Testimony for Ambassador
Satterfield:
Joint Hearing of
the Subcommittee on International Organizations, Human Rights and Oversight,
and the Subcommittee on the Middle East and South Asia
March 27, 2007
Chairman Delahunt, Chairman
Ackerman, Congressman Rohrabacher, Congressman Pence, members of the subcommittees,
ladies and gentlemen: Thank you for the opportunity to appear before you today
to discuss Iraq’s
ability to manage and pay for its own reconstruction. I appreciate your raising this question, as a
critical dimension of the President’s New Way Forward is that the Iraqis take
responsibility for their future. The
Government of Iraq must, with our help, take the lead in articulating and
achieving the political, security and economic goals that are essential to
success.
I would like to talk to you today
about the economic track of reconstruction in Iraq and how the Iraqis are increasingly
taking responsibility for their own reconstruction, their country, and their
future. I will outline what the Iraqis
have done and are poised to do, and what the US is doing to help the Iraqis build
their capacity. It is vital that we
support Iraq during this
time of transition so that Iraq
develops the ability to manage and sustain its own reconstruction.
IRAQI EFFORTS
There are tangible signs that the Iraqis are committed to
taking the lead on reconstruction and doing their part to advance economic
reform. The passage by Iraq’s
Council of Representatives of key economic legislation such as a national
investment law and a fuel import liberalization law, Iraq’s
pursuit of accession to the World Trade Organization, Iraq’s beginning debt negotiations with Saudi Arabia, and Iraq’s attempts to tackle the insidious
problem of corruption, all signal that the Iraqis are serious about economic
reform. Admittedly, these laws still
need implementing regulations. It is a
work in progress.
In addition, the Government of Iraq has made
serious progress on the vital hydrocarbons framework law. The Council of Ministers approved a draft of
the law on February 26, and when a draft Revenue Sharing Law is also approved
by the Council of Ministers, the two will be submitted as a package to the
Council of Representatives.
In conjunction with Deputy Under Secretary
of Defense Paul Brinkley, the Iraqis are aiming to boost legitimate economic
activity in Iraq. This strategy has three components: (1) facilitate
Iraqi and DOD procurement of Iraqi-made goods, (2) promote connections between U.S.
and Iraqi businesses, and (3) identify Iraqi state-owned enterprises (SOEs)
that have the potential for revitalization and privatization. Revitalization of promising SOEs may then
lead to positive spin-offs in the Iraqi private sector, which has in the past
grown around the presence of SOEs. There
is also potential for long-term privatization.
The GOI has identified some initial funding for SOEs to resume
production and increase employment. The
State Department actively supports this initiative.
BUDGET
EXECUTION
Among the most pressing economic challenges
holding Iraq back from its
true potential, apart from the ongoing violence, is Iraq’s continuing inability to
fully spend its capital investment and reconstruction budget. The
Government of Iraq has substantial financial resources available – the result
of unspent funds that have been rolled over from the 2006 capital budget, along
with higher than anticipated oil revenues. While those resources provide
the Iraqi Government a golden opportunity, Iraq must develop the full means to
put that money to use, not only with respect to medium-term and longer-term
capital investment, but also with respect to short-term efforts in which money
must be spent rapidly, as is the case with post-combat stabilization in areas
such as Baghdad and Anbar Province. At
present, the Iraqis have only limited capacity to execute all of these
investments, particularly the short-term efforts necessary to support the new
security strategy.
The Iraqis have responded by making
budget execution a high priority in 2007.
The Government of Iraq is committed to spending $10 billion in its
2007 budget on capital investment and reconstruction. Spending these moneys should provide services
– from bridges and water projects to schools – for all of the Iraqi people. It
should help create jobs and further national reconciliation.
To this end, the Government of Iraq
has formed a Budget Execution Task Force, led by Deputy Prime Minister Barham
Salih, Finance Minister Bayan Jabr and Planning Minister Ali Baban. In
coordination with Ambassador Tim Carney and a team of experts from the U.S. Department
of the Treasury, the Iraqi joint task force held a conference in early March at
which officials from Iraq’s spending ministries and Iraqi provincial governments
discussed Iraq’s new budget regulations and dispelled concerns about corruption
allegations that, in part, stymied Iraqi spending in 2006.
Last week Deputy Prime Minister
Salih hired a director to monitor Budget Execution. The Ministry of Finance also has made early
efforts to jumpstart spending by ordering 10 percent of capital budgets to be released
following passage of the 2007 Budget in February and creating powerful
incentives for ministries to execute their capital budgets or risk losing the
funds.
We remain cautiously optimistic
that Iraqi resolve, combined with the technical assistance from the donor
community, will result in better Iraqi budget execution in 2007.
INTERNATIONAL COMPACT
Recent developments with the International Compact with Iraq provide clear signs of Iraq increasing its responsibility
for its own economic reconstruction. The
Compact provides a framework for Iraq
to achieve economic self-sufficiency in the medium term, including detailed
timelines and benchmarks for goals covering Iraq’s main economic objectives. The reforms in the Compact will lay the
foundation for a strong private sector capable of attracting investment capital
from within and outside Iraq. To support Iraq
in these efforts, the international community will provide Iraq with debt relief and financial
and technical assistance. This technical
assistance is particularly crucial, since this is what is needed to build
managerial and administrative capacity in the ministries and provincial
governments for them to carry out reconstruction.
The International Compact was approved by Iraq’s
Council of Ministers on November
26, 2006. The Compact
documents were finalized and presented to the international community on March 16, 2007 in New York. Iraq is ready for the next step,
which is the convening of an international conference later this spring to
formally sign and adopt the Compact.
US EFFORTS
As Iraqis take the lead in economic
reform, the United States
has shifted its focus from large infrastructure projects to capacity
development and technical assistance programs that increase the ability of
Iraqis to manage their own reconstruction.
This will allow the Government of Iraq to better plan and execute its
capital budget – particularly in the critical oil sector – to increase
production of essential services in vital areas such as electricity and water,
and to improve governance at the national and provincial levels.
AMBASSADOR TIM CARNEY
To lead our efforts in this area, Secretary
Rice appointed Ambassador Tim Carney as the Coordinator for Economic Transition
in Iraq. On the ground in Baghdad only since February, Ambassador
Carney has already forged a partnership with the Iraqis that has begun to show
progress.
Ambassador Carney has been accepted
by Iraqi authorities as a partner in realizing their budget execution
goals. He works with Deputy Prime
Minister Salih and the Ministers of Finance and Planning to synchronize efforts
and ensure that U.S.
assistance meets Iraqi government needs.
Following an Iraqi government conference on March 7 to train officials
on budget execution procedures, Ambassador Carney opened a conference for our
Provincial Reconstruction Teams (PRTs) to ensure that our PRTs understand the
fiscal procedures for which the provincial governments—which have limited experience
with budget management—would need support.
Ambassador Carney is also coordinating a broad U.S. Government effort to
encourage the Government of Iraq to advance its own stalled budget execution
reforms, such as raising the ceiling under which an Iraqi spending agency can
issue a contract without prior approval of the Ministerial High Contracting Committee.
NATIONAL CAPACITY DEVELOPMENT
PROGRAM
To
effectively manage the country’s reconstruction efforts, Iraq’s mid- and senior-level
managers need ongoing training to polish their skills in the core functions of
public administration, as well as specialized, technical assistance specific to
their areas of operation. Thus, our
National Capacity Development (NCD) program is taking a two-pronged approach in
building the capacity of Iraq’s
cadre of public administrators. We are
assisting the Iraqis in developing a standardized curriculum to teach core
capabilities, in such areas as personnel management and administration,
strategic planning/policy development, leadership/communications, and
information technology. In addition, the
NCD program is placing Public Management Advisors in the ten key ministries to
provide ongoing technical assistance to improve the day-to-day operations
within each ministry.
This
three-year, $165 million program will help foster the start of a more
professional Iraqi civil service through an institutionalized, sustainable
training system that will promote modern management through Iraq’s public
institutions.
The program
will provide short-term support for key Iraqi government priorities, help
Iraqis carry out medium-term activities to improve and standardize public
administration, and help invigorate Iraqi government training centers to
provide sustainable human resource development. To address Iraq’s need for a government that
promotes transparency, integrity, and accountability, the NCD program includes
standardized auditing and procurement reform and other vital governance
measures. It will help Iraqis establish
capacity in priority ministries to directly assist in the execution of key
service functions and conduct on-the-job training.
PROVINCIAL RECONSTRUCTION TEAMS
At the center of our efforts to build
capacity is the expansion of our Provincial Reconstruction Teams (PRTs). While we will continue to work closely with
the central government in Baghdad,
we are extending and expanding our reach beyond the International Zone to help
local communities and leaders transition to self-sufficiency.
We are doubling the number of PRTs from 10
to 20, and adding more than 300 new personnel to the current 290 or so
personnel already on the ground. The
first phase of PRT expansion is soon to be complete, as the ten new interagency
PRT core teams, 40 people in total, will arrive in Iraq by March 31. The State Department has assigned ten
senior-level Team Leaders for these new PRTs.
Each Team Leader will be joined by a senior USAID development advisor,
as well as a civil affairs officer and a bilingual, bicultural advisor from the
Department of Defense. The ten new PRTs
will be embedded in Brigade Combat Teams to increase support for our
counter-insurgency strategy.
One key objective of PRTs will be to build local capacity. Through both civilian and military resources,
including foreign assistance and the Commanders’ Emergency Response Program (CERP),
PRTs will foster Iraqi self-sufficiency where we have made security gains. In the next two phases of our PRT expansion,
we will add specialized technical personnel to both new and existing PRTs. Based upon ground-up evaluations, we are
recruiting city planners, rule of law experts, and agri-business development
experts, among others, to meet provincial and local needs.
PRTs will support local moderate Iraqi leaders through
targeted assistance designed to develop provincial capacity to govern effectively. PRTs will continue to play a leading role in
coordinating U.S.
programs funded by the Congress, including Iraqi Provincial Reconstruction
Development Councils (PRDC) and USAID’s local governance, community
stabilization, economic development and community action programs. We intend to
complete all three phases of our PRT expansion by the end of the calendar
year. This will depend, however, both on
the level of funding appropriated in the FY 2007 supplemental and circumstances
on the ground.
FUNDING
Of total funding in FY 2006, both
Base and Supplemental, we have obligated $1.4 billion (or 97%) for programs to
advance our policy objectives in Iraq. Of this funding, more than $500 million is
allocated to support programs coordinated by the PRTs to build the capacity of
local and provincial governments to provide services for the Iraqi people.
We
have requested $2.34 billion in Emergency Supplemental funds for FY 2007 and $1.37
billion for FY 2008. The question
naturally arises as to why we need to provide assistance if Iraq’s oil provides significant
revenue. The answer is
straightforward: Our assistance is
necessary to accelerate the capacity of the Iraqi government to become
self-sufficient. As described earlier, experience
has shown that the Iraqis currently have significant limitations in their ability
to spend their budget. While the
ultimate goal is to get them to execute their budget as quickly as possible, we
have to recognize reality. The reality
in Iraq is that the
Government of Iraq has limited institutional history of how to manage all
aspects of the needed reconstruction and capital spending projects, including, but
by no means exclusively, short-term projects in support of Iraq’s own security.
We have increasingly shifted reconstruction
contracts to Iraqi firms to inject revenue into the local Iraqi economy and
build Iraqi capacity to meet Iraq’s
needs. Initially only 5 percent of
15,241 USG-funded contracts was
awarded to Iraqi contractors. In
the last six months, an average 80 percent of actions have been on contracts
awarded Iraqi firms, thereby infusing local firms with capital and developing
their economic ability to meet local needs.
The Supplemental and budgetary
funds are essential to helping the Iraqis untangle their own bureaucratic
gridlock and allowing them to manage and spend their own resources. Our assistance during this transitional year is
critical to help the current Iraqi government develop the skills to manage their
country’s reconstruction. Delaying
funding of these programs or applying conditions on this funding would
undermine our ability to support our military.
Without funding for our PRT expansion and programs to support economic
development and assistance to moderate Iraqi leaders, we risk not achieving the
unity of effort, military and civilian, needed to be successful.
DEFINING SUCCESS
The coming year in Iraq is an important one of
transition that will be filled with challenges. As the Iraqis continue to make progress and
increasingly assume responsibility for the stabilization and economic
development of their country, our commitment to them must remain strong. The Government of Iraq should continue to
foster positive relationships with its neighbors. National unity must begin to replace
sectarian violence. The President’s New
Way Forward in Iraq seeks to empower Iraqis at the national, provincial and
local levels to take the necessary steps, both politically and economically, to
fulfill their commitments and realize our mutual goal of a stable, federal, democratic
Iraq, at peace with its neighbors and an ally in the war on terror – an Iraq
that is able to manage and pay for its own reconstruction.
Thank you
very much. I look forward to your questions and ideas.