Krugman: accounting and accountability

It's not going to win me any prizes for a quick response, but I've just run across Paul Krugman's article on Iraq's alleged reconstruction in Friday's New York Times.

Last month we learned that the United States, while it has spent vast sums on the war in Iraq, has so far provided almost no aid. Of $18.4 billion in reconstruction funds approved by Congress, only $400 million has been disbursed.

Almost all of the money spent by the Coalition Provisional Authority, which ran Iraq until late June, came from Iraqi sources, mainly oil revenues. This revelation helps explain one puzzle: the sluggish pace of reconstruction, which has yet to restore many essential services to prewar levels.

But it creates another puzzle: given that the authority was spending Iraq's money, why wasn't it more careful in its accounting?

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Every important official with responsibility for Iraqi finances was a Bush administration loyalist. The occupying authority dragged its feet on an international audit, which didn't even begin until April 2004.

When KPMG auditors hired by an international advisory board finally got to work, they found that no effort had been made to keep an accurate record of oil sales, and that accounting for the $20 billion Development Fund for Iraq consisted of "spreadsheets and pivot tables maintained by a single accountant."

The auditors also faced a lack of cooperation. They were denied access to Iraqi ministries, which were reputed to be the locus of epic corruption on the part of Iraqis with connections to the occupiers. They were also denied access to reports concerning what they delicately describe as "sole-source contracts."

Translation: they were stonewalled when they tried to find out what Halliburton did with $1.4 billion.

By obstructing international auditors, by the way, the U.S. wasn't just fueling suspicion about the misappropriation of Iraqi oil money - it was also breaking its word. After Saddam's fall, the U.N. gave the U.S. the right to disburse Iraqi oil-for-food revenues, but only on the condition that this be accompanied by international auditing and oversight.

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