from Follow the Money

The Bush Administration was for rebuilding Iraq before it decided it was not worth the effort

January 4, 2006

Blog Post
Blog posts represent the views of CFR fellows and staff and not those of CFR, which takes no institutional positions.

More on:

Capital Flows

I don't quite know what to make of the news that the Bush Administration won't seek more budget funds to rebuild Iraq.   At least not this year.

Is it:

  • A leading indicator of a broader reduction in the US commitment to Iraq?
  • A vote of (limited) confidence in the expected new government?
  • A pragmatic conclusion that security costs drive up project costs to levels that aren't worth it?
  • An assessment that building things that neither the US nor the government can then protect has limited utility?
  • A decision that with oil at $60 a barrel, Iraq can stand on its own two feet (after reducing the domestic oil subsidy) even if it exports only 1.1 million barrels a day, about ½ as much as under Saddam?  December was a particularly bad month.   See Econbrowser.
  • An effort to push other countries to come through on their aid commitments?  Or to get Japan to cough up even more cash?
  • A recognition that the Bush Administration lacks the political capital to push another aid package through a Republican Congress?
Beats me.

There certainly still seems to be more to be done to rebuild Iraq.  The Wall Street Journal:

The U.S. has been unable to get electricity or oil production back to pre-invasion levels, and water and sewage problems are growing for many of Iraq's 26 million people. 

Maybe the work cannot be done now.  Maybe the contracts have been signed and we just need to be patient .. 

The Post article suggests that Iraq will still get some money from US AID.  So maybe the administration has decided to fund aid to Iraq through the normal aid appropriations process - the same way aid to say Egypt gets financed.  That would make some sense. 

It certainly fits with the noise suggesting that US AID will be folded into the State Department.  Fair enough.  I have no skin in that particular (turf) fight.  But don't even think of shifting the multilateral development bank office from Treasury to State.  I gather the State Department wants to be able to move US aid around, using it to finance opportunities as they emerge (Lebanon, for example).   Fair enough. 

But I cannot quite figure out how this fits with the Administration's broader approach to development.  Using US development aid to reinforce US political objectives - assessed according to the fashion of the day - seems to run against the philosophy of the Administration's other big development aid initiative, the Millennium Challenge Account.   The idea behind the MCA was to depoliticize aid, to give aid to the world's poorest countries, not to favored middle-income countries and to allocate US aid to those poor countries that had demonstrated their commitment to sound economic policies, measured according to objective statistical criteria.  The idea behind shifting US AID to state seems to be a bit different, that might make the MCA "mere flotsam" the new US development aid architecture.  The Center for Global Development is right, the shift to State is not just a question of turf and special (development) interests.

Then again, the MCA probably never would have had the huge impact that the Administration initially suggested.  It turns out that qualifying for MCA aid was just the first step - then the qualifying country had to come up with a project that the US wanted to fund, and the US didn't want to fund just anything.   It wanted "transformational" projects. That meant, in practice, the MCA hasn't given out very much money (it has deals with six countries to give out $960 million, but only a fraction of that has been disbursed).  For more on the debate around the MCA, see Sheila Herrling and Steve Radelet (Full disclosure: they are part of the ex-Treasury mafia; I worked for Steve for a bit)

And I wonder if it will have the broader impact of really creating incentive for better policies in very poor countries.  After all, countries that don't get aid from the MCA can still get aid from other sources.   US AID (or the State Department).  The Agency (for intelligence cooperation).  The Pentagon (for various sorts of cooperation).   

Or from European development agencies. 

Europe - not the US - is the superpower when it comes to development aid, particularly in Africa. The MCA will probably give out less aid this year than one of the Nordic countries (data here).   But I won't repeat my standard complain about the MCA's rhetoric to results ratio.  It seems - from afar - that even if the MCA's results still lag, the rhetoric on the MCA has been scaled back.   I don't quite know what that means.  Or how the MCA might fit into the State department

Maybe Drezner has some ideas ...

More on:

Capital Flows

Close