Oil windfall, so why can't Iraq shoulder its own reconstruction burden?

Sunni tribesmen are being paid to not blow up critical northern pipelines. The Basrah oil fields in the south aren't being siphoned nearly as often. So now that Iraq is flush in oil profits, why can't it cover the full costs of its own reconstruction?

An opinion piece in the LA Times, by Linda J. Bilmes and Joseph E. Stiglitz, said:
Iraq sits atop the world's third-biggest known oil reserves, and the Iraqi government keeps a mounting pile of petrodollars firmly tucked away in American banks. A new report by the U.S. Government Accountability Office shows that Iraqi oil revenues will reach up to $85 billion this year, resulting in a budget surplus of as much as $50 billion. But despite all the money that is pouring in, Iraq is not taking responsibility for its own reconstruction.

Instead, the U.S. military is footing the reconstruction bill. Over the last two years, while Iraq has earned nearly $100 billion in oil revenues (and spent just $2 billion on capital investments such as roads, water and electricity), U.S. taxpayers have plowed $48 billion into reconstruction activities in Iraq.

The point is certainly a frustrating one, but one must to be careful not to assume the Iraqi government wants the U.S. to pay for everything simply because it doesn't want to spend its own money. This view doesn't account for the complexities of building a functioning government here.

True, Iraq can't seem to spend the surplus, NY Times article. It spent only about 20 percent of its 2006 capital budget. The Ministry of Oil and electricity only spent about half their capital budgets in 2007.

For a country that is in desperate need to improve its electrical system to utilize the increased oil output, this is a huge problem. Baghdad only averages six hours of electricity on a good day. The electric grid has suffered from twenty-five years of neglect and war. To modernize it they need the expertise of energy contractors who abandoned Iraq when the insurgency worsened, leaving many projects unfinished. Some are hesitant to return, others haven't been able to collect payment.

One of the main problems is the fledgling government has inherited an inefficient financial bureaucracy with cumbersome rules, an oil adviser to the Prime Minister said in a presentation to a U.S. development group. The Ministry of Finance controls the budget expenditures for all the other ministries, and is notoriously slow and tight-fisted about releasing money.

Within the ministries themselves even upper-level managers don't have authority to sign off on routine expenditures without the approval of the inspector general. Recently some critical procurement projects at the Ministry of Oil have tried to "fast-track" projects by bringing in the inspector general and his people first, so they become facilitators rather than gatekeepers.

Ministry employees are also "handcuffed" by fear of being accused of corruption, the adviser said. Managers are reluctant to put their name on a contract for fear of being swept up in a scandal.

Letters of Credit to pay outside contractors regularly take six months to process because they must go through the labyrinth-like Trade Bank of Iraq. Why would a large energy contractor come to Iraq if they fear not only for their safety, but also of not getting paid?

The message from the State Department and USAID is that they will no longer outright buy Iraq new power plants and refineries, but instead will facilitate the return of these contractors to provide new construction and technical help to bring Iraq's state employees up to international standards.

This will take years, a little like weaning a young Lebron James off an allowance. He will soon be giant, and Iraq has potential to be one of the world's last suppliers of additional oil capacity, but first it must take the difficult steps of becoming a financially self-sustaining government.