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A convention of the League of Prizren, meeting in Diber, votes to demand autonomy within the Ottoman Empire. The League formed on June 10, 1878, along with defense committees responding to the Berlin Congress, which had divided the Albanian population among different countries. The demands include the creation of an administrative unit encompassing all Albanian areas, with a centrally located capital, local administrators and Albanian as the language of government, the use of local taxes for local needs, the creation of schools, and the creation of an elected legislature. These demands will later be approved by an assembly in the city of Gjirokastra on July 23, 1880. [Kola, 2003, pp. 9]
The 1946 Yugoslav constitution and the 1947 Serb constitution give Vojvodina more self-rule than Kosovo. Serbia, under articles 90 and 106, allows Vojvodina, but not Kosovo, to have separate courts, including a supreme court, with elected judges, and more control over what are called businesses with “provincial importance,” as well as cultural and educational institutions. Each has an assembly that elects its executive committee and can create laws, but the laws have to be ratified by the Serb legislature, while republics can make laws without needing higher approval. Each autonomous area has 20 representatives in the Yugoslav parliament, while the six Yugoslav republics each have 30. [Kola, 2003, pp. 65]
In Belgrade, Nako Spiru, Albania’s economy minister, and Boris Kidric, Yugoslavia’s minister of industry, sign a 30-year treaty unifying Albania’s economy with Yugoslavia. They agree to coordinate economic planning, make the value of Albania’s lek dependent on the value of Yugoslavia’s dinar, equalize prices (not based on international market prices), and create a customs union under Yugoslavia’s rules. According to author Paulin Kola, Albanian communist leader Enver Hoxha praises the treaty highly, while Hoxha will later say he had many reservations. According to the Albanian communists’ official history, the Albanian government and Hoxha think economic conditions make currency parity impossible to achieve on Yugoslavia’s schedule and they say Yugoslavia sets parity “on an altogether arbitrary basis to the advantage of the dinar.” Albania also has reservations about unifying prices. It says the customs union is set up to benefit Yugoslavia, later causing shortages and inflation in Albania. Joint companies are later set up based on the convention, and Albania will complain that it is providing the capital it promised, while Yugoslavia provides not “even a penny in the original funds” but still “appropriated half of the profits.” A joint commission to coordinate the economies is created, and the Albanian government says Yugoslavia tries to “turn it into a super-government above the Albanian government.” Yugoslavia is supposed to provide two billion leks of credit in 1947, but reportedly does not provide even one billion, and credit in goods is overvalued by two to four times more than their prices in international trade. Yugoslavia provides four factories, which Albania considers too small and decrepit. The Albanian government subsequently says that the withholding of promised credit hinders the economic plan for 1947, and Albania says that the 1948 credits are also lacking. [PLA, 1971, pp. 306-309; Kola, 2003, pp. 78-79]
Yugoslavia’s envoy to Albania Savo Zlatic tells the Albanian leadership that, while the Central Committee of the CPA is dealing properly with Yugoslavia, there is another anti-Yugoslav position in Albania. Hoxha will later recount in The Titoites, “Whenever we raised any opposition, [the Yugoslavs] immediately thought that the Soviets ‘had prompted us,’ although, without denying their merits, in 1946 and even 1947 the Soviets regarded us mostly through the eye of the Yugoslavs.” He will specifically mention that Zlatic complains to him that an Albanian has insulted Yugoslavia by disagreeing with a Yugoslav adviser on cotton in front of Albanian farmers, with the implication that the Albanian was repeating Soviet advice, because Albanians are ignorant about cotton farming. Hoxha will write that he says, “Leave the specialists to get on with their discussions, Comrade Zlatic, because this does not impair your prestige or ours or even that of the cotton!” Hoxha will say that two or three days later, Economy Minister Nako Spiru reports that Zlatic said, “there are two economic lines in our country: the line of the Central Committee, which is correct in principle, and, parallel with this, the concretization of a second line in practice, contrary to that of the Central Committee,” which Spiru sees as an attack on him. According to Paulin Kola, only Spiru publicly opposes the economic integration, and he is the highest ranking official in close contact with Soviet officials. Zlatic objects to the slow pace of economic integration and what Yugoslavia sees as Albanian appeals to the Soviets. Specifically, the unification of prices in the two countries is supposed to be done in May, but takes until late June, and rates of pay issues in late May are not resolved until July. On June 20 or 21, Hoxha sends Spiru and Koci Xoxe, who is close to Zlatic, to meet with Zlatic about the Yugoslav concerns. Xoxe believes the accusation should be investigated, and there is tension between him and Spiru. The Albanian leadership rejects the charge of two lines, and Xoxe does not put up opposition. [Hoxha, 1982, pp. 327-335; Kola, 2003, pp. 87-88]
Yugoslavia’s envoy to Albania Savo Zlatic requests a meeting with Albanian Prime Minister Enver Hoxha and Interior Minister Koci Xoxe regarding the views of the Central Committee of the Communist Party of Yugoslavia (CPY) on relations between the two countries. According to Hoxha’s later account, Zlatic starts by saying, “A general decline in our relations is being observed, and especially in the economy our relations are quite sluggish.” The Yugoslavs say disputes in joint enterprises are constantly being taken to an arbitration commission, that there is an improper attitude towards the Yugoslav advisers, and that Albanians are accusing the Yugoslavs of not fulfilling their obligations while being lax about fulfilling their own commitments.
Plans for a Balkan Federation - Zlatic says Yugoslav relations with Hungary, Romania, and Bulgaria are advancing much more than relations with Albania. Further, Zlatic says Albania’s draft five-year plan is autarchic, in going beyond grain growing and light industry, when the Yugoslavs can provide the products of heavy industry. Hoxha will later say that the Albanian leadership never intended to make their economy “an appendage of the Yugoslav economy” in the way Zlatic is suggesting, although perhaps Albanian Economy Minister Nako Spiru did when he signed an Economic Convention in Belgrade (see November 27, 1946). Hoxha says Spiru kept silent about any concerns he had. Hoxha will also later claim that Xoxe knew of plans for union between Yugoslavia and Albania, but he did not. Zlatic says “The present-day Yugoslavia is its embryo, the nucleus of the federation [of Yugoslavia, Albania, and Bulgaria],” and “In practice the ‘economic union’ is the federation itself.” The Yugoslav plan is to form joint military, culture, and foreign policies later, and include additional countries. The leadership should only talk about economic unification for the time being, Zlatic says, but “this is the best way for the rapid development of the relations of our joint economies,” which is a necessity for Albania. Therefore, Zlatic says, this is not Yugoslav “pressure” to unify. Zlatic says Spiru “put his trust in the advice of the Soviets” regarding the five-year plan, creating a “wrong, unrealistic, anti-Yugoslav and anti-Albanian” plan. Hoxha will later recount saying that the Albanian leadership sent Spiru to consult the Soviets and backs the plan. Yugoslavia calls for a strengthened Co-ordination Commission, as “a kind of joint economic government,” but Zlatic cannot give Hoxha details. The Yugoslavs have not allocated funds for Albania’s five-year plan, so Zlatic says there should only be a one-year plan for 1948. Scholar Paulin Kola will later write that Zlatic says Albania receives more aid than a republic of Yugoslavia and that Zlatic repeats the Yugoslav demand that Albania not make economic agreements with other countries without Yugoslavia’s approval.
Yugoslavs Accuse Spiru of Treason - Zlatic blames all of the problems on Spiru and his allies, while Hoxha expresses doubt and says Spiru is not in control. Zlatic says Spiru lied about Yugoslavia promising 21 billion dinars to Albania. Hoxha will later say that the Vice-President of the State Planning Commission, Kico Ngjela, verifies that the Yugoslavs promised the funding. Spiru is allegedly an “agent of imperialism” sabotaging Yugoslavia’s relations with Albania and the USSR. Hoxha requests Zlatic’s statements in writing, and Zlatic is evasive. Hoxha will later say the Yugoslavs’ real attack was on him, and that the allegations were a signal to Xoxe to try to replace him. [PLA, 1971, pp. 312; Hoxha, 1974, pp. 750 -753; Hoxha, 1982, pp. 353-373; Kola, 2003, pp. 89-90]
Yugoslav representative Savo Zlatic meets with Albanian Prime Minister Enver Hoxha, Koci Xoxe, and Pandi Kristo and lays out the Yugoslav plan for a commission to coordinate the Yugoslav and Albanian economies. As Zlatic puts it, “Our governments should not quarrel with each other through the fault of a few directors or specialists of the economy.” The Yugoslavs appoint Sergej Krajger to chair the Commission, and Xoxe says Kristo should be the Albanian liaison. Hoxha is still concerned whether it will be “an organ above our governments.” Zlatic denies this, and says “…the commission will be engaged with the problems which have to do with common plans, with the most effective ways for the co-ordination of plans, with the definition and detailing of the budgets, investments and income, with checkup on the accomplishment of tasks and measures which will be allocated, hence with all the major problems in [the economic] field. After that let the government decide about the economy.” He also says “We came with the idea that the time was over when doubts and frictions began over every issue” and that Hoxha should trust Yugoslavia. Hoxha later recounts that the Commission did become “a kind of government over the government,” duplicating the Albanian government’s departments and allowing Yugoslavia to legally rob Albania. [Hoxha, 1974, pp. 760-762; Hoxha, 1982, pp. 421 - 427]
In response to a March letter from the Albanian government to Yugoslavia, Yugoslav representative to Albania Savo Zlatic meets with Albanian Prime Minister Enver Hoxha, Interior Minister Koci Xoxe, leading Albanian communists Hysni Kapo and Pandi Kristo, and Yugoslav economic planner Sergej Krajger. In what Hoxha sees as a retreat, the Yugoslavs focus on economic unification and say that Albania and Yugoslavia should coordinate their policies, but not unify politically at this point. Yugoslavia proposes coordination of foreign policy, economic planning methodology, trade, finance, laws, passports, education, and open borders. It says coordination commissions should be created in each country, the one in Albania having an Albanian minister and a Yugoslav deputy minister, and vice versa in Yugoslavia, as “the beginning of the future joint government.” Zlatic says they should draft a joint protocol at the meeting, and Hoxha asks why the Yugoslavs refuse to commit their proposals to paper. He says Albania wants to know why they should unify, not start working on it. Kraejger says the unification only covers economic matters, but Hoxha counters that the coordination commission has not streamlined things. Kraejger says Albania is making unreasonably large requests for tweezers, boot polish, and nails, pen nibs, beverage essence, etc., but Kristo says the Yugoslavs suggested it, because they had stock to get rid of. Hoxha demands that the Yugoslavs present a document. He will later recount that Albania still had not been informed of Soviet-Yugoslav tensions, and only receives a copy of a key March 27, 1948 letter from the Central Committee of the Communist Party of the Soviet Union to the Communist Party of Yugoslavia two or three days after this meeting. [Hoxha, 1982, pp. 477-484; Kola, 2003, pp. 93-94]
Entity Tags: Koci Xoxe, Enver Hoxha, Albania, Hysni Kapo, Josip Broz Tito, Pandi Kristo, Savo Zlatic, League of Communists of Yugoslavia, Party of Labor of Albania, Sergej Krajger, Yugoslavia
Timeline Tags: Kosovar Albanian Struggle
The IMF and World Bank begin working with the military junta in Ghana, providing the country with standby credit. Western countries agree to postpone Ghana’s debt obligations until December when an IMF-sponsored meeting is scheduled to convene (see December 1966). [West Africa Review, 1999]
The military government of Ghana meets with the Paris Club of Western governments and forges a debt rescheduling agreement, which defers Ghana’s debt obligations between June 1966 and December 1968 to the period 1971-1979. [West Africa Review, 1999]
With the rise of Slovenian and Croatian influence in the LCY, and following 1968’s ethnic Albanian demonstrations, Amendments VII through XIX are made to Yugoslavia’s Constitution, giving the autonomous provinces of Kosovo and Vojvodina more autonomy. In Amendment VII, Yugoslavia is redefined as having eight instead of six constituent parts: six republics and two socialist autonomous provinces. Yugoslavia becomes the custodian of the provinces’ rights and duties, instead of Serbia, and Kosovars can elect representatives to the Yugoslav legislature. Kosovo-Metohija becomes just Kosovo, under Amendment XVIII. Kosovo gains a constitution (instead of statutes), its assembly can pass laws equal to those of a Yugoslav republic (instead of decrees), and it gains a provincial supreme court. Federal development aid is channeled to Kosovo ahead of other areas. The term national minority is replaced by nationality. Yugoslav President Josip Broz Tito will say national minority “carried a tone of inequality, as if second-class citizens were involved. When it comes to rights there can be no difference whatsoever between nations, nationalities, and ethnic groups.” A year later, Serbia will approve Kosovo’s new constitution. Following these and other changes, Yugoslavia’s Albanian population will begin gravitating towards Kosovo while Slavs will start moving out of the province. [Vickers, 1998, pp. 169-170; Kola, 2003, pp. 109-110]
Pristina University students begin protesting over dormitory and dining hall conditions at the school. The protest grows and hundreds of protesters go off campus, where they are blocked by police. The police try to detain the alleged organizers, which brings out more people overnight, and begins to radicalize their demands. In coming weeks and months, the government and media will blame many groups and countries for the demonstrations, but in interviews years later with Albanian scholar and diplomat Paulin Kola, Kosovan nationalist Xhafer Shatri will say that he thinks the events were unplanned. On the morning of March 12, the crowd is dispersed with tear gas. More demonstrations will erupt in a week.
The Students of Kosovo - Because unemployment is high in Kosovo, many Kosovars turn to further education, making Kosovo’s ratio of students to population the greatest in Yugoslavia—274.7 out of 1,000, while Yugoslavia’s national ratio is 194.9. One in three Kosovars is a student of some kind, yet educational facilities for Albanians are underfunded. Pristina University has 36,000 full-time and 18,000 extension program students, two-thirds more than planned when the university was created, forcing some students to share beds. About 80 percent of the students are in programs such as Islamic art, Albanian history, or folklore, graduating more students than there are available jobs in these fields. Their professors are generally poorly qualified, more than half lack PhDs, and they generally produce little new research and are not well regarded by their colleagues elsewhere in Yugoslavia. The student body is generally disaffected. Many ignore Rilindja, an Albanian language newspaper in Pristina, which covers university news on Wednesdays, and prefer TV and radio from Albania rather than Yugoslavia’s Albanian stations.
Economic Conditions - Kosovo is the poorest part of Yugoslavia, and Albanians are generally poorer than Slavs—for example, in 1980 67,000 Kosovars were unemployed, over 10 percent of the population and the highest rate in Yugoslavia. Out of every 1,000 people newly employed in Kosovo in the early ‘80s, 258 are Montenegrin, 228 Serb, and 109 Albanian, though the majority of Kosovars are Albanians. By 1988, Serbs will be 23.6 percent of the population and have 36 percent of the jobs, and Montenegrins will be 2.5 percent of the population and have 9.3 percent of the jobs. Mahmut Bakalli, president of the Kosovo Provincial Committee of the League of Communists of Yugoslavia, is unable to change Kosovo’s economic relations with the rest of Yugoslavia, which pays very little for natural resources obtained from Kosovo. [Vickers, 1998, pp. 196-197, 199-200, 216; Kola, 2003, pp. 156-157]
Financial sources inform media outlets that the Mexican government’s failure to cut its budget deficit in accordance with an IMF austerity program may jeopardize its access to $908 million worth of assistance. This news comes at about the same time as an earthquake hits Mexico that will require the government to spend even more on reconstruction, thereby increasing the deficit. The IMF says that it will not make any exception as a result of Mexico’s fiscal needs following the earthquake. [New York Times, 9/20/1985, pp. A6]
Kosovo’s Assembly, in a highly irregular vote on March 23, approves the new Serbian constitution, already approved by the Assembly of the Republic of Serbia on February 3. The Kosovo vote does not meet the three-fourths majority necessary for amendments and is not held with a quorum, people from Belgrade and security personnel vote, and the votes are not actually counted. Assembly members are threatened if they vote no. The vote occurs under “a state of exception,” with disorder in the province and mobilization of the military.
Kosovo's Position under the New Serbian Constitution - Under the new Serbian constitution, the province is again called Kosovo and Metohija, and the autonomous provinces are defined as “a form of territorial autonomy,” regulated by the Serbian constitution. The 1968, 1971, and 1974 constitutional changes opposed by Serbs are nullified and Kosovo is in about the same position as it was under the 1945 and 1963 Yugoslav constitutions. The province loses its Executive Council and Assembly, and autonomy in police, courts, finance, and planning. Kosovo can pass statutes with the approval of Serbia’s Assembly.
Kosovar Demonstrations - Following the vote, hundreds of thousands protest, saying, “Long live the 1974 Constitution!” and “Tito-Party!” resulting in the declaration of martial law. Twenty-four civilians and two police are killed, but Paulin Kola will later put the number at over 100 killed and hundreds injured, while Miranda Vickers will say 28 are killed. Kola will refer to The Times’s March 31 issue, saying 12 police are critically injured and 112 less seriously injured on March 23; Radio Ljubljana says 140 Albanians are killed and 370 wounded through April; Albanian academic Rexhep Qosja will say in 1995 that 37 are killed, hundreds injured, and 245 intellectuals and 13 leaders arrested; The Times of June 2 says 900 are arrested, and on April 22 the Union of Kossovars writes to UN Secretary General Javier Peres de Cuellar, saying over 1,000 were killed and thousands hurt. More than 1,000 are tried in Ferizaj, according to a 1998 book by Noel Malcolm. Kosovo is again placed under a state of emergency. Workers who do not work are fired or arrested.
Slovenian Reaction - About 450,000 Slovenians sign a petition supporting their government’s views and opposing the crackdown in Kosovo.
Serbian Reaction - Hearing of the Slovenian petition, over 100,000 demonstrate the following day around Serbia, Vojvodina, Skopje, and Titograd.
Albania's Reaction - Albania’s relations with Yugoslavia had been deepening in the late 1980s, but Albania reacts more strongly to the March events. Foto Cami condemns Yugoslavia’s “erroneous policies” on the ethnic Albanians and says it will damage regional cooperation. Protests follow throughout Albania. Yugoslavia blames Albania for the violence in Kosovo. Ramiz Alia, now general secretary of the PLA, will say at a Political Bureau session in August 1990 that Western governments told Kosovar Albanians that to solve the problems in Kosovo, Albania had to change its government.
Soviet Reaction - Soviet media support the Serbs and refer to violence by Albanian nationalists, while saying that the majority in Kosovo and Vojvodina support the new Serbian constitution.
Western European Reactions - The UK says nothing. Although Yugoslavia’s Foreign Minister, Budimir Loncar, meets with British Prime Minister Margaret Thatcher in April, the contents of their talks are unknown to the public. Three years in the future a high-ranking official in Germany will regret this inaction.
American Reaction to the Turmoil in Kosovo - On March 9, three US senators proposed Senate Concurrent Resolution 20—Relating to the Conditions of Ethnic Albanians in Yugoslavia, which was passed prior to March 23. US policy supports Kosova’s position under the 1974 Constitution and the resolution asked President George H. W. Bush to reiterate this to the Yugoslav leadership. The Senate Foreign Relations Committee conducted a hearing on March 15. [Vickers, 1998, pp. 234-238; Kola, 2003, pp. 180-184, 190]
Entity Tags: Yugoslavia, United States of America, Union of Soviet Socialist Republics, Foto Cami, Germany, Javier Peres de Cuellar, Budimir Loncar, Josip Broz Tito, Assembly of the Republic of Serbia, Albania, 1945 Yugoslav Constitution, 1963 Yugoslav Constitution, 1974 Yugoslav Constitution, Assembly of the Province of Kosovo, United Kingdom, London Times, Miranda Vickers, Senate Foreign Relations Committee, US Senate, Union of Kossovars, Margaret Thatcher, Rexhep Qosja, Radio Ljubljana, Ramiz Alia, Noel Malcolm, Paulin Kola, Party of Labor of Albania
Timeline Tags: Kosovar Albanian Struggle
In the mid-1990s, the CIA suffers “brain drain,” as budget restrictions cause the agency to get rid of many of its most experienced officials. CIA official Michael Scheuer will later explain: “They called it a buyout program through the whole federal government, and they thought they were going to get rid of the deadwood. What happened was they lost the age-40-to-48 group of very strong potential senior officers, those people who couldn’t stand the bureaucracy anymore. They couldn’t stand the crap, so they retired, and we lost a whole generation.” In 1997, George Tenet becomes the new CIA director (see July 11, 1997) and he attempts to stop the loss of talent. He even initiates a massive recruitment drive for the CIA’s Directorate of Operations’ clandestine service. But according to a Vanity Fair article, “unfortunately, the training of these new spies remained very much old-school: they were taught how to operate undercover in European embassies, but not how to infiltrate Islamic terrorist cells.” Tenet’s choice for the latest deputy director of operations typifies the problem. His pick is Jack Downing, a 57-year-old veteran CIA officer who served as station chief in Moscow and Beijing during the Cold War. Scheuer will comment, “Downing was a Marine, and then he was a very, very successful officer during the Cold War, but he didn’t have a clue about transnational targets, and he didn’t like analysts.” [Vanity Fair, 11/2004]
A 15-year period begins during which most trade barriers between the US, Canada, and Mexico will be dismantled in accordance with NAFTA. The New York Times comments: “The government has taken few steps, however, to prepare smaller and medium-sized companies, poor farmers, and inefficient industries for the new competition. Even after a wave of industrial restructuring that cost half a million Mexican jobs, worker re-training programs are almost nonexistent.” [New York Times, 1/1/1994]
President Bush’s first budget calls for $13.6 billion on counterterrorism programs, compared with $12.8 billion in President Clinton’s last budget and $2 billion ten years earlier. However, there are gaps between what military commanders say they need to combat terrorism and what they are slated to receive. These gaps are still unresolved on September 11. [Knight Ridder, 9/27/2001; Washington Post, 1/20/2002; Time, 8/12/2002]
President Bush remarks to Mitch Daniels, the White House budget director, how the 9/11 attacks have enabled him to abandon his earlier promises to balance the US budget: “Lucky me, I hit the trifecta.” [Office of Management and Budget, 10/16/2001; New York Times, 1/17/2003; Star-Tribune (Minneapolis), 9/25/2003] In summer 2000, during his election campaign, Bush had assured voters his planned tax cut was affordable, and he pledged not to dip into the Social Security surplus. [New York Times, 8/30/2002] On August 24, 2001, he’d told a reporter, “I’ve said that the only reason we should use Social Security funds is in case of an economic recession or war.” [White House, 8/24/2001] On September 6, he’d stated three conditions that would permit a change of policy: “I have repeatedly said the only time to use Social Security money is in times of war, times of recession, or times of severe emergency.” [White House, 9/6/2001] Now, shortly after September 11, Bush alludes to these three conditions as he tells Daniels, “Lucky me, I hit the trifecta.” (A trifecta is a kind of bet that requires picking the top three finishers in a horse race.) As Daniels will comment in late November, “So [President Bush] and the economic team believe that running deficits in a time like this is acceptable.” [Office of Management and Budget, 11/28/2001] Bush will make similar comments during numerous public appearances in early 2002, telling roughly the same joke over and over. For instance: “You know, I was campaigning in Chicago and somebody asked me, is there ever any time where the budget might have to go into deficit? I said only if we were at war or had a national emergency or were in recession. Little did I realize we’d get the trifecta.” [White House, 2/27/2002; White House, 3/1/2002; White House, 3/27/2002; White House, 4/16/2002; White House, 5/10/2002; White House, 6/14/2002]
Not long after 9/11, US Ambassador to Pakistan Wendy Chamberlin proposes a substitute for the mostly private funding of madrassas [religious boarding schools] in Pakistan. There are over 10,000 madrassas in that country, and many of them teach a radical form of Islam that promotes Islamist militancy. Counterterrorism “tsar” Wayne Downing supports Chamberlin’s idea, and says the madrassa system is “the root of many of the recruits for the Islamist movement.” In early 2001, the Pakistani government approved a plan that would require the completely unregulated madrassas to register with the government for the first time, halt all funding from abroad (which often comes from militant supporters in Saudi Arabia), and modify their curricula to teach modern subjects such as math, science, and history. However, Pakistan lacks the money for an education system to replace the madrassas. In late 2001, President Bush promises Pakistani President Pervez Musharraf that he will fund a $300 million education plan. But the plan does not survive the White House budget request that year. The madrassas are not reformed in any way—even the plan to have them register is dropped. Pakistani journalist Ahmed Rashid will later comment, “The US State Department and USAID maintained the charade that Pakistan was actively carrying out reforms.” [Washington Post, 10/22/2004; Rashid, 2008, pp. 235-236]
Pakistani President Pervez Musharraf meets with Wendy Chamberlin, the US ambassador to Pakistan, and asks for US support to help him extend his control over the tribal areas near the Afghanistan border. At the time, al-Qaeda and Taliban forces are being defeated in Afghanistan and fleeing to the tribal region. Musharraf suggests the local people can be bought off with basic government services such as schools, clinics, and roads, and that large cash rewards could be offered to locals who help track down fugitive militants. Musharraf claims he would need $40 million to implement such a plan. Chamberlin agrees, but Congress soon refuses to fund the money, and only gives $14 million for local law enforcement. Charlie Flickner, a Republican clerk on the House Appropriations Committee, successfully lobbies his Republican colleagues not to support it. One anonymous Democrat on the committee will later say: “We blew it. There was a window of opportunity, but we lost it by not funding them adequately.” The tribal areas soon become a strong base for al-Qaeda and the Taliban. [New Yorker, 7/28/2003]
US aid to Pakistan skyrockets from a mere $5 million in 2001 to over $1.1 billion in 2002 (see February 14, 2002). [US News and World Report, 6/2/2003] In 2003, the New Yorker will report: “Since September 11th, Pakistan has been rescued from the verge of bankruptcy. The United States lifted economic sanctions that were imposed in 1998, after Pakistan began testing nuclear weapons, and it restored foreign aid.” Rahimullah Yusufzai, a Pakistani journalist who has interviewed Osama bin Laden, will say, “Essentially, [Pakistani President Pervez] Musharraf was very lucky this happened in his neighborhood.” [New Yorker, 7/28/2003] Ironically, there have been reports that the ISI Pakistani intelligence agency was involved in the 9/11 attacks and even that ISI Director Mahmood Ahmed ordered money to be sent to hijacker Mohamed Atta (see October 7, 2001).
The US State Department’s Bureau of International Narcotics and Law Enforcement Affairs awards DynCorp International a sole-sourced (no competitive bidding) $22 million contract to “re-establish police, justice, and prison functions in post conflict Iraq.” The contract will be bid out to competitors after one year. The contract raises a few eyebrows. The Reston, Virginia-based company has donated more than $160,000 to the Republican Party and its employees have been involved in a number of serious scandals. [Insight Magazine, 4/11/2003; New York Times, 10/4/2003] In Bosnia, for example, employees of the company were accused of operating a sex-slave ring of young women, keeping under-aged girls as concubines, and videotaping a DynCorp supervisor having sex with two girls. Although they were fired from their jobs, they were never prosecuted. [Los Angeles Times, 4/14/2002; New York Times, 10/13/2002; Insight Magazine, 4/11/2003] One of the whistle-blowers, Ben Johnston, told Congress in April 2002: “DynCorp employees were living off post and owning these children and these women and girls as slaves. Well, that makes all Americans look bad. I believe DynCorp is the worst diplomat our country could ever want overseas.” [New York Times, 10/13/2002] In Ecuador, DynCorp has been accused of allowing herbicides applied in Colombia to drift across the border killing legitimate crops, causing illness, and killing children. [New York Times, 10/13/2002] Commenting on the contract, an unnamed congressional aid tells Insight Magazine: “There are some strange things about how this contract was issued. [B]ecause why would CSC use an offshore subsidiary? Is it so they won’t have to pay taxes on this money? Also, why wasn’t this contract put up for bid? Why was DynCorp the chosen recipient?” [New York Times, 10/13/2002]
Bechtel wins a second contract from USAID to work on rebuilding Iraq’s infrastructure. Work will include the “repair of power generation facilities, electrical grids, municipal water systems and sewage systems; continued rehabilitation or repair of airport facilities; and additional dredging, repair and upgrading of the seaport at Umm Qasr.” The company will also “repair and build government and public facilities such as schools, selected ministry buildings and major irrigation structures, as well as restore essential transport links.” The contract has the potential to be worth as much as $1.8 billion. [US Agency for International Development, 1/6/2004; Financial Times, 1/7/2004]
The US Army Corps of Engineers awards Halliburton subsidiary, Kellogg, Brown & Root (KBR), a sole-source monopoly contract to repair and operate Iraq’s oil infrastructure. The contract is awarded in secrecy without any competing bids from other qualified companies. Halliburton will eventually charge the government $2.4 billion for its work. The Defense Contract Audit Agency will find that about $263 million of these costs are either questionable or unsupported. Despite this, the US Army will pay Halliburton all but $10.1 million, or 3.8 percent, of the disputed costs. [New York Times, 2/27/2006; US Congress, 3/28/2006, pp. 3-4 ]
Halliburton issues a press release declaring that it has won a contract from the US Army Corps of Engineers to extinguish oil well fires and do emergency repairs to Iraq’s oil infrastructure in post-invasion Iraq. The firefighting work will be subcontracted to Houston-based companies Boots & Coots International Well Control, Inc. and Wild Well Control, Inc. [Halliburton, 3/24/2003]
According to an unnamed US businessman interviewed by the New York Times, the Coalition Provisional Authority in Iraq has been issuing contracts worth hundreds of thousands of dollars by simply telephoning favored companies and informing them, “I have a contract for you.” [New York Times, 10/4/2003]
At the request of the Coalition Provisional Authority, the Federal Reserve Bank sends the CPA $20 million in $1, $5, and $10 bills. The money is drawn from the Development Fund for Iraq (DFI) and special US Treasury accounts containing revenues from sales of Iraqi oil exports, surplus dollars from the UN-run oil-for-food program, and frozen assets that belonged to the government of Saddam Hussein. This is the first of several shipments, totaling some $12 billion, that will be made over the next 14 months. [US Congress, 2/6/2007 ]
Halliburton is paid $304,486,577 to import 191,965,150 gallons of gasoline into Iraq at an average price of $1.59 per gallon. This does not include the two to seven percent bonus the company will receive as part of its cost-plus contract, which will bring the total cost to between $1.62 and $1.70 per gallon. The Congressional Research Center will later report that during this time the wholesale cost of gas in the Middle East was only 71 cents per gallon, meaning that Halliburton was charging the government 91 to 99 cents for transporting a single gallon of gas to Iraq. Later, an expert interviewed by the staff of Congressman Henry A. Waxman will claim that the gas could have easily been transported into Iraq for 20 to 25 cents per gallon. Another will claim that it could have been done for as little as 10 cents per gallon. [US Congress, 10/15/2003, pp. 3-4 ]
The US Agency for International Development (AID) announces that it has contracted California-based engineering firm Bechtel Corp to repair and rebuild Iraq’s infrastructure. The contract is worth $34.6 million initially, and up to $680 million over 18 months. Specifically, Bechtel will assess and repair power generation facilities, electrical grids, municipal water and sewage systems, and airport facilities. The company will also dredge, repair, and upgrade the Umm Qasr seaport. Additional projects may include rebuilding hospitals, schools, ministry buildings, major irrigation structures, and the country’s transportation infrastructure. [US Agency for International Development, 4/17/2003] Some experts believe that Bechtel’s contract could ultimately be worth as much as $20 billion. [New York Times, 5/21/2003] The bidding process draws criticism from various congressional Democrats and British companies who say that the process was overly secretive and limited. Only a small number of US-based construction companies were allowed to take part in the bidding. [New York Times, 4/18/2003] The company’s connections to the US government also brings about allegations of cronyism.
Bechtel’s CEO, Riley P. Bechtel, currently serves on the President’s Export Council, which advises the White House on how to create markets for American companies abroad. [New York Times, 4/18/2003]
The company’s senior vice president, Jack Sheehan, is a member of a Pentagon advisory group called the Defense Policy Board, whose members are directly approved by the Defense Secretary. [Guardian, 4/18/2003]
One of its board members is George Shultz, who served as secretary of state under the Reagan administration and who currently leads the advisory board of a pro-war group called the Committee for the Liberation of Iraq. [San Francisco Chronicle, 4/18/2003; Guardian, 4/18/2003]
Daniel Chao, a Bechtel senior vice president, serves on the advisory board of the US Export-Import Bank. [CorpWatch, 4/24/2003]
At the request of the Coalition Provisional Authority, the Federal Reserve Bank sends the CPA $179.3 million in cash during this month. The money is drawn from the Development Fund for Iraq (DFI) and special US Treasury accounts containing revenues from sales of Iraqi oil exports, surplus dollars from the UN-run oil-for-food program, and frozen assets that belonged to the government of Saddam Hussein. [US Congress, 2/6/2007 ]
In a letter to US Congressman Henry A. Waxman, the Commanding Lieutenant General of the US Army, Robert B. Flowers, says that the contract awarded to Halliburton subsidiary Kellogg, Brown & Root (KBR) also includes work concerning the “operation” of Iraqi oil facilities and “distribution” of Iraqi oil products. [Flowers, 5/2/2003 ]
At the request of the Coalition Provisional Authority, the Federal Reserve Bank sends the CPA $465.9 million in cash during this month. The money is drawn from the Development Fund for Iraq (DFI) and special US Treasury accounts containing revenues from sales of Iraqi oil exports, surplus dollars from the UN-run oil-for-food program, and frozen assets that belonged to the government of Saddam Hussein. [US Congress, 2/6/2007 ]
Paul Bremer approves a plan to recruit as many as 6,600 police advisers to help build and train an indigenous police force of 50,000 to 80,000 Iraqis from scratch. DynCorp—which received a $22 million contract to establish a criminal justice system a few months earlier (see Early 2003)—is to recruit police trainers from the US and various foreign countries. But over the next six months, only 50 police advisers will arrive in the country. A State Department official will later blame this failure on the program being insufficiently funded. [New York Times, 5/21/2006]
Administrator for Iraq Paul Bremer issues Regulation Number 2, which
governs how the Coalition Provisional Authority (CPA) will manage the Development Fund for Iraq. The regulation states that the funds will be “managed in a transparent manner for and on behalf of the Iraqi people, consistent with [UN Security Council] Resolution 1483 (see May 22, 2003), and that all disbursements from the Fund are for purposes benefiting the people of Iraq.” It also says that the CPA will “obtain the services of an independent, certified public accounting firm” to audit the fund’s management. [Coalition Provisional Authority, 6/10/2003 ]
A crowd of former Iraqi soldiers demanding back pay begin to throw rocks and press up against a convoy of US military police heading toward the arched entrance of the Republican Palace, which was the presidential compound under Saddam but became the headquarters for occupation authorities after the US invasion. At least one US soldier fires into the crowd, killing two of the protesters. [Associated Press, 6/18/2004]
The US occupation begins a program called the Commander’s Emergency Response Program (CERP). CERP utilizes seized funds from the regime of Saddam Hussein to initiate rapid, small-scale reconstruction projects. It contrasts with the massive design-build reconstruction projects being done by large firms such as Bechtel because it results in immediate, visible improvements that create grassroots support for the US military. The program involves having US military commanders meet with local Iraqi leaders to assess potential projects aimed at alleviating community problems. One of the most welcomed contributions of the CERP are the thousands of jobs that it creates. Military commanders will later say that the “benefit received from CERP funds far outweighs the amount [of funds] provided” and that “funding minor efforts such as repairs to houses and buildings are helping to stabilize areas in Iraq.” The Iraq reconstruction inspector general will later claim in a recommendation for smaller scale reconstruction projects that CERP “and similar initiatives in Iraq proved the value of relatively small, rapidly executable projects that meet immediate local needs and thereby have the salutary effect of enhancing relations with local communities.” As of September 30, 2005, it will only have received about $1.4 billion in funding. [Bowen, 7/2006, pp. 82-88, 94 ] Analysts will later find that time periods when the CERP ran out of funds were fraught with surges in violence and US troop deaths. Bremer and the CPA will be criticized by nation-building experts for their neglect of the program and for putting free market ideology and a large-scale construction projects over simpler efforts to restore basic services to Iraqis at a quick pace. [Christian Science Monitor, 1/29/2004]
Paul Bremer releases a statement saying that the Coalition Provisional Authority will begin making monthly payments to former members of the Iraqi military in order to pacify them (see June 23, 2003). According to Walter Slocomb, the payments will range from $50 to $150, and up to 250,000 former soldiers may be eligible to receive them. Conscripts, on the other hand, will be sent home with a single severance payment. [Christian Science Monitor, 6/24/2003]
At the request of the Coalition Provisional Authority, the Federal Reserve Bank sends the CPA $391.2 million in cash during this month. The money is drawn from the Development Fund for Iraq (DFI) and special US Treasury accounts containing revenues from sales of Iraqi oil exports, surplus dollars from the UN-run oil-for-food program, and frozen assets that belonged to the government of Saddam Hussein. [US Congress, 2/6/2007 ]
CPA Officials Posing with $2 Million in Cash [Source: US Congress. House Committee on Government Reform] (click image to enlarge)The Coalition Provisional Authority (CPA) awards a $16.84 million sole-source contract to a small McLean, VA -based firm called Custer Battles to provide security at Baghdad International Airport (BIAP). It will later be alleged by former employees of the firm that Custer Battles bilked the CPA by diverting airport personnel to other jobs. An investigation by the Washington Monthly will later discover that the company had very few qualifications for the job and managed the contract in an extremely disorganized manner. One witness describes how the CPA paid the company with a wheelbarrow filled with $2 million in cash. Colonel Richard Ballard, an inspector general for the coalition forces, becomes extremely dismayed with the company’s conduct after examining its performance. His investigation is continuously obstructed by the company which argues that it has no legal obligation to cooperate because it is being paid with Iraqi assets and not money from the Pentagon. He discovers that employees often possess inadequate equipment and training. He is especially appalled by the employees’ “refusal to open the cargo doors of lorries to inspect.” Ballard makes known his concern that the CPA has exercised inadequate oversight of the contract and writes that a “formal audit would likely conclude fraud and potentially gross negligence in the area of contract oversight.” [Special Inspector General for Iraq Reconstruction, 7/30/2004, pp. 50 ; Washington Monthly, 7/2006]
At the request of the Coalition Provisional Authority, the Federal Reserve Bank sends the CPA $808.2 million in cash during this month. The money is drawn from the Development Fund for Iraq (DFI) and special US Treasury accounts containing revenues from sales of Iraqi oil exports, surplus dollars from the UN-run oil-for-food program, and frozen assets that belonged to the government of Saddam Hussein. [US Congress, 2/6/2007 ]
After heavy criticism from military families and Democratic presidential candidates, President Bush backpedals from his decision to support a plan that would have reduced the pay of the nearly 160,000 US troops in Iraq and Afghanistan. The plan proposed to eliminate the $75 per month “imminent danger pay” and the $150 per month “family separation allowance.” [Democracy Now!, 8/18/2003]
Custer Battles is awarded a “cost plus” contract in Iraq to provide security and logistical support for the Iraqi Currency Exchange, a CPA-created agency charged with replacing the country’s old currency with a new currency. Under the terms of the contract, Custer Battles is to be paid for all of its operational expenses, plus a 25 percent markup for overhead and profit. According to a lawsuit that is later filed against the company, Custer Battles uses a complex network of shell companies to inflate the fee it gets to over 60 percent of its actual costs. In one notorious incident, the company bills the CPA for the use of at least one forklift that it does not even own. The forklift belonged to Iraqi Airways and was confiscated by Custer Battles employees. Paint was used to cover up the Iraqi Airways insignia on the machine. [Special Inspector General for Iraq Reconstruction, 7/30/2004, pp. 79 ; Grayson and DiMuro, 8/26/2004, pp. 3, 15-17, 21 ]
Members of the US House Committee on Government Reform travel to Mosul, Iraq and talk with Major General David Petraeus, commander of the US Army 101st Airborne Division. Petraeus tells them how he was responsible for fixing a cement plant in northern Iraq. US engineers told him it would cost $15 million to restore the plant. Instead, he gave the job to Iraqis, who managed to fix the plant with only $80,000. [US Congress, 9/30/2003, pp. 2, 4-5 ]
US authorities in Iraq issue a $20 million contract to provide the new Iraqi police force with new revolvers and Kalashnikov rifles. The Iraqi Governing Council is highly critical of the contract and questions why the Iraqi police couldn’t be provisioned with the tens of thousands of weapons that the US military has been confiscating every month from Saddam Hussein’s abandoned arsenals. [New York Times, 10/4/2003]
At the request of the Coalition Provisional Authority, the Federal Reserve Bank sends the CPA $400.0 million in cash during this month. The money is drawn from the Development Fund for Iraq (DFI) and special US Treasury accounts containing revenues from sales of Iraqi oil exports, surplus dollars from the UN-run oil-for-food program, and frozen assets that belonged to the government of Saddam Hussein. [US Congress, 2/6/2007 ]
San Diego Business Address of North Star Consultants, Inc. [Source: NBC News]North Star Consultants, Inc. wins a $1.4 million contract to review the Coalition Provisional Authority’s internal controls for managing Iraq’s funds and provide the CPA with a written evaluation. The small firm is not a certified public accounting firm as is required by both UN Security Council Resolution 1483 (see May 22, 2003) and the CPA’s Regulation Number 2 (see June 10, 2003). [US Congress, 2/6/2007 ] The firm is so small that it operates out of a private home near San Diego. [MSNBC, 2/17/2005] A 2004 audit performed by the Special Inspector General for Iraq Reconstruction will find that “North Star Consultants did not perform a review of internal controls as required by the contract. Consequently, internal controls over DFI disbursements were not evaluated. In addition, the Comptroller verbally modified the contract and employed the contractor to primarily perform accounting tasks in the Comptroller’s officer.” [Special Inspector General for Iraq Reconstruction, 7/28/2006, pp. 7 ] A single Northstar employee will reportedly use spreadsheets, not accounting software, to track the $20 billion that the CPA will spend on Iraq’s behalf between April 2003 and June 28, 2004. Of that amount, $12 billion is in cash (see June 25, 2004). [MSNBC, 2/17/2005]
At the request of the Coalition Provisional Authority, the Federal Reserve Bank sends the CPA $464.0 million in cash during this month. The money is drawn from the Development Fund for Iraq (DFI)and special US Treasury accounts containing revenues from sales of Iraqi oil exports, surplus dollars from the UN-run oil-for-food program, and frozen assets that belonged to the government of Saddam Hussein. [US Congress, 2/6/2007 ]
At the request of the Coalition Provisional Authority, the Federal Reserve Bank sends the CPA $500 million in cash during this month. The money is drawn from the Development Fund for Iraq (DFI)and special US Treasury accounts containing revenues from sales of Iraqi oil exports, surplus dollars from the UN-run oil-for-food program, and frozen assets that belonged to the government of Saddam Hussein. [US Congress, 2/6/2007 ]
Deputy Defense Secretary Paul D. Wolfowitz issues a directive that limits potential bidders for 26 Iraq reconstruction contracts worth $18.6 billion to companies from the US, Iraq, and some 61 other “coalition partners.” Among those excluded from the bidding process are France, Russia, and Germany. The move is largely seen as retaliation against nations that opposed the invasion. [New York Times, 12/10/2003]
The Pentagon’s Defense Contract Audit Agency sends a draft audit report to Halliburton subsidiary Kellogg, Brown, & Root (KBR) claiming that the firm overcharged the US military as much as $61 million for fuel deliveries into Iraq. The report says that KBR charged an average of $2.64 per gallon, more than twice the price others were paying. The DCAA also says the company has been slow to provide cost estimates for its projects in Iraq. KBR has given the US government estimates for only 12 orders. As of this date, 69 are overdue. [New York Times, 12/12/2003]
“Brick” of $400,000 in U.S. Currency (4,000 $100 bills) [Source: Federal Reserve Bank of New York] (click image to enlarge)At the request of the Coalition Provisional Authority, the Federal Reserve Bank sends the CPA $1.5 billion in cash. The money is drawn from the Development Fund for Iraq (DFI) and special US Treasury accounts containing revenues from sales of Iraqi oil exports, surplus dollars from the UN-run oil-for-food program, and frozen assets that belonged to the government of Saddam Hussein. [US Congress, 2/6/2007 ; Reuters, 2/7/2007]
The US Army Corps of Engineers (US ACE) issues a waiver relieving Halliburton of the obligation to provide the government with “cost and pricing data” for the fuel it sells to the US military. The company was recently accused of overcharging the military as much as $61 million for fuel deliveries into Iraq (see December 5, 2003). The waiver will make it difficult for auditors to determine whether Halliburton or its Kuwaiti subcontractor overcharged the US government. [US Congress, 1/6/2004 ]
$774,300 in cash being managed by the Coalition Provisional Authority is reported missing from a vault. [Bahrain, 9/2004 ]
At the request of the Coalition Provisional Authority, the Federal Reserve Bank sends the CPA $750.4 million in cash during this month. Payments in the same amount will be made in March (see March 2004) and April (see April 2004). The money is drawn from the Development Fund for Iraq (DFI) and special US Treasury accounts containing revenues from sales of Iraqi oil exports, surplus dollars from the UN-run oil-for-food program, and frozen assets that belonged to the government of Saddam Hussein. [US Congress, 2/6/2007 ]
The Bush administration’s proposed 2005 budget would cut $35 million from the budget of the national lead prevention program, which pays for expert home evaluations and repairs in an effort to eliminate the presence of lead-tainted particles, dust, and soil in American homes. The 20 percent budget cut—from $174 to $139 million—could prevent as many as 40,000 homes from being decontaminated in 2005. Children are the most vulnerable to lead poisoning which can cause permanent intellectual, behavioral and psychiatric problems. It is estimated that in Washington D.C. alone, there are 3,700 children younger than 6 who have elevated levels of lead in their blood. [Office of Management and Budget, 2004; Washington Post, 4/11/2004; Natural Resources Defense Council, 12/31/2005]
The Bush administration announces its proposed 2005 budget for the EPA, which cuts the agency’s funds by more than 7 percent. While the budget does increase the Superfund by ten percent so the program can complete cleanup at 40 sites—well below Clinton’s average of 87 sites/year—the budget substantially reduces funds for clean water programs. For example, the budget cuts $492 million, or 37 percent, from a revolving fund used by states to upgrade sewage and septic systems and storm-water run-off projects. [Reuters, 2/3/2004]
At the request of the Coalition Provisional Authority, the Federal Reserve Bank sends the CPA $750.4 million in cash during this month. Payments in the same amount are made in February (see February 2004) and April (see April 2004). The money is drawn from the Development Fund for Iraq (DFI)and special US Treasury accounts containing revenues from sales of Iraqi oil exports, surplus dollars from the UN-run oil-for-food program, and frozen assets that belonged to the government of Saddam Hussein. [US Congress, 2/6/2007 ]
Compounding effect of multiple tiers of subcontractors [Source: News Observer] (click image to enlarge)Despite the fact that the Logistics Civil Augmentation Program (LOGCAP) contract explicitly prohibits Halliburton and its subcontractors from subcontracting security services, Halliburton subcontractor ESS hires the firm Blackwater USA to provide security through Regency Hotel, another subcontractor. Each of the subcontractors involved in this arrangement will charge a substantial mark-up for the security personnel. Blackwater pays its security guards $600 per day and charges Regency $815 per day plus overhead costs, while Regency charges ESS between $1200 and $1500 per day for each security guard. It is not known what ESS charges Halliburton or what the final bill is for the taxpayer. Halliburton refuses to disclose this information to Congress. Congressman Henry Waxman, in a letter to Secretary of Defense Donald Rumsfeld, will suggest that Halliburton’s invoice to the US government for these services was not legal and should not have been paid. [Regency Hotel & Hospital Company, 3/12/2004 ; News & Observer, 10/24/2004; News & Observer, 10/28/2006; US Congress, 12/7/2006 ]
At the request of the Coalition Provisional Authority, the Federal Reserve Bank sends the CPA $750.4 million in cash during this month. Payments in the same amount were made in February (see February 2004) and March (see March 2004). The money is drawn from the Development Fund for Iraq (DFI)and special US Treasury accounts containing revenues from sales of Iraqi oil exports, surplus dollars from the UN-run oil-for-food program, and frozen assets that belonged to the government of Saddam Hussein. [US Congress, 2/6/2007 ]
An official with the Coalition Provisional Authority reports that the “CPA did not obtain the services of a certified public accounting firm as it was determined that these services were not those required.” UN Security Council Resolution 1483 (see May 22, 2003) required that the management of Iraq’s funds be “audited by independent public accountants approved by the International Advisory and Monitoring Board of the Development Fund for Iraq.” Similarly, the CPA’s Regulation Number 2 (see June 10, 2003) stated that it had to “obtain the services of an independent, certified public accounting firm.” Instead, the CPA hired North Star Consultants, Inc. (see October 2003), an obscure consulting firm, “to promote the effective administration of DFI Funds in a transparent manner for the benefit of the Iraqi people.” [US Congress, 2/6/2007 ]
At the request of the Coalition Provisional Authority, the Federal Reserve Bank sends the CPA $1 billion in cash during this month. The money is drawn from the Development Fund for Iraq (DFI) and special US Treasury accounts containing revenues from sales of Iraqi oil exports, surplus dollars from the UN-run oil-for-food program, and frozen assets that belonged to the government of Saddam Hussein. [US Congress, 2/6/2007 ]
The Program Review Board—a panel of US, allied, and Iraqi officials responsible for allocating Iraqi budgetary resources under control of the Coalition Provisional Authority—approves the distribution of $2 billion for reconstruction projects in Iraq. It is one of the largest disbursements recorded. But the only record of how the funds are disbursed are the minutes of the meeting which list and describe which reconstruction sector the funds are being allocated to. They do not include any information about the actual recipients of the funds. The minutes show that a “[r]epresentative from [Britain] noted there was insufficient detail on some of the requests and there was no reference to recurring costs for operations and maintenance.” [Coalition Provisional Authority, 5/15/2004; US Congress, 2/6/2007, pp. 15 ]
In spite of the CPA’s stated intention to employ at least 50,000 Iraqis on reconstruction projects, the real number of Iraqis working to rebuild Iraq is only 15,000. This is less than a third of the CPA’s goal and less than a quarter percent of Iraq’s estimated workforce of 7 million. [Ozlu, 4/21/2006, pp. 25 ]
US administrator in Iraq Paul Bremer signs CPA Order 91 outlawing all armed militias not part of Coalition forces or the Iraqi government. It establishes the
Transition Reintegration Implementation Committee for the purpose of disarming and dissolving all illegal militias. However, no money will be appropriated for this committee and it will eventually fade away without carrying out its mandate. [Coalition Provisional Authority, 6/2/2004 ; Knight Ridder, 4/17/2006]
A budget document from the National Oceanic and Atmospheric Administration (NOAA)‘s Office of Oceanic and Atmospheric Research reveals that the Bush administration’s proposed budget for fiscal year 2005 would reduce climate change research budget by $9.2 million, eliminating the federal government’s $2 million abrupt climate change research program and cutting its paleoclimatology laboratory in half. It would also terminate $1.3 million in funding for postdoctoral programs and end research programs on the health and human aspects of climate change. [ESA Policy News Update, 6/14/2004; Natural Resource Defense Council, 12/31/2005]
Pallets of US Currency Arriving in Iraq [Source: US Congress. House Committee on Government Reform] (click image to enlarge)At the request of the Coalition Provisional Authority, the Federal Reserve Bank sends the CPA $2.4 billion in cash. This is the largest cash pay-out of US
currency in Federal Reserve history. This shipment is quickly followed by another large shipment three days later (see June 25, 2004). The money is drawn from the Development Fund for Iraq (DFI)and special US Treasury accounts containing revenues from sales of Iraqi oil exports, surplus dollars from the UN-run oil-for-food program, and frozen assets that belonged to the government of Saddam Hussein. [US Congress, 2/6/2007 ; Reuters, 2/7/2007]
Cash shipments to Iraq by month [Source: US Congress. House Committee on Government Reform] (click image to enlarge)The US Federal Reserve sends the Coalition Provisional Authority (CPA) in Baghdad $1.6 billion on giant pallets aboard military C-130 cargo planes. This is the last of a series of several shipments that began in April 2003 (see April 2003). The money was drawn from the Development Fund for Iraq (DFI)and special US Treasury accounts containing revenues from sales of Iraqi oil exports, surplus dollars from the UN-run oil-for-food program, and frozen assets that belonged to the government of Saddam Hussein. Most shipments were under $1 billion, except for this one and two others, one in December, and one just three days before (see December 12, 2003 and June 22, 2004). Together these shipments amount to $12 billion, some 363 tons of palleted cash. This shipment and the other June shipment of $2.4 billion (see June 22, 2004) account for almost half of the total amount shipped to Iraq. There will be no more shipments to the CPA after this date because on June 28, authority to govern Iraq, and hence the authority to manage Iraq’s funds, will be transferred to Iraq’s new Interim Government (see June 28, 2004). [US Congress, 2/6/2007 ; Reuters, 2/7/2007]
One day before the dissolution of the Coalition Provisional Authority, Paul Bremer signs an extension to Order 17, which granted US personnel and contractors immunity from prosecution by the Iraq government. [Coalition Provisional Authority, 6/17/2004 ] The extension will make it impossible for future Iraqi governments to recover funds that were wrongly paid to US contractors by the CPA. [Boston Globe, 4/16/2006]
Staff members of the Coalition Provisional Authority are reportedly encouraged to spend Iraq’s cash quickly before power is transferred to the Iraq interim government. In the south-central region of Iraq, one official is given $6.75 million in cash on June 21, 2004 “with the expectation of disbursing the entire amount before the transfer of sovereignty.” [Special Inspector General for Iraq Reconstruction, 4/30/2005, pp. 8 ; Guardian, 5/6/2005]
Hours after the Coalition Provisional Authority hands over Iraqi sovereignty to an interim government (see June 28, 2004), the CPA sends requests to the Federal Reserve Bank in New York asking that an additional $1 billion be withdrawn from Iraq’s accounts at the Federal Reserve and be shipped to Iraq. The request is rejected on grounds that the CPA no longer has authority to manage Iraq’s assets. Since April, the Federal Reserve has shipped some $12 billion dollars to the CPA. Five billion of this was sent just within the last six days (see June 22, 2004 and June 25, 2004). A Federal Reserve document states that “effective as of the time AMB Bremer transferred authority (which is being reported in the press as 10:26 am in Baghdad), the CPA no longer had control over Iraq’s assets…. [S]ubsequent to transfer of sovereignty, COL Davis of the CPA sent us $200 million in payment orders to be executed today in New York. We have informed the Colonel that we are not in a position to honor these instructions. Second, also subsequent to the transfer of sovereignty, COL Davis sent us an instruction to transfer $800 million from the DFI main account into the new DFI subaccount, which we understand informally was created by AMB Bremer to hold funds that are ear marked internally within Iraq for payments connected to existing contracts. We have also informed COL Davis that we are not in a position to honor this instruction either (especially since it would require liquidating $1 billion worth of the CBI’s [Central Bank of Iraq] holdings of USG [US Government] securities.” [US Congress, 2/6/2007, pp. 9 ]
The head of the International Advisory and Monitoring Board, Jean-Pierre Halbwachs, says the Bush administration is withholding information regarding the more than $1 billion in contracts awarded to Halliburton and other companies in Iraq. This information is believed by UN-sanctioned auditors to confirm that these contracts were won without competitive bidding. The White House has rejected requests for this information since March, and will not produce a list of other companies that have obtained such contracts. [The Moscow Times, 7/19/2004] The IAMB, a multi-agency organization in place to oversee the Coalition Provisional Authority’s disbursements from the Development Fund for Iraq, later discovers that over a hundred contracts involving billions of dollars were in need of investigation and possible criminal prosecution. They also discover that $8.8 billion that passed through the new Iraqi government ministries under CPA control is unaccounted for, while an additional $3.4 billion appropriated by Congress for development eventually became earmarked to fund “security.” The IAMB, once established, was forced to spend months finding auditors acceptable to US authorities. These auditors, appointed in April 2004, are then stonewalled. It is believed that the Bush administration wished to stall until the end of June 2004, at which time the CPA would no longer be extant and Paul Bremer, the pro consul and head of the CPA, would not be answerable to the press. The auditors’ report reveals that the CPA hadn’t kept accounts of the hundreds of millions of dollars of cash in its vault, had awarded contracts worth billions of dollars to American firms without tender, and had no idea what was happening to the money from the Development Fund for Iraq (DFI), which was being spent by the interim Iraqi government ministries. [Guardian, 7/7/2005]
The Defense Department secretly contracts Taos Industries, Inc. to coordinate a shipment of 99,000kg of AK-47 type assault rifles from Bosnia to Iraq using a complicated labyrinth of private contractors. The company that is hired to do the actual shipping is a Moldovan air firm by the name of Aerocom. The company, which operates from a US base in Bosnia, just recently had its Air Operating Certificate revoked because of concerns expressed by EU member states about the company’s “safety and security record.” (The company has a shady history—in 2003, the company was implicated in the “diamonds-for-guns trade” in Liberia and Sierra Leone.) In 2006, an investigation by Amnesty International will be unable to locate any evidence that the rifles actually reached the Iraqi security forces, the intended recipient. A commanding general in charge of training Iraqi security forces tells the organization that no weapons ever arrived from Bosnia. Even Taos is unable to produce any evidence that the shipment made it to Iraq. [Amnesty International, 5/10/2006, pp. 104-121 ; Guardian, 5/12/2006]
The auditors sent to Iraq by the Department of Defense’s Inspector General are withdrawn. The auditors were in charge of investigating waste and fraud by the US military and its contractors in Iraq. The criminal investigative arm of the Inspector General also officially ends its assignment in Iraq in October of 2004. The official explanation given is that there are other agencies that conduct oversight of the Pentagon’s spending. Experts respond by saying that only the Inspector General has the capability and mandate to properly oversee the military’s handling of tax dollars. The withdrawal leaves a gap in oversight of over $140 billion in spending by the military. [Knight Ridder, 10/17/2005]
Stuart W. Bowen. [Source: PBS]A report completed by Stuart W. Bowen, the Special Inspector General for Iraq Reconstruction, finds that $8.8 billion of the $20 billion in Iraqi funds that the Coalition Provisional Authority spent between April 16, 2003 and June 28, 2004 is unaccounted for because of inefficiencies and bad management. “Severe inefficiencies and poor management” by the Coalition Provisional Authority has “left auditors with no guarantee the money was properly used,” the report says. The reports says that in once case, it’s possible that thousands of “ghost employees” were on an unnamed ministry’s payroll. “CPA staff identified at one ministry that although 8,206 guards were on the payroll, only 602 guards could be validated,” the audit report states. “Consequently, there was no assurance funds were not provided for ghost employees.” [Special Inspector General for Iraq Reconstruction, 1/30/2005, pp. 16 ; CNN, 1/31/2005] Two years after the release of this report, the inspector general will tell Congressman Henry Waxman (D-Ca) that the $8.8 billion figure was in fact too low because his investigation was limited to funds disbursed to Iraqi ministries between October 2003 and June 24, 2004. Bowen will tell Waxman that he believes that the lack of accountability and transparency actually extended to the entire $20 billion spent by the CPA. [US Congress, 2/6/2007, pp. 16 ]
Bunnatine H. Greenhouse, who earlier criticized the US Army Corps of Engineers’ sole-source contract with Halliburton at a public hearing (see June 27, 2005), is demoted from her position as Principal Assistant Responsible for Contracting (PARC). Greenhouse, who was known for her steadfast adherence to regulations enforcing fair competition, received high performance ratings at the beginning of her tenure, which began in 1997. But after she began objecting to the contracts being awarded to Halliburton subsidiary Kellogg, Brown, & Root (KBR), her reviews became negative. [New York Times, 8/29/2005; Democratic Policy Committee, 9/16/2005, pp. 8-9 ]
For the entire fiscal year of 2006, the US grants the new Iraqi military only $3 billion, which is less than what the US military spends in Iraq every two weeks. According to the Iraq Study Group, this results in a major shortage of equipment for the Iraqi military that renders them incapable of carrying out missions. [Iraq Study Group, 2006, pp. 13 ]
The Bush administration’s budget request for fiscal year 2007 proposes an 80 percent cut to the EPA’s library budget. The White House wants to trim it down from $2.5 million to half a million dollars. To meet this lean budget, the EPA intends to eliminate its electronic catalog, which tracks some 50,000 documents and studies that are available nowhere else, and shut down its headquarters library and several of its regional libraries. The EPA manages a network of 28 libraries from its Washington headquarters and has 10 regional offices nationwide. The libraries are used primarily by EPA scientists, regulators, and attorneys to enforce existing environmental regulations, develop new regulations, track the business histories of regulated industries, and research the safety of chemicals and the potential environmental effects of new technologies. [PEER, 2/10/2006] Though the EPA insists the closures are necessary to trim costs, internal studies have reportedly shown that providing full library access to its researchers saves an estimated 214,000 hours in professional staff time worth some $7.5 million annually. [PEER, 6/29/2006] Patrice McDermott, deputy director of the Office of Government Relations, says the proposed cuts would put “at risk important environmental information and the public’s ability to access the information they need to protect their health and safety.” [Federal Computer Week, 3/13/2006]
The US embassy in Baghdad under construction. [Source: London Times]A US Inspector General’s report into reconstruction in Iraq finds that although $22 billion had been spent, water, sewage, and electricity infrastructure still operate at prewar levels. Oil production is also significantly below prewar levels. Task Force Shield, a $147 million to train Iraqi security personnel to protect key oil and electrical sites failed to meet its goals. A fraud investigation is under way to find out why. Less than half the water and electricity projects have been completed and only six of 150 planned health clinics have been completed. By contrast, the US embassy under construction in Baghdad is the only big US building project in Iraq on time and within budget. The embassy, estimated to cost $592 million, will consist of 21 large buildings instead a 102-hectare (42-acre) site, and will be bigger than the small nation of Vatican City. The London Times comments, “The question puzzles and enrages a city: how is it that the Americans cannot keep the electricity running in Baghdad for more than a couple of hours a day, yet still manage to build themselves the biggest embassy on Earth?” [London Times, 5/3/2006]
Daily Telegraph defense correspondent Thomas Harding reports that American defense officials in the operations and planning staff at the Pentagon, with the backing of the George W. Bush administration, are requesting a “prodigious quantity” of ammunition from Russia to supply the Afghan National Army. The order is reported to include more than 78 million rounds of AK47 ammunition, 100,000 rocket-propelled grenades, and 12,000 tank shells, equivalent to about 15 times the British Army’s annual requirements. The order also suggests the Afghan Army will be equipped with T62 tanks, Mi24 Hind attack helicopters, and Spandrel anti-tank missiles. Harding’s diplomatic sources believe that the US may be offering an estimated $400 million for this “decade’s worth” of ammunition, including transport costs. All of the material will come from Rosoboronexport, the sole Russian state intermediary agency for military exports. “This is a request for a price indication from the Pentagon to the Russians,” says one arms source connected to Russia. “After that comes back they will look at their budget and turn it into an order—and it will be an order of huge magnitude.” American officials are said to be pressing for rapid processing of the order so that exports may begin before the end of this year, according to the report. Harding reports that White House “insiders” fear that Afghanistan could “drift,” and consequently want to arm President Hamid Karzai’s government before the 2008 US presidential election, especially in the event of a Democrat becoming president. The Telegraph report also indicates that some British officials and arms experts are privy to the deal. One senior British officer is quote as saying: “The point of getting Afghanistan up and running is so they can take on their own operations. This deal makes sense if we are going to hand over military control to them.” Harding’s arms industry source tells him that the Pentagon wants to “stack the country up” with arms. “It’s the equivalent of buying yourself a plane to fly to Le Touquet for lunch and you get yourself a 747 jumbo instead of a light aircraft,” he remarks. [Daily Telegraph, 5/22/2006]
Citing proposed cuts in its 2007 fiscal year budget, the EPA begins ordering its regional offices to cancel subscriptions to several of the technical journals and environmental publications that are used by its scientists. One internal email reveals that the agency’s Mid-Atlantic Region is being asked “to cut its journal renewals about in half.” According to the organization Public Employees for Environmental Responsibility (PEER), the subscription cancellations mean that “agency scientists and other technical specialists will no longer have ready access to materials that keep them abreast of developments within their fields. Moreover, enforcement staff, investigators, and other professionals will have a harder time tracking new developments affecting their cases and projects.” The cancellations come on top of the closures of several EPA libraries that have already cut employees’ access off from tens of thousands of documents (see, e.g., September 20, 2006 and August 15, 2006). When news of the library closures sparked protest from EPA scientists over the summer (see June 29, 2006), agency officials attempted to assuage their concerns with promises that the EPA would implement a “new library plan to make environmental information more accessible to employees.” But critics say the subscription cancellations contradict this claim and are a clear sign that the agency does not intend to improve its staff’s access to the information. [PEER, 10/9/2006]
The EPA quietly closes its Office of Prevention, Pollution, and Toxic Substances (OPPTS) Library, packing its paper-only collection of documents into boxes and storing them in a basement cafeteria. The uncataloged collection is now completely unaccessible to government scientists. The library was used by EPA scientists who review applications from chemical companies who want to market new chemicals. Critics say the closure will make it more difficult for EPA scientists to determine the safety of new chemicals. In violation of federal policy (Office of Budget & Management Circular A-130), the agency issued no public notice about dismantlement of the library. [PEER, 10/30/2006] Not even the scientists who use the library were given prior notice. [PEER, 11/20/2006] Nor was the library included in the “EPA FY 2007 Framework” listing libraries slated to be shut down. [PEER, 10/30/2006] The library’s collections is supposed to be distributed to other EPA libraries, but some of the documents will be tossed into garbage bins (see October 20, 2006 and After).
Retired Admiral David Oliver, who served as the Coalition Provisional Authority’s principal deputy for financial matters during the summer of 2003, is interviewed by the BBC, which is doing a documentary on the billions of dollars in missing Iraqi funds. When asked what happened to the $8.8 billion that the Special Inspector General for Iraq Reconstruction concluded could not be accounted for (see January 30, 2005), Oliver responds: “I have no idea, I can’t tell you whether or not the money went to the right things or didn’t—nor do I actually think it’s important.” The interviewer than asks, “Not important?” And Oliver says, “No. The coalition—and I think it was between 300 and 600 people civilians—and you want to bring in 3,000 auditors to make sure money’s being spent?” The interview than notes, “Yes, but the fact is billions of dollars have disappeared without trace…” And Oliver says in response, “Of their money. Billions of dollars of their money, yeah I understand, I’m saying what difference does it make?… I chose to give that money to the Iraqis, they got the power working within eight days in the major hospitals in Baghdad.” [BBC, 11/9/2006; US Congress, 2/6/2007, pp. 17 ]
According a report released by the US Government Accountability Office (GAO), the US Department of Defense (DOD) often contracted directly with local Iraqi firms for less complex electrical reconstruction projects rather than using large design-build contracts. DOD officials estimate that the direct contracts with Iraqi firms were 20 to 50 percent more cost efficient than the larger design-build contracts. [US Government Accountability Office, 12/15/2006, pp. 9 ]
The National Academy of Sciences releases a study finding that NASA’s earth science budget has declined 30 percent since 2000. NASA’s National Oceanic and Atmospheric Administration, which oversees a large portion of the government’s climate research, has been plagued with enormous cost overruns and schedule delays with its premier weather and climate mission. The report—two years in the making—warns that half of the scientific instruments on the country’s environmental satellites are expected to cease working by 2010. Among other recommendations, the study suggests that the government increase its spending on researching the potential impacts of climate change such as ice-sheet melting, sea-level changes, and extreme weather events; restore support for efforts to improve NASA’s “capability to observe natural hazards and environmental changes”; and fund other efforts that would improve weather forecasting. Co-chairs Berrien Moore III of the University of New Hampshire and Richard Anthes of the University Corporation for Atmospheric Research tell the Washington Post that NASA needs about $500 million a year restored to NASA’s earth science program, “essentially a return to the budgets during the Clinton administration,” the Post notes. [Washington Post, 1/16/2007; National Academy of Science, 1/16/2007]
After reviewing $57 billion worth of Iraq reconstruction and troop support contracts through September 2006, auditors from the Defense Contract Audit Agency (DCAA) inform the House Committee on Oversight and Government Reform that contractors in Iraq submitted about $5.1 billion in unsupported costs (“unreasonably high”) and $4.9 billion in questionable costs (for which contractors lack proper documentation). About $2.7 billion of these unsupported or questionable billings are from Halliburton alone. [US Congress, 2/15/2007 ]
Congress passes a $124 billion supplemental appropriations bill that would provide funds for the continued occupation of Iraq, but require that a majority of the troops be withdrawn by the end of the year. The bill, if signed into law by President Bush, will set a number of benchmarks for the Iraqi government to meet, including the creation of a program to disarm militias, the reduction of sectarian violence, the easement of rules (see May 16, 2003) that purged the government of former Baath Party members, and the implementation of a law that would govern the development of the country’s oil sector (see February 15, 2007). If the Iraqi government fails to meet these requirements, the US would begin pulling out its troops on July 1. If it does meet the benchmarks, the withdrawal would be delayed until October 1, with the pull-out being completed no later than April 1, 2008. Some troops would remain in Iraq to protect US facilities and diplomats, fight US-designated terrorist groups, and train Iraqi security forces. [Washington Post, 4/26/2007; US Congress, 4/26/2007 ] President Bush will veto the bill on May 1. [Washington Post, 4/26/2007]
Former United Nations Secretary General Kofi Annan says in an interview: “Iraq was more than just a major distraction to Afghanistan. Huge resources were devoted to Iraq, which focused away from nation building in Afghanistan. The billions spent in Iraq were the billions that were not spent in Afghanistan.” Annan was the UN secretary general from 1997 until the end of 2006. [Rashid, 2008, pp. xli, 401]
The United States Federal Reserve has lent Wall Street’s largest investment bank billions of dollars, as the credit crisis threatens to spiral into a full-blown banking crisis. In developments currently rocking the world’s financial markets, the Fed and rival Wall Street bank, JP Morgan Chase, are funneling emergency loans to Bear Stearns, whose exposure to battered credit markets has led to a crisis of confidence in its ability to continue trading. In accelerating numbers, clients and trading partners are pulling business from Bear Stearns, after rumors of its solvency began circulating. During a last-minute conference call with investors, management at the investment bank warned that its emergency lending facility with the Federal Reserve has failed to staunch the bleeding. “We have been subject to a significant amount of rumor and innuendo in the past week,” says Bear Stearns chief executive Alan Schwartz. “We attempted to provide some facts but, in the market environment, the rumors intensified and a lot of people wanted to act to protect themselves first from the possibility that the rumors were true, and wait till later for the facts.” Bear Stearns appears most fragile of Wall Street’s major investment banks, since the July 2007 collapse of two internal hedge funds, providing initial clues about the scale of the unfolding credit crisis. Shares across the banking sector plunge as analysts fear that the Fed’s willingness to intervene suggests that Bear’s future is pivotal to the banking system, and that its failure precipitates losses that may cascade through its trading partners. Bear Stearns stocks are in freefall, closing down 47 percent. Pierre Ellis at New York’s Decision Economics said, “Clearly the Fed is addressing what they feel is a systemic risk very aggressively.” [Belfast Telegraph, 3/15/2008]
Rolling Stone’s Tim Dickinson berates former Justice Department lawyer John Yoo for his defense of his 2003 advocacy of torture (see April 2, 2008), joining retired military officials (see April 2-4, 2008) and legal experts (see April 2-6, 2008). Dickinson writes, “I’m literally sick” over Yoo’s memo. He characterizes Yoo’s “evil circularity” of logic as: “The Fifth Amendment’s due process protections and Eighth Amendment’s prohibitions against cruelty do not apply a) to aliens abroad and b) are rendered meaningless by the president’s totalitarian powers during time of war. And if the president is above the constitution, he’s certainly above the law.” Dickinson notes that some of the federal statutes rendered inoperative by the power of the commander in chief, Yoo wrote, include assault, maiming, interstate stalking, war crimes, and torture. Furthermore: “If foreign detainees held on foreign soil have no protection from US law, what about international law? Well, says Yoo, the Geneva Conventions do not require anything more of the United States than what is provided for in the Fifth and Eighth Amendments, which as we just learned do not apply to foreign detainees. Furthermore: ‘international law is not federal law and the president is free to override it at his discretion.’ To recap: The president is unbound by international law—ever—and not constrained by either federal law or the Constitution in his role as commander in chief, which gives him carte blanche authority to have illegal enemy combatants who are detained on foreign soil assaulted, maimed, tortured, and otherwise subjected to war crimes, so long as the president deems it necessary or in ‘self-defense’ of the nation.” [Rolling Stone, 4/2/2008]
US taxpayers express their lack of support of the Troubled Asset Relief Program (TARP—see October 3, 2008) bailout bill to members of Congress, including Speaker of the House Nancy Pelosi (D-CA), Senate majority Leader Harry Reid (D-NV), and the Senate and House budget committee chairs—Chris Dodd (D-CT) and Barney Frank (D-NY), respectively—with phone calls, emails, and faxes, initially rallying the power and the numbers to defeat the bill that some call “a historic swindle.” [The Nation, 9/19/2008] According to the Congressional Quarterly, “[Senator Lindsey] Graham (R-FL) said that the deluge of public e-mails and telephone calls was comparable to several of the most contentious issues of the last decade.” Graham adds:
“It’s somewhere between impeachment and immigration.… This is intense, but I’ve seen worse.” [Congressional Quarterly, 9/28/2008]
AIG logo. [Source: American International Group (AIG)]In an historic move, the federal government bails out insurance corporation AIG with an $85 billion loan, giving control of the firm to the US government. After resisting AIG’s overtures for an emergency loan or other intervention to prevent the insurer from falling into bankruptcy, the government decided AIG, like the now-defunct investment bank, Bear Stearns, was “too big to fail” (see March 15, 2008). The US government will lend up to $85 billion to AIG. In return, the government gets a 79.9 percent equity stake in warrants, called equity participation notes. The two-year loan will carry a LIBOR interest rate plus 8.5 percentage points. LIBOR, the London InterBank Offered Rate, is a common short-term lending benchmark. The bailout comes less than a week after the government allowed a large investment bank, Lehman Brothers Holdings Inc., to fold (see September 14, 2008). As part of the loan agreement, Treasury Secretary Henry Paulson insists that AIG’s chief executive, Robert Willumstad, steps aside. Willumstad will be succeeded by Edward Liddy, the former head of insurer Allstate Corp (see September 18, 2008). [Wall Street Journal, 9/16/2008] Shares in AIG drop to $3.75 on the news. [Bloomberg, 3/5/2009]
House of Representatives bill 1424, known as the Troubled Asset Relief Program (TARP), passes by a slim margin in both Congressional houses, and is immediately signed into law by President Bush. [White House, 10/3/2008]
After President Bush and US Treasury Secretary Henry Paulson push through a long-sought change in how bank mergers are taxed, Bloomberg News sues the Federal Reserve for failing to reveal loan recipients. The change will deprive US taxpayers of as much as $140 billion in tax revenue. As the economy continues its downward spiral into what is called the worse economic crisis since the Great Depression, sources say that a late September $700 billion bailout is “a quiet windfall for US banks.” [Washington Post, 11/10/2008] The legality of Treasury-negotiated equity deals for many US banks is questioned by tax attorneys, as well as nearly $2 trillion that Ben Bernanke of the Federal Reserve handed out in emergency loans before the $700 billion Troubled Asset Relief Program, or TARP, was enacted (see October 3, 2008). The Fed refuses to reveal which corporations received loans, or what collateral has been presented. Sources say that this secrecy is a legal violation. The Federal Reserve’s lending is significant because the central bank has stepped into a rescue role that was also the purpose of the TARP bailout plan, although without safeguards put into the TARP legislation by Congress. Total Fed lending topped $2 trillion for the first time and has risen by 140 percent, or $1.172 trillion, in the weeks since Fed governors relaxed the collateral standards on September 14. The difference includes a $788 billion increase in loans to banks through the Fed and $474 billion in other lending, mostly through the central bank’s purchase of Fannie Mae and Freddie Mac bonds. [Bloomberg News, 11/10/2008; AlterNet, 11/14/2008]
To facilitate AIG’s ability to complete its corporate restructuring, the New York Federal Reserve, as authorized by the US Federal Reserve, creates Maiden Lane II LLC and Maiden Lane III LLC to fund the purchase of certain multi-sector collateralized debt obligations (CDOs) from certain AIG Financial Products Corporation (AIGFP) counterparts. The Asset Portfolio purchase will be made in two stages, with Maiden Lane II LLC lending AIG $26.8 billion on November 25, 2008, and Maiden Lane III LLC lending AIGFP and its counterparties $2.5 billion on December 18, 2008 (see March, 2008). [Federal Reserve Bank of New York, 11/10/2008]
Detroit’s Big Three CEOs testify for more than two hours in a hearing before the Senate Banking Committee, using dire language to describe the financial straits that are threatening to bankrupt their companies. Chrysler LLC CEO Robert Nardelli says that without immediate help, his company could be forced into bankruptcy. “We cannot be confident that we will be able to successfully emerge,” he says. General Motors (GM) Corporation’s CEO, Rick Wagoner, adds that the failure of the industry would be “catastrophic,” causing the loss of 3 million jobs. Ford Motor Company CEO Alan Mulally tells the committee that if one of the automakers failed, the whole industry could be disrupted. “You’re here to get life support,” says ranking minority member Richard Shelby (R-AL). “Why aren’t you making money? How would you pay this money back?”
Financial Losses Worse than Originally Believed - The automakers say that their financial losses were worse than they at first thought, with Nardelli testifying that his company ran through $5 billion this year, including $3.3 billion in the third quarter, with only $6.1 billion on hand to last through the end of the year. Wagoner says that his firm would spend $15 billion by the end of 2008, and another $10 billion in 2009. Wagoner wants $10-$12 billion for GM, while Mulally and Nardelli want $7 billion for their respective corporations. Both Wagoner and Nardelli say that their companies will run out of money in a matter of months. One senator asks if the automakers would be willing to make monthly status reports on cash flow if the Senate agrees to the loan. Nardelli offers to take $1 a year as salary compensation; neither Mulally nor Wagoner did not make the same commitment. Nardelli also committed to Chrysler’s agreeing to consider new fuel efficiency standards. “We’d be open to any requirements,” he says.
Already Cut Costs, Moved to Restructure - The automakers testify how aggressively they have moved to cut costs, restructure, and revamp their product lines to be more competitive with foreign rivals, and say their companies were making progress until they were derailed by the credit crisis that has stalled the global economy and dried up consumer confidence. Auto sales are at their lowest level in at least 15 years, they say, dropping nearly 32 percent in October. As a testament to the seriousness of their financial crisis, the three automakers assure the committee that they would spend the requested $25 billion in the United States; however, they refuse to say that they would not come back for further bailout funding. Wagoner testifies that GM has cut $9 billion in costs since 2005. He touts labor agreements with the United Auto Workers that will further cut wage and health care expenses, and says that improvements in designing and manufacturing vehicles as well as developing fuel-saving technologies will also assist in reining in manufacturing costs. “As a result of these and other actions, we are now matching—or besting—foreign automakers in terms of productivity, quality and fuel economy,” he says. Wagoner assures the committee that the company was moving quickly to right its business. “We have more work to do in all aspects of our business,” Wagoner said. “This is hard stuff.” He said that GM would use some of the money to pay suppliers and pay for part of the Chevrolet Volt program.
UAW President Grilled - In his own testimony, United Auto Workers President Ron Gettelfinger ranks the relative financial health of the Big Three as Ford being the most solvent, with Chrysler at number two, while General Motors may be at or near insolvency by the end of 2008. The UAW chief faces tough questions as well, as Senator Bob Corker (R-TN) pushes back on union work rules and the jobs bank. “I understand Mr. Gettelfinger has done a good job on behalf of all workers not working and being paid,” Corker says, calling the practice unacceptable in other businesses.
Disagreement among Democrats, Republicans - Democrats support a plan to subtract $25 billion from the $700 billion Wall Street bailout package, known as the Troubled Asset Recovery Program (TARP), while Mitch McConnell (R-KY) has joined the White House call to speed up money previously authorized for the automakers through an Energy Department loan program. “To basically change the qualifications of the money that we have already appropriated is a sound way to go forward,” said McConnell. House Democrats and many environmentalists oppose the use of the Energy Department loan, since it is approved only for projects that lead to significant fuel efficiency improvements. Carl Levin (D-MI) says that in order to get a bill, Republicans must write language that explains how they would quickly get $25 billion from the Energy Department program to automakers. But Levin is realistic about the long road they face. “Progress: No. Effort: Hell, yes. Big-time effort,” he says. “We haven’t seen progress and won’t see progress until we see the language from those who want to see the [Energy Department] funds.” Debbie Stabenow (D-MI) says she will “very reluctantly” agree to reworking the retooling loans if that was the only way to get help now. Other Senate allies of the auto industry, including Claire McCaskill (D-MO) and Ken Salazar (D-CO), opposed the proposal to shift $25 billion from TARP. “I’m not sure we want to throw good money after bad,” Salazar says. Max Baucus (D-MT), chairman of the Senate Finance Committee, says it will be nearly impossible to make a deal before Congress adjourns for the year later this week. “Reading the tea leaves, I just don’t think it’s going to happen,” Baucus says. “There’s not enough time given the opposition of the White House and opposition of the other side of the aisle.” Corker echoes the belief that nothing would get done this year, calling the hearings “the first step in a loan application.”
Further Hearings Slated - The CEOs will return to Capitol Hill for a hearing before the House Financial Services Committee on Tuesday, November 25. [Detroit News, 11/19/2008]
Entity Tags: United Auto Workers, Ford Motor Company, Debbie Stabenow, Chrysler, Carl Levin, Alan Mulally, General Motors, Senate Banking Committee, Max Baucus, Rick Wagoner, Robert Nardelli
Timeline Tags: Global Economic Crises
US government-seized mortgage finance companies Fannie Mae and Freddie Mac suspend foreclosures from November 26, 2008 until January 9, 2009. The six-week suspension on both foreclosures and evictions will give loan servicers time to implement streamlined loan modifications for struggling borrowers. Since September 6, 2008, Fannie and Freddie have been federal government-controlled and sponsored entities that own or guarantee $5.2 billion of the $12 billion US home mortgage market. They offer borrowers who are 90 days or more delinquent with high loan-to-income ratios a chance to modify their mortgage terms to decrease their monthly mortgage payments by roughly 38 percent of the homeowner’s monthly pretax salary. The companies say they plan to reduce interest rates for up to 5 years while lengthening repayment terms as much as 40 years to trim monthly payments. [Bloomberg, 11/20/2008]
According to Jim Rogers, the co-founder of the Quantum Fund along with billionaire financier George Soros, the federal government’s efforts to fix the sector are “wrongheaded.” During a teleconference at the Reuters Investment Outlook 2009 Summit, Rogers says that the government’s $700 billion rescue package for the sector doesn’t address how banks manage their balance sheets, and rewards weaker lenders with new capital. More than two dozen banks have received infusions from the Troubled Asset Relief Program (TARP), and some TARP funds are being used for acquisitions. [White House, 10/3/2008] “Without giving specific names, most of the significant American banks, the larger banks, are bankrupt, totally bankrupt,” says Rogers, now a private investor. “What is outrageous economically and is outrageous morally is that normally in times like this, people who are competent and who saw it coming and who kept their powder dry go and take over the assets from the incompetent,” he continues. “What’s happening this time is that the government is taking the assets from the competent people and giving them to the incompetent people and saying, now you can compete with the competent people. It is horrible economics.” [Reuters, 12/11/2008]
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