LONDON (AlertNet) – NGOs welcomed a hefty $33 billion Iraqi aid package promised by international donors, but said the creation of three separate funds was a political and bureaucratic mess and debt relief should be the next step towards sustainable development.

They said Iraqis needed to be in charge of deciding spending priorities if the money were to fuel lasting recovery, while other countries in need of aid could lose out due to the size of the pledges.

At a conference of donors for Iraq’s reconstruction in Madrid on October 23-24, NGOs had wanted funding to be taken out of the hands of the Coalition Provisional Authority (CPA) and to be U.N.-supervised.

Instead, two new funds were created, one under the World Bank and one under U.N. control.

Almost all donors except the United States will channel grants and loans through the new funds, rather than through the U.S. Development Fund for Iraq.

“All of that can create a God-awful mess that is in no way conducive to the Iraqi economy,” Christoph Wilcke, an adviser to Save the Children UK, told AlertNet.

Wilcke said each donor had attached its own conditions to pledges, and Iraqis would have to decide which fund to approach depending on the nature of their requests.

“Our concern is that the World Bank and U.N. funds have higher standards of transparency, but less money,” said Svetlana Tsalik of Revenue Watch, which promotes transparency from oil revenues and is part of the Soros Foundation-funded Open Society Institute based in New York.

About $13 billion in grants and loans has been pledged to the two new funds, almost as much as Iraq’s 2004 budget of some $13.5 billion. The United States has promised $20 billion.

It is still not clear how much of the pledges made at Madrid will take the form of loans rather than outright grants.

Tsalik said donors’ demands for separate accounts showed a lack of faith in the CPA’s ability to act transparently.

France, Germany and Russia refused to contribute anything at the donor conference because U.N. Security Council resolution 1511, agreed on October 16, failed to set a deadline for the United States to hand over power.

The resolution did set a December 15 deadline for the Iraqi governing council to provide a timetable for elections and to draw up a constitution, which the United States had originally resisted.

“It’s very unfortunate that Resolution 1511 did not solve long-standing differences between the U.S., U.K. and the rest of the countries as to what role the U.N. should play,” Wilcke said.

DELIVERY FROM DEBT

Wilcke said that as the occupying power, the CPA was responsible for security and basic services. He said it should therefore pay for all the costs of basic education as well as funding the establishment of an Iraqi army, Iraqi police force and Iraqi courts.

If other donors wanted to contribute to Iraq's reconstruction, Wilcke said, they should start with debt relief.

Iraq’s pre-war debt comes to at least $120 billion.

“Forgiving debt can be done overnight, needs no capacity and would give Iraq a great future,” Wilcke said.

Christian Aid’s Nutt said: “Oil money is going to be the saviour, but it’s never going to raise enough to service that (debt), let alone rebuild the infrastructure.”

Among the Paris Club of bilateral donors to Iraq, which is owed $40 billion, the biggest lenders are Japan, Germany, Russia and France. The latter three have all so far refused to contribute to any reconstruction fund

Japan has offered $1.5 billion in grants for 2004 and $3.5 billion in loans for 2005-2007.

But the Paris Club debts are dwarfed by amounts owed to neighbouring Arab countries.

World Bank President James Wolfensohn has said Iraq's debts to other countries, including Gulf Arab and former Soviet states, comes to at least $80 billion.

Wilcke said: “Together, (the Paris Club donors) don’t account for half of what Saudi Arabia, Kuwait and United Arab Emirates have lent Iraq. So we need that dual emphasis.”

Kuwait has so far offered aid but not debt relief. Saudi Arabia has offered $1 billion divided between grants and loans.

If donors want to give money as well as debt relief, Wilcke said they should channel it into areas of their own expertise.

“The Italians may have particular expertise in policing, the Germans may have particular expertise in the rule of law, the Spanish may have particular expertise in rural livelihoods," he said.

“They should do that through the Iraqi budgetary process, and defer all decision-making to the Iraqis and keep all efforts coordinated through the U.N.”

’INVOLVE IRAQIS’

NGOs said more Iraqis needed to be engaged in the process of rebuilding their country.

“Iraqis should be in charge of their own reconstruction,” said Tsalik of Revenue Watch. “The main decisions should be made by Iraqis. The reason (the U.S.-appointed Iraqi governing authority is) seen as not being respected or relevant is because they are seen as tokens.”

She said Iraqis working in government ministries should be given power to make decisions independently of the coalition.

Nutt agreed. “The longer you leave it, the more ingrained the resentment becomes, and the more petrified bad practice builds up,” he said.

NGOs are concerned that reconstruction money could be spent according to the occupiers’ priorities, which are not necessarily the same as those of Iraqis. Ultimately, spending decisions are in the hands of the CPA, with administrator Paul Bremer at its head.

Wilcke said it was doubtful funding would contribute to sustainable development, since it would probably be determined more by short-term pragmatism than long-term priorities.

“It’s unlikely that we will have a consolidated plan for Iraq’s development that integrates the Iraqi ministers, the Iraqi governing council, the donors through the U.N. and World Bank funds and the CPA,” he said.

He said the CPA would want to fund security infrastructure, while Iraqis might want to focus on education.

Nutt said: “The U.S. is legally and morally obliged to bring security. The best way they can do that is to provide employment and stability. It’s much more expensive to fund peace and prosperity. But you can’t compromise just because it costs a bit more.”

Although the funding promised at the donors’ conference was well short of a U.S. target of $56 billion over four years, NGOs said the amount was nothing to scoff at.

“It’s more than for Afghanistan, and more than for any other part of the world,” Wilke said. “So now we have to ask how quickly will that pledged money translate into real money, and how quickly will Iraq be able to absorb that money?”

Wilcke said he was concerned about the capacity within Iraq and the donor community to move from technical aspects to implementing aspects.

“I suspect half the Iraqi administration and maybe many donors will be busy just completing project plans, which will take years and years before a single brick is laid for a single hospital,” he said.

He added NGOs should not be the main recipients of the unprecedented funds.

“That would be an absolute disaster,” he said. “We can’t build our capacity so quickly, and neither do we want to, because that would mean creating parallel structures.”

OTHERS COULD LOSE

British charities Christian Aid, the Catholic Fund for Overseas Development, Oxfam, Save the Children, Care International and Action Aid wrote to British Prime Minister Tony Blair on October 22, saying he was breaking his promise not to redirect money from other programmes to pay for Iraq.

There are already signs that donor governments could spend less on other countries as a result of splashing out on Iraq.

In Britain, the Department for International Development (DFID) targets 10 percent of its budget for middle-income countries and Iraq will now get most of this. DFID has committed itself to spending 90 percent of its money on low-income countries.

According to The Guardian, DFID told staff in an internal memo: "The burden of financing Iraq will have to be borne by the contingency reserve and reductions in middle-income country budgets.”

The middle-income bracket includes much of the Caribbean, Eastern Europe, Latin America and North Africa.

Wilke said there could be a severe shortage of money for Eastern Europe, while the DFID contingency fund for emergencies could be cut by as much as half because of Iraq spending.

DFID-funded projects in Latin America are also likely to be hit hard, The Guardian said, with drastic cuts in poverty-reduction programmes.

"We are very concerned... about the prospect of significantly reducing, and even shutting down, a number of programmes in middle-income countries in order to find these funds," British aid agencies said in their letter to Blair.

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