Steven R. Weisman
New York Times
October 18, 2003

Bangkok: The Bush administration has yielded to demands and will allow a new independent agency to determine how to spend billions in international reconstruction assistance for Iraq, administration and international aid officials said Friday.

The World Bank and the United Nations are to run the new agency, effectively establishing some of the international control over Iraq that the United States had opposed in the drafting of the UN Security Council resolution adopted Thursday calling for international aid to secure and rebuild Iraq. Secretary of State Colin Powell, arriving here Friday evening for a conference of Asian leaders, said that after the vote on Thursday, he was “more encouraged and optimistic” than he was a week ago about the prospects of raising donations for Iraq at a conference in Madrid Oct. 23-24. The World Bank and the United Nations are to unveil details in Madrid, where conference planners have worried that donations were lagging because of widespread uneasiness about the military occupation, known as the Coalition Provisional Authority, or CPA. “European countries are concerned that the CPA is the decision-making authority in Iraq,” said a World Bank official. “For political reasons, they don’t want their funds to be perceived as being commingled with funds controlled by the CPA. They want their own say over how the money is spent.”

Japan has already committed $5 billion over several years, including $1.5 billion in 2004. The European Union has committed $230 million and Canada about $200 million for 2004. The World Bank is contemplating loans of $500 million in each of the next two years.

In June, when plans for Madrid got started, World Bank and United Nations officials said that donors began pressing for an agency outside the control of the occupation. It has taken several months, they said, to negotiate the details. At first, the Defense Department, which runs the Iraq occupation, resisted handing over financial control of its rebuilding. Instead, the Pentagon set up an Iraqi Development Fund, run by the occupation and by Iraqis, to pay for reconstruction from oil revenues and outside aid. The fund was to have an international monitoring agency, but with auditing functions and no say in spending. That setup proved inadequate. In recent weeks, the administration changed its mind, in part because of the support of L. Paul Bremer 3rd, the chief occupation administrator in Baghdad.

A senior State Department official said the new setup did not mean that the United States would not be consulted in the spending of aid money. One reason would be to avoid duplication of spending on projects. “The donors all want to have a little bit of distance from us,” said the official. “That’s fine. But you can’t really do much of anything without some coordination with us.” World Bank and United Nations officials said that the new agency would work closely with Iraqi officials in the ministries set up by the Iraqi Governing Council, the 25-member body picked by the American occupation. As it is now envisioned, the agency would oversee two trust funds, one managed by the World Bank and the other by various United Nations development agencies. These funds would oversee spending from international funds in 14 sectors that the World Bank and the United Nations assessed earlier this month as needing $36 billion in assistance over the next several years. These sectors included electricity, sewage, water and health programs, from hospitals to smaller community health centers. The United Nations has in the past set up trust funds for aiding war-ravaged countries without governments, but aid officials said the new trust fund marks the first time that such a fund has so many controls separating it from the military forces running the country. “This is unique for post-conflict situations,” a United Nations official said. “It’s been very complicated to set up a firewall separating the money given to us and the money spent by the CPA.” Separate from the $36 billion “needs assessment” for Iraq determined by international agencies, the United States has conducted its own assessment of areas where the American occupation would oversee spending, for example, in reconstituting the oil industry and training police and security forces. The Bush administration is asking Congress for about $20 billion to contribute to a $55 billion package, and the rest would presumably come from oil revenues, international aid or future American aid packages. A remaining problem, administration officials and many others said, is that the World Bank and other donors may be reluctant to make loans to Iraq before decisions are made on the $120 billion in debt it owes to other countries in addition to the tens of billions of dollars in reparations it owes from its past wars. In addition, aid could be held up because of the dangerous and volatile conditions in parts of Iraq. “Quite simply, we cannot do what we would want to do next year if security does not improve and we can’t get people on the ground,” said a United Nations official.