December 12, 2006
Iraq Budget Woes: Graft, Bureaucracy and Fiefdoms
Came across an article in the NYT reporting that Iraq's 27 ministries were spending as little as 15% of 2006 capital budget allocations for rebuilding. Salient points are highlighted below:
Among reasons for the problems — like a large turnover in government personnel — is a strange new one: bureaucrats are so fearful and confused by anticorruption measures put in place by the American and Iraqi governments that they are afraid to sign off on contracts...
American and Iraqi officials here are also saying that the stringent measures they had favored to slow the rampant corruption may be especially daunting for bureaucrats who have little experience with Western-style regulations and oversight. Those officials say that Iraqis who have seen their colleagues arrested and jailed in anticorruption sweeps are reluctant to put their own name on a contract.
A superficial reading of this article suggests an argument for more loosely regulated bureaucracy to speed up the disbursement of funds. That makes sense if one does not recall the USG CPA audit that revealed misappropriation of about $8.8 billion dollars. Unsurprisingly, the situation in Iraq makes a standard regs vs. no-regs debate a bit complicated.
First, bureaucracies headed by autocrats are not generally results-oriented. Dictators often reward supporters with government jobs, regardless of whether or not they can actually perform the work. Western liberal democratic governments, while still prone to cronyism, are also subject to public expectation and punishment by voters. This creates a top-down incentive to achieve results (or achieve something that can be passed off as such). Transparency and accountability measures, such as published budgets and audits, create further incentives to meet objectives and avoid embarassment. In countries where accountability is nonexistent, crony-bureaucracies are primarily concerned with personal/factional advancement through larger budget allocations, not public service. If the pre-war Iraq bureaucracy was accustomed to behaving like a massive graft operation, there is little reason to expect an overnight transformation simply because the country had an election. Plenty of so-called democratic countries in Africa are corrupt to the core, despite having parliaments, regular elections and even anti-corruption commissions.
Second, as mentioned in the article, contract and project management skills are crucial when it comes to handling expensive and complicated initiatives (e.g. infrastructure/public works). Mass exodus and de-Baathification no doubt created a serious shortage of technocrats in Iraq, further exacerbated by the sectarian fiefdoms created in each ministry (once again, the incentive to populate a ministry with ethnic/sectarian cronies is stronger than hiring based on merit). Hiring consultants to fill the skill gap isn't a good long-term solution either, particularly if oversight mechanisms are broken.
Reducing the amount of scrutiny can speed up spending, but as the CPA experience shows, funds can easily disappear into somebody's pocket rather than being used for reconstruction. Bremer blasted the Jan 2005 audit for expecting the CPA to follow accounting standards that "even peaceful Western nations would have trouble meeting within a year." Fair enough, but relaxed regulations should still be accompanied by performance monitoring and some awareness of how much money is being used to grease the wheels, as it were.
Looking at the current budget paralysis of the Iraqi government, it appears that the pendulum has swung too far in the other direction and the bureaucracy is simply not prepared (culturally or operationally) to deal with tighter spending rules. Aside from tweaking processes for expediency, there are no easy solutions for transforming an entire public service that is fundamentally lacking in capacity, skills and truly accountable leadership.
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Reminds me a bit of problems here in the Czech Republic. A lot of EU regional development money is never disbursed by the central government because the latter applies the most stringent of the EU suggested (not mandatory) conditions on project approval, and even goes beyond them. Yet at the same time this is one of the most corrupt countries in Europe.
Posted by: Antiquated Tory at December 12, 2006 04:31 PM