How U.S. Tried And Largely Failed At Reforming Iraq’s Government Interview With Univ of VA Prof Savage

US Provincial Reconstruction Team in Basra 2010 (Alamy)

James Savage is a Professor of Politics at the University of Virginia. He wrote Reconstructing Iraq’s Budgetary Institutions: Coalition State Building after Saddam, which analyzed the successes and failures of the U.S. nation building effort in Iraq. He focused not only on how the Americans tried to reform Baghdad’s budgetary system, but its government as well. Most commentators just focus upon the military and political problems the U.S. faced in Iraq. Savage brought up how the Americans tried and largely failed to change the country’s institutions, which is just as important to know to have a well rounded view of the U.S. occupation. This is an interview with Savage on lessons learned from this experience.

1. Everyone knows about the Coalition Provisional Authority’s (CPA) problems in Iraq with things like disbanding the military and deBaathification. One of its biggest successes however, which is completely unsung was that it created a new system for Iraq to draft its budget, which is still in use today. What kind of new rules did the CPA introduce, and more importantly why do the Iraqis still use them

One of the CPA’s most successful and lasting influences in Iraq is CPA Order 95, the Public Financial Management and Public Debt Law.  The law outlined a new budgetary process that distinctly challenged Saddam’s compartmentalized, opaque, and highly centralized budgetary process, with its legacy Ministry of Planning created during the Cold War.  The Order called for parliamentary approval of the budget and enhanced the powers of the Ministry of Finance, returning it to the coordinating role it played during the British mandate.  In addition, the Order set a time-table for formulating and approving the budget, it promoted fiscal transparency, and it initiated a rudimentary system of fiscal federalism.  Perhaps most important, the Order included a provision that authorized the government to continue operational spending at a rate per month of one-twelfth of the previous year’s budget.  This means that the Iraqi government can continue to function even if politically the Council of Ministers and the Parliament are unable to adopt a new budget.  Ironically, the CPA created a budget rule that is superior to the U.S. system where the government shuts down if the president and Congress are unable to agree upon a budget. 

The Order was imposed on the Iraqis and they were forced to use it during the CPA, but they have since taken ownership of this budgetary process and they continue to employ it for four reasons.  First, IMF and World Bank donor aid conditionality required the Iraqis to adopt “international best practices” in public financial management, and the Order incorporated a number of these conditions.  Second, the Order actually preserved some characteristics of the established system, so that the budgetary process fundamentally remained Iraqi in design.  In particular, despite the Americans’ profound distaste for the Soviet-era Planning Ministry, the ministry and its investment and capital budget responsibilities were retained.  Third, the Order enabled new interests and budgetary claimants, including provincial governments, to participate in the budgetary process.  These claimants then became stakeholders and owners of the institutions and processes that produced these budgetary rewards.  Fourth, the Order successfully offered the Iraqis procedural continuity and regularity in policy making in the face of security threats—including attacks upon the Finance Ministry—extreme swings in oil prices, the rapid overall growth in operational and investment programs, rising budget deficits, and sectarian political conflict.        

2. The U.S. spent years trying to reform Iraq’s institutions. It wanted to make the ministries more efficient, combat corruption, overcome sectarianism, etc. There were training sessions, conferences, advisers, millions spent, and more, but the Americans largely failed.  You went into great depth into a perfect example of how this effort faltered when the U.S. tried to get the Iraqis to use a computerized budget system. What was this idea and how did it unravel?

Many developing countries, including Iraq, formulate their budgets and manage their financial accounts literally by relying upon traditional pencil and paper documents.  This clearly violates “international best practices,” and a standard requirement of donor aid conditionality imposed upon recipient governments is that they adopt computerized financial management information systems (FIMS).  In principle, this sounds good, because replacing the Iraqi bureaucracy’s pencil and paper legers presumably would promote more efficient budgeting, transparency in bookkeeping, and greater accountability in the use of public funds.  For its part, the Iraqi government agreed to install an FIMS in response to repeated Coalition and donor demands.  Nonetheless, despite more than decade of effort by USAID and the World Bank, to this day the Iraqis continue to use pencil and paper budgeting. 

The reasons for Iraqi passive and active resistance to FMIS are rooted in culture and fear.  According to David Pryce-Jones, in the Middle-East, signatures on paper represent power relationships, and signing or refusing to sign a document reflects hierarchy, status, and power.  More directly, Saddam’s regime proved to be an extremely hierarchical affair that produced a distinct lack of initiative and inertia that permeated the Finance Ministry and the entire government.  Iraqi officials feared to be held responsible for decisions that might go awry, and to protect themselves they refused to make even the most fundamental decisions without explicit orders signed by their superiors.  The need to get a signed document for personal protection meant that making basic financial and procurement transactions required the signature of the finance minister or a chief deputy.  Officials refused to accept faxes and other copied instructions, which greatly lessened their interest in electronically generated paperwork and the use of computers.  This hostility towards FMIS reached the point that in 2007 a USAID team of contractors that attempted to train Finance Ministry personnel in FMIS were kidnapped in front of the Ministry, reportedly with the aid of the Ministry’s staff.  For several years following the incident, contractors were understandably unwilling to visit the Ministry.

3. The reform effort was also carried out by various U.S. agencies from the United States Agency for International Development (USAID) to the State Department to the Treasury, etc. What problems did that create that there were so many different U.S. offices involved, and was this symbolic of the larger U.S. failure to plan for postwar Iraq because there is no one agency responsible for reconstructing foreign countries?

Coordinating the agencies and their contractors proved to be an ongoing struggle throughout the American presence in Iraq. Some of this was due to the almost total ignorance Americans had about how the Iraqi government was organized and functioned.  A month before the invasion, General Jay Garner presided over a gathering of agency officials and they divided up which of six U.S. agencies would have oversight responsibilities over twenty-three Iraqi ministries.  Treasury and USAID were assigned responsibility for the Finance Ministry and, remarkably, the State Department was responsible for the Planning Ministry.  Although the State Department’s staff includes economists, the agency is not known for its management of capital budgets and planning ministries.  This delegation divided the oversight of Iraq’s operational and investment/capital budgets between three U.S. agencies.  At the Finance Ministry, the Treasury competed with AID over the control and coordination of contractors, who sometimes competed with each other for the same contract.  This proved to be a disincentive for agencies and contractors to develop and share harmonized training materials, as they were proprietary information used in the contract bidding process.  The agencies and their contractors divided up the government of Iraq by level of government and province, so some contractors worked with the central government and some of the provinces, with the rest of the provinces assigned to other contractors.  This coordination problem extended to the Provincial Reconstruction Teams, which were led by a State Department official and a military deputy officer and staffed with as many as forty to fifty personnel drawn from various U.S. and Coalition agencies and their contractors.  External evaluations of PRT effectiveness found numerous PRT leaders reporting that their contractors failed to coordinate with them, and instead reported back to their home agency. 

This coordination appears to have been endemic.  The U.S. Government Accountability Office reported that “The implementation of U.S. efforts to help build the capacity of Iraqi national government over the past four years has been characterized by multiple U.S. agencies leading individual efforts, without overarching direction from a lead entity or strategic approach that integrates their efforts.”  Notable attempts at creating coordination occurred when Ambassador Ryan Crocker created the position of Minister for Economic Affairs and Coordinator for Economic Transition to oversee the activities of the agencies and contractors involved in, among other things, building Iraqi budgetary capacity.  Under Crocker, the Treasury Department established a committee called the Public Finance Management Action Group (PFMAG) to promote coordination and help resolve differences among the agencies and contractors.  Nevertheless, attendance and participation were voluntary.  As one senior Treasury official observed, “These coordination problems are deep and profound, and extraordinarily frustrating,” as turf battles, organizational barriers, and information stovepipes continued to plague Coalition assistance programs.        

4. The U.S. fought a counterinsurgency war in Vietnam in the 1960s and 70s and then tried to forget about it so it could go back to planning for a conventional war against the Soviet Union. The Obama administration withdrew U.S. forces from Iraq, and tried to treat it like just another country only having to return in 2014 to help the government fight the Islamic State. Both are examples of America forgetting what it learned on the battlefield. You made a similar point about the U.S. and lessons learned in nation building. What do you fear Washington has lost from this experience?

The U.S. government has been doing its best to unlearn or forget about statebuilding.  President George W. Bush campaigned in 2000 on the platform that the U.S., and especially the military, should avoid statebuilding.  Then he rejected his own advice in Afghanistan and Iraq.  He did try to learn a bit from his mistakes, as, for example, putting the Defense Department in charge of Iraq’s occupation and statebuilding.  In 2005, Bush issued National Security Presidential Directive-44 (NSPD-44) to address the U.S.’s endemic statebuilding coordination, planning, and implementation problems in Iraq.  The Directive authorized the Secretary of State to lead a “whole of government” approach to coordinate all U.S. stabilization and reconstruction activities.  The Directive also created the Office of the Coordinator for Reconstruction and Stabilization (CRS) within the State Department, and established a Civilian Response Corps made up of seconded agency and contractor personnel to help with in-country stabilization and reconstruction efforts.  However, by 2008, the CRS had failed.  The Office lacked authority over other federal agencies and it lacked sufficient appropriations.  The Congress denied funding for much of the Corps, and by 2011 it fielded just 235 personnel during three years.

Then in 2010, Secretary Hilary Clinton and the State Department issued its Leading Through Civilian Power:  The First Quadrennial Diplomacy and Development Review (QDDR), which, among other ambitions, attempted to address the Coalition’s coordination problems by strengthening the relevant ambassador’s authority for managing interagency relations.  The QDDR also required USAID to establish a “knowledge and learning center” to evaluate and learn from its experiences in the field.  Nevertheless, the QDDR also declared “Afghanistan and Iraq are not the primary models for building our civilian capacity to respond to crises and conflicts.”  This enabled AID to avoid evaluating the performance of its programs and the activities of its contractors in these two countries.  Clinton also replaced the CRS with the Bureau of Conflict and Stabilization Operations.  This new unit neither “coordinates” nor directs “reconstruction,” because presumably American foreign policy will successfully avoid placing the U.S. in a position where it would be engaged in reconstruction efforts reminiscent of Iraq or Afghanistan.  Thus, after the U.S. withdrew from Iraq in 2011, the U.S. had the opportunity to evaluate and learn from its mistakes in state and nation building, but doing so might force changes in comfortably held doctrine, and holding politicians, the military, civil servants, and contractors accountable for their actions.