time to time so
that we can all catch up, at least through our dialogue with
the American people and with people around the world who may
have some greater confidence in our system, complex as it is in
coming to the right conclusions. I appreciate your testimony.
With that, the hearing is adjourned.
[Whereupon, the hearing adjourned at 12:40 p.m.]
Responses to Additional Questions Submitted for the Record
Question submitted to Under Secretaries Larson (State), Zakheim
(Defense), Taylor (Treasury), and Administrator Natsios (USAID) by
Chairman Lugar
Question. We have just received the first OMB report dated June 2,
2003 on U.S. strategy and activities related to post-conflict
reconstruction In Iraq, as required under Section 1506 of the FY 2003
Emergency Wartime Supplemental Appropriations Act, 2003. One of the
questions raised by this report is how much has each cite agency
requested to obligate out of the $2.475 billion in FY 2003 funding, and
how much has OMB actually apportioned and provided to implement the
Iraq stabilization.
Can you be specific: to date, what are the amounts requested by
each agency; what are the amounts already apportioned by OMB by agency;
and how much has actually been transferred into each agency's account
for obligation for Iraq stabilization and reconstruction efforts?
Response Submitted by Dov Zakheim, Under Secretary of Defense
To date, agencies have formally requested that $616.1 million be
made available from the appropriated Iraq Relief and Reconstruction
Fund (IRRF) to implement Iraq relief and reconstruction activities.
Three agencies have requested funding from this account: USAID ($549.1
million), Department of Defense ($66 million), and Department of State
($.956 million). OMB has apportioned and transferred $527.1 million to
USAID. Of that amount, $212 million was provided as reimbursements to
USAID for activities in Iraq undertaken with non-IRRF resources. The
remaining $315.1 million was provided for reconstruction and transition
activities. In addition to these appropriated resources, OMB has
appropriated $563.9 million in vested Iraqi assets to the Department of
Defense primarily for salary and pension payments.
Response Submitted by John B. Taylor, Under Secretary of the Treasury
Treasury technical assistance began work in Iraq with two blocks of
funding: A total of $225,000 remained unused from the FY 2000 Treasury
International Affairs Technical Assistance (TIATA) Program; and $2
million that had not yet been committed to the FY 2003 TIATA Program.
This gave the Office of Technical Assistance (OTA) a total of $2.25
million in resources for use in Iraq. Congress was given informal
notification of OTA's intent to use these funds in this manner with the
understanding that the funds would be repaid from whatever resources
OTA received for its work in Iraq. Use of these funds began February
19, 2003 when funds were obligated to advisor contracts. As of July 14,
2003 essentially all of these funds have been obligated, although
spending continues against these obligations.
OTA forwarded the budget request for its activities in Iraq at a
joint meeting with USAID at OMB on Wednesday, May 16, 2003. The request
totaled $6 million, broken down into the following categories: Ministry
of Finance, $2 million; Central Bank of Iraq and the commercial banks,
$1.8 million; Office of the Financial Coordinator, $1.4 million. In
addition, OTA requested $.8 million to provide grant funding to the
Financial Services Volunteer Corps (FSVC) to work on inter-bank
clearing, the Baghdad Stock Exchange, and Iraq's insurance industry.
According to the agreed protocols for use of funds out of the
Emergency Wartime Supplemental Appropriations Act of 2003 (P.L. 108-
11), all budget proposals must originate from the Coalition Provisional
Authority (CPA) in Baghdad. Therefore, OTA immediately forwarded its $6
million budget request to the Program Review Board (PRB) of the CPA.
OTA received notice that its request was approved by the PRB on June 3,
2003. The approved usage of the funds was subsequently approved by the
CPA Administrator, Paul Bremer, and forwarded to OMB in Washington.
Since then, OTA has drafted a Congressional Notification (CN) and
agreed the wording with OMB. This will be forwarded to Congress, today,
July 14, 2003. Once the CN has lapsed, OTA expects prompt apportionment
by OMB. When the funds are received, OTA will reimburse both the FY 00
and the FY 03 TIATA funds to the full extent that they have been
utilized. The balance ($3.75 million) will be spent in ongoing
assistance projects.
In summary, OTA has requested $6 million from the $2.475 billion
Emergency Wartime Supplemental. While none of this funding has yet been
apportioned, we expect it to be done promptly after the lapse of the
CN. OTA expects the transfer soon after the apportionment is made.
Response Submitted by Under Secretary of State Alan Larson
As of June 4, 2003, the Coalition Provisional Authority (CPA) has
requested $550.1 million and OMB has apportioned $527.1 million of the
$2.475 billion appropriated to the Iraq Relief and Reconstruction Fund
(IRRF) to the U.S. Agency for International Development (USAID).
Breakdown of Funds Obligated for Iraq Stabilization and Reconstruction Efforts, As of June 4, 2003
(millions U.S. dollars)
----------------------------------------------------------------------------------------------------------------
CPA/USAID Dept. of State Total
----------------------------------------------------------------------------------------------------------------
Request...................................................... $549.1 $0.956 $550.1
Apportioned and Transferred................................ 527.1 -- 527.1
Not Yet Apportioned........................................ 22 0.956 23
----------------------------------------------------------------------------------------------------------------
CPA = Coalition Provisional Authority; USAID = United States Agency for International Development.
Questions for the Record Submitted by Senator Bill Nelson to USAID
Administrator Andrew Natsios
RESTORATION OF IRAQ MARSHLANDS
Question. An important aspect of reconstruction will be the
restoration of the Marshlands that were devastated by Saddam's
destructive and inhumane policies. To restore the Marshlands we must
have a comprehensive plan to change water resources management in the
Tigris-Euphrates region. I understand the University of Miami's Iraq-
Aware Project is a constructive proposal. The Project proposes to work
closely with AID and other interested parties to develop a
comprehensive framework for a long-term program to address the
competing problems that are confronting the Marshlands drawing on
extensive Everglades restoration experience. I further understand
University officials have met with AID to discuss the Iraq-Aware
Project.
Are you aware of this project?
Answer. USAID has been researching marshland restoration and
management since March 2003 and have met with several interested
parties, including the University of Miami, to discuss a strategic
approach and action plan. To prepare for the long-term program, USAID
fielded a four-person technical team in June to conduct a rapid
assessment of the marshlands. Team members included a social scientist,
wetlands ecologist, agricultural specialist and a geotechnical
engineer. They were joined on the field visits by national and district
officers from the Ministry of Water Resources and scientist from the
Marine Science Center at the University of Basra, the Iraq Foundation,
and the AMAR International Charitable Trust Foundation which provides
primary health care to marsh dwellers in Iran and Iraq.
At the time of the USAID meeting with the University of Miami,
USAID encouraged the University to submit a proposal under the
University Partnership program (Higher Education and Development
(HEAD)) that could include marshland restoration and management.
Question. What is the plan for, and when will USAID hear
competitive proposals for the Marshland Initiative, as described in CN
#130, dated May 16, 2003?
Answer. The program is still in the design stage with the rapid
assessment and strategic approach and action plan contracted under an
existing task order. If this initiative is approved and goes forward,
proposals will be solicited.
Question. Describe the process by which you are awarding contracts
in Iraq for this and other projects.
Answer. USAID awards contracts in accordance with the Federal
Acquisition Regulation (FAR), the rules that apply generally to all
federal agencies. The Agency is responsible for the purchase of over
$2.5 billion of goods and services each year in the support of U.S.
foreign policy goals in over 100 countries.