Examination of Witnesses (Questions 500
- 519)
WEDNESDAY 9 FEBRUARY 2005
MR JIM
DRUMMOND, MS
PAULINE HAYS
AND MR
RODNEY MATTHEWS
Q500 Richard Ottaway: That I know
but is anyone going to invest?
Mr Drummond: Is anyone going to
put their own capital in?
Q501 Richard Ottaway: Yes.
Mr Drummond: Obviously there are
a number of constraints to that on the security side. There are
a number of things that have been done to free up the economy
that I described earlier that will make it easier for investment.
Having an elected government will be helpful in that respect.
Having Iraq's debt dealt with sensibly will be helpful because
if you are investing in Iraq you have to make sure you get your
money out. If Iraq does not have a huge debt burden, that will
be easier. The tax system has been simplified. The crucial bit
of this is security.
Q502 Mr Viggers: If any government
has a substantial source of revenue from one area like oil, there
is a tendency for that government not to need the taxpayers of
its own country. There are examples around the world where oil
rich states are run by a small clique or family and there is less
need for democracy than there would be in an economy which is
more widely based. There are social and political reasons for
broadening the economy as well as economic reasons. What do you
see as the main inhibitions, the main things that prevent the
development of a vibrant and local economy, employing local people,
local entrepreneurs? Are you able or any of the people with whom
you are in contact able to encourage Middle Eastern money perhaps
and money from areas other than the western democracies to invest
in Iraq?
Mr Drummond: As DfID, our main
business is with the donor community. We have a programme in Basra,
the Governorates Capacity Building Programme which includes the
promotion of local business. The Foreign Office and the DTI will
have an interest in trade promotion and investment promotion in
Iraq. We see our main role as trying to encourage the Iraqis to
establish systems that will be helpful to get the playing field
level and right. Your points about oil revenues and the funding
elites I entirely agree with. One of the priorities throughout
this process has been to get an auditing process into what is
done with oil revenues. That is what the International Advisory
and Monitoring Board has been doing: auditing what has been done
with Iraq's oil revenues. We would like to see that process continue.
Democratisation is part of this process too. If a government has
to present a budget to its parliament, there is some transparency
about where the money is going, particularly if it is audited
afterwards. Our emphasis has been to get the economic ground rules
right, to get some supervision into the way the country's budget
runs. It has been less about working around the Middle East, to
encourage investment, but the FCO has done bits of work on that
and other organisations have as well.
Q503 Mr Viggers: Was there not a
strategy that Iraq's oil revenues were to go into a special, earmarked
development fund rather than simply to finance central government
activities? Is oil revenue being used for development purposes
or is it going direct to government funding?
Mr Drummond: Oil revenue goes
into the development fund programme and has done since Security
Council Resolution 1483. That money is being used to pay Iraqi
public sector salaries and some is going into investment. The
programme that Rod was talking about for emergency infrastructure
was partly funded by the Development Fund for Iraq. Yes, this
has happened.
Q504 Mr Viggers: You have talked
about things that are happening to encourage entrepreneurism and
a vibrant economy and so on. Would you look at it from the other
point of view? Can you identify any particular problems or road
blocks that prevent the development of that locally based economy?
What are the major problems?
Mr Drummond: There is an economic
reform agenda. I have described what has been done. There are
quite a lot of issues that still have not been tackled. We have
not had a conversation about electricity in detail but one of
the issues there is that electricity is provided virtually free.
If you were a private sector investor thinking of building a power
station you would be worried about where your money was going
to come back from. You might get a contract with a government
which says it will just pay you for this but you would really
want to have money collected because you were selling electricity.
The same applies to fuel. The same applies to other utilities.
The same applies to food. Food is virtually free to the Iraqi
population. It is funded by oil revenues largely, but is this
a sensible way for the long term to get a market economy going?
No. There need to be reforms and we and others are working with
the Iraqi administration to try to sequence those reforms in a
sensible way because if you tackle them head on too quickly it
is going to be destabilising.
Q505 Mr Cran: On Iraqi involvement
in reconstruction, you recognise that the Iraqis have to be involved
in reconstruction. Your own development goal says, "an inclusive
Iraqi-led reconstruction." The question is how much reality
there is behind that. On our last visit, we met the Basra Governing
Council and questions had been allocated before. One answer was,
"No, we are not sufficiently involved in the decision taking
process about where money is spent and so on around Basra."
How much reality is there to Iraqi involvement in these fairly
key decisions?
Mr Drummond: At the Baghdad level,
the Minister of Planning chairs a board which approves donor projects.
There is a set of issues about how the Iraqi Government works
together and how the links between the line ministry, agriculture
or electricity and the Ministry of Planning, work. One of the
things we have been trying to do at the centre of government is
help to establish Cabinet Committee structures so that these things
can be properly talked about across government. There is a structure
there. Is it working perfectly? No, not yet. Are people trying
to make it work better? Yes.
Mr Matthews: There are two main
programmes. There is the Emergency Infrastructure Programme and
that was managed by a board. The board included the heads of each
of the utilities and the water authorities and a representative
from the provincial councils. In that respect, we had good local
representation in the decision making process. On a number of
occasions, particular projects were MoDified to reflect the debate
that took place at those board meetings. The other part of the
funding which was the development fund for Iraq that was coming
from the CPA in Baghdad was about $75 million-worth. Those projects
were identified normally at the governorate level across the provinces.
That was always done in consultation primarily with the provincial
councils and with the local directorates. I believe that there
was a good degree of local input to the decision making process.
The sort of situation that could have led to the comment that
you heard in your visit to Basra relates to funding that has been
approved at Baghdad level by the Ministry, where there were examples
occasionally under the US supplemental, for example, of particular
school projects and there had not been the degree of consultation
with the school headmaster, the pupils and so on that one might
like to have seen. These were isolated cases. In the majority,
there was good consultation. There are always people who will
argue that the money should not be spent on this but should be
spent on that but generally there was a majority consensus that
this is the way we have to go with this particular programme.
Q506 Mr Cran: There is a consultative
process whereby private individuals representing people can put
their views over but you did not consult the Basra Governing Council,
in your case, formally?
Mr Matthews: No. There was a representative
from the provincial council on the board. He would relay the deliberations
of the board and bring to the board the deliberations of the Council
on any particular component of the programme.
Q507 Mr Cran: Was that individual
representing the views of a number of governing councils or just
Basra?
Mr Matthews: He would represent
Basra and similarly, occasionally, we would have people coming
from Al Muthanna and Dhi Qar and Maysan but because of the distance
they could not attend that frequently.
Q508 Mr Cran: Based on what they
have said to us, perhaps the consultation that you had was not
good enough. There is no doubt that it was there.
Mr Matthews: I am talking about
the period up until the end of June when we went under the CPA
regime.
Ms Hayes: I described earlier
the donor coordination group which is now chaired by the Iraqis.
It is a mechanism to try and ensure that donors are on track and
in line with Iraqis' needs and priorities. That is a formal coordination
mechanism with an overview. We have to be careful in dealing with
the four Iraqi governorates because they do not see themselves
as a region. They each report to Baghdad. They are silos really.
Getting them together is good and we need to do all that coordination
but we have to handle it sensitively because their reporting lines
are up to Baghdad. As a coordinator, you can coordinate to a certain
extent but you cannot say, "This governorate ought to work
with that governorate". In terms of project levels, everything
we do is precisely in line with the goal you describe. It has
to be Iraqi led. Whatever project management mechanisms we put
in place, there has to be some evidence that the Iraqis are not
only consulted at the start but are involved throughout. That
is good development practice and we try to put that into practice
in whatever we do. I would not deny though that doing some of
this work in Iraq is extremely difficult. If I was working in
Lesotho or somewhere, my ability to talk to my government partner
or someone in civil society would be much easier than trying to
do it in the Iraqi context. The relationships and the consultation
of necessity tend to be rather more formal. I cannot just get
in a car and go to see them and they cannot get in a car to come
and see me.
Q509 Mr Cran: Maybe it is force
majeure. Maybe it is for the very reasons you have given.
Maybe this is forced upon us but it does sound terribly top down
rather than bottom up and maybe that is what led to the comments
from the Basra Governing Council.
Ms Hayes: History will show that
the relationships are changing. That was only based on us being
the occupying power. We are not in that category any more. We
have gone out of our way to stress that we are now development
partners, listening to them, responding to their needs etc. And
that has required a shift in the way we operate and for others
to recognise that shift.
Q510 Chairman: I would like to ask
a couple of questions on the relationship between DfID and the
US military. I look for elucidation from the exchange you had,
Mr Drummond, with Mr Worthington. I must confess I did not come
away from that reeling with any greater knowledge of what the
connection was between DfID and the US. It seems pretty obvious
to me that the cooperation between the MoD and DfID in Telic was
quite good but it does not seem to me that there has been, unless
you can tell me otherwise, much cooperation between DfID and the
US military. As the British government has said any future operations
it will undertake will be with the United States, the scope therefore
for greater collaboration between your organisation and the US
military should be quite high because, if we are going on with
anything like Iraq—I hope we do not unless it is exceptional—you
will have to be working with the US. Therefore, we must fit in
well with what the US wishes, does and what our Ministry of Defence
does. Can you go on a little further than you went on with Mr
Worthington and tell us what thinking there is, what action is
being taken, if any, in how to operate in a US led military or
other type of operation?
Mr Drummond: In Iraq, we have
not had to have a lot of contact with the US military because
our agenda has been in the south, with the Iraqi central government
strengthening, where we have worked very closely with the PCO
and the US embassy but less with the US military. We have in recent
weeks been providing assistance to the Iraqi government on how
it should coordinate its relief effort for Fallujah which has
required some contact with the US military. As you will know,
for future cases, we are establishing a post-conflict reconstruction
unit which we would expect to take the lead in the immediate,
post-conflict stabilisation phase. I do not think we have an envoy
from DfID to the US military about this but the PCRU will need
to have contacts with the British military and other militaries
as and when such operations might arise.
Q511 Chairman: As we appear to be
caught collective unprepared in the events after the ending of
that part of military operations, has there been any thinking
inside DfID that we might have to learn some lessons from what
happened following that vacuum that was created, following the
end of the war? Have you gone through any lessons to be learned?
Mr Drummond: The lesson learning
stuff has partly been about the creation of the post-conflict
reconstruction unit.
Q512 Chairman: That is key?
Mr Drummond: That is key to the
stabilisation phase, getting them to have the capacity that can
do the business.
Q513 Mr Havard: I have heard this
new word "complementarity" and DfID ought to be part
of this lesson learning process about the military post-conflict.
Earlier on you said that they spend their money and we spend ours
about the Americans. There have been a lot of questions about
the hand-over period within the CPA and the project management
of this so there are lots of lessons about doing something. Pauline
was talking about it being easier in a more neutral environment
where there is less of a security problem, so we have a doctrine
about how we can do the development work in one set of circumstances
and now we are in another. The International Development Act,
as I understand it, some people would say means you should not
be doing this. There is this thing about how you are related to
or separate from the military and so on. There are some big doctrinal
questions about the extent to which you are compromised by being
seen because the question from Tony was, "What do you do
about the aid coming behind the tanks and how much you are seen
to be complicit with the military". There must be doctrine
coming out from your point of view about how you operate in these
sorts of circumstances in the future and I wonder what it is.
General Jackson would say, "We fight with the Americans,
not as the Americans." Does DfID behave as the British would
behave, not as the Americans would behave?
Mr Drummond: On the International
Development Act, that gives us a clear purpose. What we do has
to be to reduce poverty. That has to be our primary purpose. That
is our primary purpose in Iraq as it might be in Lesotho or anywhere
else. We have a number of debates with the military about issues
such as humanitarian space where clearly there are a lot of sensitivities
from the humanitarian community about how they become targets
if they are too closely associated with the military. That has
been a bit of an issue in Iraq but the number of international
NGOs operating there now is small. The Iraqi Government is doing
any humanitarian work it needs to now so we are not engaged in
that. If humanitarian aid needs to be delivered, we have to find
the best way of doing it.
Q514 Mr Havard: Are you learning
lessons about doing it in this particular context? A lot of these
things are being US led in the future. The US military behaves
in one way. Their reconstruction force, in the form of Mr Bremer
either with his boots on or off, and the project management office
have a different way of going on it would appear. What lessons
are we learning about working together in other circumstances?
Mr Drummond: The main vehicle
for this is the post-conflict reconstruction unit. It is just
being established at the moment. The US has a similar exercise
led by the State Department and establishing the links between
those two bodies will be the main way of taking this forward.
Q515 Chairman: You mentioned the
post-conflict reconstruction unit. What is the overlap between
the post-conflict reconstruction unit and the Foreign Office's
conflict issues group? Is there any overlap? Is it good old Whitehall
confusion over structures or turf fighting? You must have a unit
inside DfID with a title fairly close to the post-conflict reconstruction
unit.
Mr Drummond: We have a Conflict
and Humanitarian Affairs Department. The three departments, the
MoD, the Foreign Office and DfID have a joint interest in the
Post-Conflict Reconstruction Unit. DfID is providing almost all
of its running costs. The unit is just being established at the
moment. There are still issues about how it will operate and interlink.
Our aim will be that it does not duplicate but that it adds value.
It may mean that some parts of the main departments can be wound
down a bit.
Q516 Chairman: It is very generous
of your department to fund it. Do you have commensurate influence?
Is it no taxation without representation? Is your department sharing
it or are you having the lead role? Otherwise, why not pass the
donations over to another department if they might have a bigger
role?
Mr Drummond: DfID will have a
big role in this. It is part of my new role since I moved on from
Iraq to look at this. The committee that is supervising the PCRU
is chaired by Masood Ahmed who is one of our Director Generals.
Q517 Chairman: We understand that
the PCRU was to be included for the first time in the MoD's major
computer simulated planning and execution exercise joint venture
that took place at the beginning of December. Did any of you attend?
Were you aware of it? What was the level of DfID's contribution
to that? What lessons were learned from that exercise? If you
cannot answer, perhaps you would drop us a note.[2]
Mr Drummond: We had better drop
you a note. The PCRU had very few staff at that stage but a couple
of them did participate in that exercise. I think I am right saying
that somebody from our conflict and humanitarian affairs department
attended a bit of it.
Chairman: It would be interesting if
you could let us know.
Q518 Richard Ottaway: One senses
that the United Nations are being rather coy at the moment. Ms
Hayes mentioned earlier on that they come in from Kuwait and retreat
back to Kuwait. There is a role for them in political reconstruction
and a humanitarian role. What role do they currently have and
what role should they have?
Mr Drummond: The United Nations
have played a very important part in the political process, particularly
in the running of the elections which, in the security circumstances,
they have done extremely well. That political process will continue
through constitution making, through referendum on the new constitution
and then elections under that constitution. On the development
side, we are very keen to see the UN fully engaged. We would like
to see more UN staff permanently in Iraq. We understand their
sensitivities about security and we are trying to help them with
those.
Q519 Richard Ottaway: How many are
there at the moment?
Mr Drummond: One or two in Baghdad
and they have a security representative in Basra. They visit and
they video conference. Is this what we need? We need more. They
can do a bit of work from outside the country and they have about
$600 million in trust fund from the UN side. They have now spent
over $100 million so that is picking up quite quickly from where
we were three or four months ago. They are delivering on the ground
and they do have quite a lot of Iraqi staff.
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