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Iraq's oil profits huge while U.S. shoulders reconstruction, GAO says

By KEVIN G. HALL

McClatchy Newspapers

Iraq has benefited handsomely from this year's surge in oil prices and is well-positioned financially to shoulder a greater share of its own economic and security needs, the U.S. government's accounting watchdog concluded in a report released Tuesday.

In its report on efforts to stabilize and reconstruct Iraq, the Government Accountability Office steered clear of the politics of who pays for what. But it left little doubt that Iraq, which racked up $32.9 billion in oil earnings from January through June, can afford to pay more for its own reconstruction.

The GAO estimates that Iraq will earn $67 billion to $79 billion in oil sales this year, twice the average annual amount of revenue that it generated from oil sales from 2005 through 2007. This windfall comes despite the fact that Iraq is still struggling to approach pre-invasion oil-production levels.

Record high oil prices mean that Iraq's government could post a budget surplus of more than $50 billion by year's end. From 2005 to 2007, oil exports provided 94 percent of the Iraqi government's revenues.

"This substantial increase in revenues offers the Iraqi government the potential to better finance its own security and finance needs," the GAO said.

The Iraqi government has run budget surpluses since 2005 that amounted to a cumulative $29.4 billion at the end of last year. Should oil prices remain high, Iraq could post a budget surplus for this year of $38.2 billion to $50.3 billion, GAO researchers concluded.

However, investment spending by the Iraqi ministries that are responsible for oil, water and electricity declined sharply from 2005 to 2007. The GAO said that Oil Ministry spending fell by an annual rate of 92 percent, Electricity Ministry spending by 93 percent and Water Ministry spending by 13 percent. All three ministries affect Iraqi citizens' quality of life and thus support for the struggling elected government.

While Iraq has amassed budget surpluses, the U.S. Congress has appropriated roughly $48 billion since 2003 for efforts to stabilize and reconstruct the invaded nation. As of this June, the GAO said, about $42 billion of that money had been spent.

Just 1 percent of what Iraq spent from 2005 through 2007 went toward expenditures such as maintaining U.S.- and Iraqi-funded investment in buildings, water supplies and power-generation facilities.

"The Iraqi government now has tens of billions of dollars at its disposal to fund large-scale reconstruction projects. It is inexcusable for U.S. taxpayers to continue to foot the bill for projects the Iraqis are fully capable of funding themselves," Sen. Carl Levin, D-Mich., said in a statement. "We should not be paying for Iraqi projects while Iraqi oil revenues continue to pile up in the bank, including outrageous profits from $4 a gallon gas prices in the U.S."

Levin, the chairman of the Senate Armed Services Committee, requested the study in March, along with the ranking Republican on the panel, Virginia's John Warner. Warner joined Levin on Tuesday in bipartisan criticism of Iraqi budget practices.

"Despite Iraq earning billions of dollars in oil revenue in the past five years, U.S. taxpayer money has been the overwhelming source of Iraq reconstruction funds," Warner said. "It is time for the sovereign government of Iraq, using its revenues, expenditures and surpluses, to fully assume the responsibility to provide essential services and improve the quality of life for the Iraqi people."

Before the U.S.-led invasion in 2003, then-Deputy Defense Secretary Paul Wolfowitz declared that Iraq's oil proceeds would cover the cost of the war and the expense of rebuilding the country after Saddam Hussein was removed from power.

"To assume we're going to pay for it all is just wrong," Wolfowitz told the House Budget Committee on Feb. 28, 2003.

The Bush administration didn't refute the GAO's assertions. In a request from the GAO for comment, Deputy Assistant Treasury Secretary Andy Baukol acknowledged that increased oil revenues put Iraq in a stronger position to shoulder its own burdens.

"Nonetheless, the pace of spending has been held back by various factors, including deficiencies in capacity and security," Baukol, the chief treasury official for the Middle East, said in a written response.

Iraq spent $10.8 billion this year through April, Baukol noted, twice what it spent in the same period last year. The Iraqi government submitted a supplemental budget to the nation's parliament in July, he added, and the proposal included $8 billion dedicated to capital projects.