World aid for Iraq falling short

The European Union and the United Nations want most money channeled through UN- and World Bank-supervised agencies, but the US has kept control thus far over its own funds.

"This money can be spent over a 10-year period instead of a shorter period," says an economist who has examined Iraq's financial needs. "But less money spent now means slower economic recovery" and more risks. He recommends more spending soon to improve the chances of a successful transition.

That will bump up against growing anger inside the US at the bill for the Iraq war and its aftermath, particularly as administration officials promised the burden would be minimal.

Before the war, Paul Wolfowitz, deputy defense secretary, said Iraq "can really finance its own construction, and relatively soon." But with a record deficit in the US, a recent CBS poll found most Americans are opposed to spending any money on Iraq's reconstruction.

A bill before Congress promises $20 billion for rebuilding. The bill is currently deadlocked in a dispute between Congress and the White House, after a vote Wednesday by the House of Representatives to convert about half this money into loans.

About $5 billion of these funds will be spent training and arming Iraq's new security forces, with the balance largely going toward improving oil production and other infrastructure needs.

President Bush has threatened to veto the bill if it requires Iraq to repay any of the funds. According to White House budget director Joshua Bolten, who wrote a letter to Congress on Tuesday warning of a possible veto, converting the aid to loans will "raise questions about our commitment to building a democratic and self-governing Iraq."

Iraq is already burdened with $120 billion in debt and war reparations left behind by the Hussein regime.

For now, there are few other sources of funds. While Great Britain and Japan have made promised substantial aid ($912 million and $5 billion, respectively), wealthy countries like France and Germany remain largely on the sidelines.

These two nations, and Russia, have said they probably won't provide much money until there's an elected Iraqi government.

But CPA officials and others say that may not be in Iraq's best interests. "Spending $1 now is like spending $10 five years from now,'' says Mr. Othman. "I hope that France and Germany don't punish the Iraqi people because of their problem with the US. Our unemployment problem is huge, and it's directly linked to our security problem."

Iraq, despite having the world's second-largest oil reserves, is not in a position to solve its economic problems entirely on its own. "There's this deep-seated belief that Iraq is a rich country and that it can reconstruct itself without help from outside actors. This is wrong,'' says Ms. Rachid.

She says that even more important than aid is restoring Iraq's sovereignty, which she sees as a necessary condition to improving security. "The problems of Iraq aren't going to disappear overnight,"she says.

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