PRT TIKRIT: PROVINCIAL BUDGET EXECUTION PART I:

C O N F I D E N T I A L SECTION 01 OF 02 BAGHDAD 004728 SIPDIS SIPDIS E.O. 12958: DECL: 12/26/2016 TAGS: ECON EFIN IZ SUBJECT: PRT TIKRIT: PROVINCIAL BUDGET EXECUTION PART I: STRONG GOI GUIDELINES NEEDED REF: BAGHDAD 4401 Classified By: PRT Leader Stephanie Miley for reasons 1.4 (b) and (d). ¶1. (U) This is a PRT Tikrit, Salah ad Din cable. ¶2. (U) This is the first of three cables regarding the budget execution process in Salah ad Din province. ¶3. (C) SUMMARY. A dysfunctional budget execution process hampers democratic governance and economic development in Salah ad Din (SaD). Financial decisions are largely made by a few influential members of the provincial government, a process which generally does not provide for accountability and oversight. With the provincial budget allocation estimated to rise significantly in 2007 (possibly from the current FY2006 allocation of USD 83 million to USD 133.5 million),stronger guidelines imposed by Baghdad through the potential Provincial Powers Law or a revised Ministry of Finance regulation may be necessary to ensure a fair and transparent budget execution process. By focusing on procedures rather than the actual projects, these guidelines should clarify the duties of each branch of the provincial government (executive and legislative) and require transparent and efficient financial decision-making. The GOI can lessen the chance of local corruption and greatly support good governance by ensuring that these reforms are in place prior to the disbursement of the 2007 budget. END SUMMARY. -------------- Current Budget Execution Guidelines Unclear -------------- ¶4. (C) Salah ad Din, like many other Iraqi provinces, is struggling to establish clear and open provincial policymaking processes. Not only vital to the consolidation of democratic institutions, effective public financing can also spur critical economic development in a province that lacks any current prospects for attracting significant foreign or domestic investment. Unfortunately, the provincial budget execution process was not clearly delineated by CPA Order 71, which stated that provincial councils may "set priorities for the provinces" and "initiate and implement provincial projects". CPA Order 71 also did not specify a process which would involve both branches of government (legislative and executive) or provide for accountability and oversight of initiated projects. The Iraqi Constitution also fails to address the issue, only declaring that provinces "are given extensive administrative and financial authorities to enable them to self-manage according to the principle of administrative decentralization." This lack of a proper regulatory framework has led to a blurred appropriations process in Salad ad Din. -------------- Fuzzy Appropriations Procedures -------------- ¶5. (C) In Salah ad Din, there is no meaningful separation between the executive and legislative branches in the budget execution process, which would normally charge the legislative branch with project approval and oversight and assign disbursement and execution to the executive branch. In practice, the budget execution process in SaD ) from start to finish ) is essentially controlled by the Provincial Council Chairman and several of his underlings, while the executive branch and the rest of the Provincial Council are largely left out of the process. The Deputy Governor plays an important role, but as an unaccountable power broker who appears to use tribal affiliations instead of legal authority to initiate reconstruction projects. This informal arrangement encourages cronyism and the use of "backroom deals" to gerrymander projects. -------------- Limited Tracking of Expenditures -------------- ¶6. (C) Adhering to generally accepted accounting principles is not a priority for SaD provincial authorities. Handwritten monthly spending records are kept by the Provincial Council building bookkeeper (currently serving as the provincial "accountant"),who is a loyal foot soldier but untrained in accounting. There is no differentiation of allocated, committed, and uncommitted funds. Also, the collected data and reports generated are insufficient to adequately track project status and outstanding obligations. There is no master list of projects approved by the PC, and the accounting office is not informed of new contracts or budgetary obligations until the time of disbursement. BAGHDAD 00004728 002 OF 002 Contractors are simply told by a power player to report to the provincial "accountant" who then issues a check to be signed by the same decision makers. -------------- Provincial Leaders Resistant to Change -------------- ¶7. (C) Ostensibly supportive, Salah ad Din provincial government leadership appear to be passively resisting implementation of measures to provide greater accountability and oversight for provincial finance (reftel). There is a clear tendency to disregard legal measures and to slow budgeting process reforms (such as the implementation of a computerized system which tracks expenditures, which is also partially due to the incumbent's 42 years of experience with hand ledgers- a generational issue that we are addressing through outreach to younger staff members) that provide for proper governance. Thus far, the lack of political momentum behind reform initiatives seems to validate that the influential provincial decision-makers have a vested interest in maintaining the status quo. -------------- Comment -------------- ¶8. (C) The development of a process which provides for greater accountability and transparency in the execution of the 2007 provincial budget will be critical to promote stronger democratic institutions and anti-corruption efforts in SaD. The legal ambiguity of CPA Order 71 and the Iraqi Constitution, coupled with a provincial government leadership looking to maintain the status quo, makes reform difficult. ¶9. (C) The Salah ad Din provincial government will not likely develop an efficient and transparent budget execution process without strong legal and/or financial direction by the GOI which mandates transparency and accountability. Alternative measures such as a revised regulation from the Ministry of Finance which establishes a fair budget execution process (without reducing provincial autonomy) could allow for independent provincial government budget execution while also giving the central GOI a measure of needed regulatory control. We will continue to communicate the benefits of transparent governance to provincial government leaders and SaD residents in a manner that supports the provincial government's legitimacy yet still maintains pressure for positive change. END COMMENT. ¶10. (U) For additional reporting from PRT Tikrit, Salah ad Din, please see our SIPRNET reporting blog: http://www.intelink.sgov.gov/wiki/Tikrit. SCOBEY