COALITION PROVISIONAL AUTHORITY REGULATION NUMBER 2:
DEVELOPMENT FUND FOR IRAQ (DFI)
6/10/2003

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IRW Commentary:

Governance.  The regulations for the operation of the DFI have been adopted in the form of a regulation that went into force on June 15, 2003 after being signed by Coalition Provisional Authority (CPA) Administrator Paul Bremer. The regulations make the Administrator solely responsible for "overseeing and controlling the establishment, administration, and use of the Fund…for those purposes he determines to be for the benefit of the people of Iraq." A director designated by the Administrator manages the Fund.

Expenditures.  Decisions on disbursements from the Fund are made exclusively by the Administrator based on recommendations supplied by the CPA Program Review Board (see below). The Fund can be used to "meet the humanitarian needs of the Iraqi people and for the economic reconstruction and repair of Iraq's infrastructure; for the continued disarmament of Iraq; for the costs of Iraq's civilian administration; and for other purposes the Administrator deems to be for the benefit of the people of Iraq."

Placement.  While the Central Bank of Iraq "holds the Fund on its books," the U.S. Federal Reserve Bank of NY or other financial institutions hold the corpus of the Fund under an account for the "Central Bank of Iraq/Development Fund for Iraq," if requested by the Administrator. Ninety-five percent of proceeds from oil and gas sales are to be deposited in this account, with 5% going to the United Nations Compensation Fund for the 1991 Gulf War. Expenditures from the DFI account can only be authorized by the Administrator or his delegate.

$1 billion have been transferred to the Fund pursuant to UN Security Resolution 986 (1995) and other surplus funds from the escrow account will be transferred.

Concerns:
Until an Iraqi interim administration is established, the Development Fund for Iraq functions as the country's budget. Yet, it is not subject to the same transparency and accountability requirements of good budgetary practices. Draft spending plans are not required to be published and there are no opportunities for public comment. Even after spending has been authorized, there is no requirement to disclose what amount was spent and on what. Only the Administrator gets to decide how to spend the DFI.
Although an auditor will audit revenues into the DFI, there are no provisions for auditing expenditures from the Fund.

Keeping the corpus of the DFI in the Federal Reserve Bank of NY provides the latter with significant earnings from the float of managing such a large account.