Hearing on U.S. Assistance Programs for Iraq

Hearing on U.S. Assistance Programs for Iraq


Richard L. Armitage, Deputy Secretary of State
Statement before the House Appropriations Committee, Foreign Operations
Subcommittee
Washington, DC
September 24, 2004

Mr. Chairman, Members of the Committee, thank you for this opportunity to
discuss how the Department of State is executing President Bush's strategy for
ongoing assistance to the government of Iraq. I appreciate our consultation
today, just as I appreciate the extensive consultation that members of my
Department have engaged in with you and your staff in recent weeks. Given the
grim news of recent bombings, attacks and murders in parts of Iraq, I also
welcome this opportunity to set those very visible challenges and tragic events
in the context of our concerted and committed efforts to support Iraq's
reconstruction and political transition.

These are, indeed, challenging times for the people of Iraq. The coming months
leading up to and following the January elections may be especially perilous as
insurgents and infiltrators who want democracy to fail in Iraq step up their
efforts. I urge the Members of this Subcommittee to keep in mind, however, that
Iraq is a country of some 25 million people, the vast majority of whom aspire
to peace and prosperity.

And so these are also hopeful times for the people of Iraq. Since taking office
on June 28th, President al-Yawer, Prime Minister Allawi, and the Iraqi Interim
Government (IIG) have demonstrated resolve, remarkable unity of purpose, and a
clear commitment to Iraq's transition. In response to the call of ordinary
Iraqis across the country for increased security and inclusive government, the
IIG is holding a firm line against violence and terrorism and is inviting all
Iraqis into the political process. In August, more than one thousand Iraqis
attended the National Conference, which elected an interim National Council and
played a key role in finding a peaceful solution to the standoff in Najaf. At
the same time, members of the IIG have taken important steps to establish Iraq
as a sovereign state, including extensive travel in the region to strengthen
Iraq's ties with its neighbors. President al-Yawer has also visited Europe to
bolster and broaden international support for Iraqi security and
reconstruction. Iraq's participation in the United Nations General Assembly
this week, and PM Allawi's historic address to a Joint Session of Congress on
Thursday, will continue to raise the stature of the new Iraq.

I have opened my remarks by highlighting these developments for a simple
reason: liberty will only take root in Iraq if the seeds are sown and nurtured
by Iraqis themselves. No one can force democracy on an unwilling people. The
IIG and National Council offer clear evidence, however, that Iraqis not only
want to live in a democratic society. They bring extraordinary personal courage
and political commitment to that cause. What Iraq needs are the resources to
overcome the formidable obstacles its faces. The goal of our strategy is to
give the people of Iraq the resources they need to cultivate a new Iraq, one
governed by respect for human rights and the rule of law, with a vibrant and
free economy. We look forward to welcoming that new Iraq as a model of success
in the region and a responsible member of the international community.

As Members of this Subcommittee are well aware, that hopeful vision depends on
meeting Iraq's extensive needs. Our strategy is essentially to prioritize,
understanding that success in one sector depends on success in all sectors. We
have sought to identify and target key high-impact areas for immediate focus
and funding -- to create the momentum and legacy of visible success, which can,
in turn, support longer-term reconstruction efforts.

Since the U.S. Embassy opened in Baghdad on June 28, our officials have worked
side by side with Iraqis and Coalition forces, to implement this strategic
approach. In the past 12 weeks, disbursements of U.S. assistance from the Iraq
Relief and Reconstruction Fund (IRRF) have reached $1.217 billion. During this
same period, Ambassador Negroponte conducted a comprehensive six-week review of
spending priorities under the IRRF to ensure that our spending is directly
keyed to our objectives. The Ambassador consulted with his entire Country Team,
including Multinational Force-I Commander, General Casey, as well as with the
Iraqi Interim Government. The adjustments that I will now outline are based on
the recommendations of Ambassador Negroponte's review.

We propose shifting a total of $3.46 billion from sector allocations outlined
in the July 5, 2004 Section 2207 report into six key, high-impact areas:

* $1.8 billion more for Security and Law enforcement;
* $286 million to accelerate Iraqi employment;
* $380 million for comprehensive economic development;
* $450 million for oil infrastructure enhancements and improved export
capacity;
* $360 million to forgive approximately $4 billion in bilateral debt owed to
the United States Government; and
* $180 million to support democracy and governance.

To meet these needs, an equivalent amount of funding would be shifted out of
three sectors:

* $1.94 billion from water and sewerage;
* $1.07 billion from electricity; and
* $450 million from oil (refined oil purchases).

Even though we are recommending moving these resources out of large-scale
infrastructure projects, which will delay construction and repairs in some
cases from 2005 to 2007, it is important to note that most of these projects
were scheduled to begin in mid-2005. We believe that by shifting our resources
to more urgent priorities, these projects are more likely to be successfully
completed. We recognize that such projects should be funded to ensure Iraq's
full recovery. Secretary Powell and I are optimistic that other donors and
Iraqis themselves will ultimately be able to close this gap. I will attend the
upcoming Donor's Committee meeting that will be held in Tokyo on October 13-14
to urge countries that have pledged funds for Iraq's reconstruction to make
good on their commitments so that needs such as these will be met.

Our most urgent priority right now is security. As the recent attacks have
highlighted, Iraq remains caught in the grip of a brutal insurgency aimed at
destroying current recovery and reconstruction efforts. Short-term stability
and long-term prospects in Iraq quite simply depend on improving the security
situation.

One key to improving Iraq's security situation is to augment the size and skill
of the Iraqi security and law enforcement forces. To that end, the proposed
reallocation of $1.8 billion will support infrastructure improvements, and
expanded training and equipping programs resulting in approximately 80,000
additional Iraqi security and law enforcement personnel. This would expand the
number of Iraqi police from the current plan of 90,000 to 135,000, double the
number of border security forces from 16,000 to 32,000, and increase the size
of the Iraqi National Guard from 45 to 65 battalions (e.g., approximately
20,000 additional National Guard troops).

Expanding Iraq's security and law enforcement forces will also create
employment opportunities for Iraqis and contribute to our efforts to bring down
Iraq's high rates of unemployment and underemployment. This situation is a
major source of popular frustration, and one that feeds the insurgency, which
points to a larger truth: progress on security is not separable from economic
and political progress. As I said above, success in one sector will depend on
success in all sectors.

When it comes to economic security, however, Iraqis are understandably
skeptical, given that they have lived for decades in an economy dominated by
the black market, corruption, and cronyism. Our intent is to focus on economic
projects that should immediately demonstrate the tangible benefits of peace and
stability, and create momentum. We propose, therefore, shifting $286 million to
programs that will create employment opportunities, stimulate economic
activity, and aid particularly disaffected areas. We estimate that such
funding, combined with other programs such as elections assistance and
reconstruction projects managed by the military, may directly generate up to
800,000 short- and long-term jobs over the next two years. The only way to
create good and extensive long-term employment, however, is through the
broad-based growth of a vibrant, free-market economy. Toward that end, we
propose shifting $380 million to encourage diversification and private sector
development. Some of those funds will also support higher education and
humanitarian assistance to internally displaced persons.

The efficacy and sustainability of these high-priority physical and economic
security measures will depend on a functioning national government, and that in
turn will depend on adequate revenue. In the near-term, we believe that the
best way to generate revenue is to inject funds into Iraq's most productive
asset, oil, and to relieve the pressure of Iraq's crushing external debt.

With proven reserves estimated to be roughly 115 billion barrels and average
daily output of only 2.5 million barrels, Iraq has considerable room for
improving earnings from oil. We propose shifting $450 million in IRRF funds to
projects that should quickly increase oil output and export revenues. Embassy
and Ministry officials estimate that these projects, which we can complete in
six to nine months if the security situation permits, would increase output by
650,000 barrels a day. That may not sound like much, but it would mean an
additional $19.5 million in daily export revenue and roughly $7 billion in
annual revenue, even after oil prices return to a more reasonable $30 per
barrel.

Increasing revenue, however, will be a drop in the bucket without debt relief.
According to International Monetary Fund estimates, Iraq's total external debt
is estimated to be approximately $120 billion. This debt burden drains critical
resources that a democratic Iraq needs now to rebuild its infrastructure,
schools, and hospitals, and cripples the country's ability to integrate into
the international economy and attract international investors. We propose
shifting $360 million of IRRF funds to debt relief. This would be the budgetary
cost of forgiving the approximately $4 billion that Iraq owes the United
States. Our debt forgiveness would provide relief to Iraq and would leverage
similar steps by Iraq's other creditors Paris Club members and non-Paris Club
creditors alike. The Administration can only take this step, however, with
specific Congressional authorization. And while President Bush and other G-8
leaders during the Sea Island Summit held in Georgia reiterated the G-8
commitment to providing debt relief for Iraq by the end of 2004, it will take a
Paris Club Agreement on reducing Iraqi debt to ensure that we fulfill that
commitment. Congress would need to provide the authorization for debt
forgiveness now in order for the United States to sign a Paris Club agreement,
which could come as soon as October.

Iraq's national government will be far stronger with a better revenue stream,
but political stability ultimately depends on holding elections, which are
scheduled to be held no later than January 31st, 2005. The Independent
Electoral Commission of Iraq is working closely with the United Nations to
ensure that the elections are legitimate and credible, and that all eligible
Iraqi voters have the opportunity to cast a ballot. They are pulling together a
voter registration system, have launched a public information campaign, and are
completing elections rules and procedures, with our support and advice. The
Iraqi Interim Government and Multinational Force-I are also working towards a
security plan. While we are confident that the Electoral Commission and UN will
succeed, we acknowledge that it will certainly be a challenge to meet such an
ambitious timeframe in a daunting security environment. We propose, therefore,
moving $180 million to support elections and other pressing democracy and
governance programs.

Mr. Chairman, I noted at the beginning of my statement that this is a
challenging and hopeful time for Iraq. In helping Iraqis overcome the
challenges and capitalize on the hopes, we are making an important investment
in a better future for Iraq, for the region, and for our own security and
economic stability. Furthermore, we are not alone. Twenty-nine other nations
are continuing to contribute personnel, financial aid, and technical assistance
to ensure Iraq's security. NATO will soon be adding its support for Iraqi
security forces and we continue to work with the United Nations to increase its
role in Iraq.

Ultimately, of course, it is the people of Iraq who have the most at stake.
Given the resolve the Iraqi leadership is now showing, I believe there is
reason to be optimistic about the future. Mr. Chairman, I believe our strategy
will help Iraqis reach that brighter future and I look forward to discussing
our efforts with you and the Members of this Committee.
[End]


Released on October 21, 2004

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See [url]http://www.state.gov/p/nea/ci/c3212.htm[/url] for
State Department information on Iraq ************************************************************
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