Oil for Food, Money for Kofi

IT'S HUGE, OPAQUE, PERVERSE, run by the United Nations, and about the last thing a postwar Iraq will need. But after a short pause, the Oil-for-Food program is with us once again, revived last week at the urging of France, and with the backing of President Bush and Prime Minister Tony Blair.

United Nations Secretary-General Kofi Annan had suspended the program at the start of the war–leaving all concerned to contemplate $2.8 billion in Oil-for-Food funds left in limbo, plus $10.1 billion worth of goods contracted for but stuck in the pipeline. With Saddam deemed no longer viable as a contracting party, the U.N. has just given a somewhat modified Oil-for-Food plan a 45-day lease on life, subject to renewal.

Perhaps it was simplest to press on for a few more weeks with this monstrosity of a program, which in recent years has turned the U.N. into chief comprador for Baghdad, overseeing oil deals on commission for Saddam Hussein. An estimated 60 percent of Iraqis depend on Oil-for-Food rations, and going ahead for a brief spell with a U.N. program now revamped to bypass Saddam might help in rushing relief, already paid for, to hungry Iraqis. It might also have the dubious virtue of helping Tony Blair demonstrate to his more muddled constituents that, yes, he can do business with the U.N. And, at a moment when Bush and Blair are urgently busy fighting a war to free Iraq, temporarily extending Oil-for-Food may have averted the distraction of more hysteria from the Russians and French, whose contractors have been among the top suppliers of Saddam, and whose done deals via the U.N. were in mortal danger of going sour.

For all that, simply scrapping Oil-for-Food would have been the wiser move. This program was crafted by the U.N. in 1995 as a “temporary measure” tied to Saddam, not meant to outlive him. The plan was to continue sanctions against Saddam's regime, while trying to funnel basic necessities–via Saddam's Trade Ministry–to the Iraqi people. That mission has by now turned into one of the most Byzantine, distorted, and massive “relief” efforts ever devised. Oil-for-Food is not a program designed merely to deliver food and medicine, neither is it arranged so as to promote the development of a healthy society. It is, in practice, a scaffold for dictatorship, erected and maintained by U.N. bureaucracy. The only revamping thorough enough to fix these drawbacks will require tearing the whole thing down and starting fresh–with the U.N. playing a peripheral role, if any at all.

The unique twist of Oil-for-Food, the feature that makes it supreme among the world's lousiest aid schemes, is that it depends for all its funding, including its administrative budget, on the revenues of Iraq's state oil monopoly. So the U.N. is bankrolled by the very government it is supposed to be monitoring. And, having supplied all the money, the government of Iraq gets to draw up a shopping list, and propose, subject to an okay from the U.N., who among its citizens will get what. Never mind that Iraq's problem has been the lack of liberty, stifling of private enterprise, and gross misappropriation of resources by Saddam. The U.N. has for years been content to serve in Iraq chiefly as conduit and trustee for Saddam's selling, buying, and distributing.

The sums of money involved are enormous, both for Saddam and the U.N. Iraq is home to the world's second-largest oil reserves after Saudi Arabia, and despite the degradation of its petroleum industry under Saddam, there's been enough production to make Oil-for-Food the U.N.'s single largest program in terms of Kofi Annan's say-so over cash flow.

Since the program began operating, in December 1996, the U.N. has shepherded about $64 billion in Iraqi oil sales, and more than $39 billion in relief purchases, plus billions more for projects such as compensation to foreign victims of the first Gulf War. To cover its administrative costs, the U.N. collects a 2.2 percent commission on Iraqi oil sales, a setup that over the course of the program has generated more than $1 billion for U.N. coffers.

Perhaps unsurprisingly, the U.N. has greatly expanded the Oil-for-Food program, in 1998 raising an initial ceiling on Saddam's oil sales, and in 1999 removing it entirely. With higher revenues (until interrupted by the war), the scope of imports has also expanded, subject to a distribution plan inside Iraq that the U.N. explains is “prepared by the Government of Iraq and approved by the Secretary-General.”

Along with the usual meals and medicine, Oil-for Food last year introduced such items–approved by Annan this past December–as $4 million for air conditioners, phones, and vehicles to support the workings of Saddam's so-called Ministry of Justice. Annan also signed off on $50 million to supply Baghdad's totalitarian Ministry of Information “with television and radio studio systems, mobile broadcasting vehicles, television, and radio transmission equipment”–all for the use of the same Saddam propaganda machine that coalition troops have been risking their lives to knock off the air.

Another intriguing item approved by Annan last December was $20 million earmarked for “a project of Olympic sport city,” complete with a sports hotel and $10 million worth of “sports supplies and materials.” It bears noting, though the U.N. report does not do so, that the person infamously in charge of Olympic sports in Iraq has been Saddam's son Uday, long known for his sadistic ways. According to a gruesome report in Sports Illustrated, Uday has tortured athletes who disappoint him with beatings and amputations.

Inside Iraq, the U.N. has had nine of its alphabet-soup agencies implementing the Oil-for-Food program, employing in recent times some 900 expatriates and 3,000 locals. Their job has been to ensure that distribution takes place in keeping with the plan drawn up by Saddam and approved by Annan. In other words, the U.N. has basically been in the business of shoring up a prime source of Saddam's control–his command-economy state dole.

One might argue that with Saddam removed from the helm, Oil-for-Food will revert to a more benign aid arrangement. In Kurdish-controlled northern Iraq–where Saddam has been required by U.N. rules to hand over 13 percent of his oil proceeds, but, thanks to U.S. and British overflights, has had no real jurisdiction these past 12 years–local folks have fared much better than in the rest of Iraq. And tapping into Iraq's state monopoly oil income to help rebuild the country is a plan that leaders of the coalition now fighting for free Iraq have also been considering.

But even for the allies, maintaining a central oil monopoly to fund a vast public dole would be a risky tactic–more likely to perpetuate a command economy, primed for the next dictatorship, than to foster a free society. The only real solution is, somehow, to privatize Iraq's oil riches, cutting the state out of the loop. That will need creative thinking and deep devotion to democratic principles. For anything even approaching such a project, the U.N. Oil-for-Food program is spectacularly ill-suited–with its sorry history and large vested interest in whatever it can retrieve of the Saddam setup.

Beyond that, if you like Enron-style transparency, you have to love Oil-for-Food. At any given time, the program oversees billions in Iraq's money, awaiting the sludge-slow U.N. process of allocation and disbursement. For the first few years the U.N. parked the cash in a French bank, the Banque Nationale de Paris. More recently, it diversified the funds–currently totaling some $13 billion–among a handful of banks. But the U.N. provides no bank statements to the public, does not disclose the names of the banks, and won't even say what countries they're based in. Auditing is an in-house affair, conducted by government employees of a rotating trio of member states, chaired this year by France.

Is this what American and British troops are now giving their lives to clear the way for? How about some genuine relief? When Annan's Oil-for-U.N.-Jobs program comes up for renewal in May, let's pull the plug.

Claudia Rosett is a columnist for the Wall Street Journal Europe.

Claudia Rosett is a columnist for the Wall Street Journal Europe.