Is Iraq too broke to fight ISIS? | McClatchy Washington Bureau

Iraq’s ability to fight Islamic State extremists who control roughly a third of the country is hampered by a financial crisis that’s left the Baghdad government operating “hand to mouth,” Iraqi Ambassador Lukman Faily warned this week.

The inability to pay salaries on time to the soldiers and militiamen fighting the Islamic State, also known as ISIS or ISIL, has hurt morale and hindered progress in operations to retake key hubs that were captured by the jihadists, Faily said in an interview Thursday. And belt-tightening measures such as consolidating government ministries threaten to exacerbate ethnic and sectarian tensions by upsetting the delicate power-sharing quota system that’s been in place since the U.S.-led occupation authority took charge following the invasion of 2003.

“This goes back to not making your support conditional,” he added, referring to Iraqi officials’ frustration with the Obama administration’s reluctance to bail them out last year unless Baghdad first made reforms to address the corruption and ingrained sectarianism that softened the ground for the extremist takeover of Mosul in the north and most of Anbar province in the west.

Faily, who belongs to the ruling Dawa Party, blamed the crisis chiefly on the plummeting price of oil – the government relies on exports for some 85 percent of revenue – though economists and foreign policy analysts say that decades of mismanagement and corruption also have contributed.

Faily acknowledged government fault, citing an overdependence on oil revenues and the slow pace of addressing graft such as the use of “ghost employees,” workers who exist only on paper so that supervisors can pocket the salaries.

Much of Iraq’s spending is defense-related as the country struggles simultaneously to rebuild the U.S.-trained military that collapsed during the Islamic State onslaught and to launch offensives to retake captured territories. And they’re doing this with a budget that was based on oil at $56 a barrel, though in recent weeks the fluctuating price has dipped to closer to $40 a barrel. A revenue-sharing deal between Baghdad and the mostly autonomous, oil-rich Kurdistan region has broken down, depriving the central government of another cash stream.

Ben Van Heuvelen, managing editor of Iraq Oil Report, which closely monitors the Iraqi oil sector, said a major cause of the crisis is that the previous administration of Nouri al Maliki “left zero financial buffer for the inevitable down cycle in commodity price.” He said that Maliki’s successor, Prime Minister Haider Abadi, has “made some good moves,” including painful spending cuts and exploring revenues outside of oil, but that he stands little chance of yanking the country back from the brink anytime soon.

A U.S. official, speaking on condition of anonymity because it involves sensitive diplomatic and defense matters, said the Obama administration has increased its military assistance to Iraq in recognition of the twin crises of the Islamic State presence and the severe financial strain due to collapsing oil prices.

The official acknowledged that “it is an increasing challenge” for the Iraqis to fight the Islamic State, “and that’s why we’ve put so many of our own financial resources” into the campaign.

Foreign military financing, which uses U.S. funds to procure weapons, included $300 million for Iraq for fiscal year 2014 and $150 million for 2015 before jumping again to $250 million in the current pending request for 2016. In addition, the official said, the U.S. military donated some surplus American equipment, including 300 MRAPs, mine-resistant armored vehicles.

“They need a bunch of things across the board, everything from anti-tank weapons to MRAPS to Humvees to arms and equipment,” the official said.

As of Aug. 15, the official said, the total cost of U.S. operations against the Islamic State in Iraq and Syria is $3.7 billion, with an average cost of $9.9 million a day. The official said critics who question why the United States is spending so much in defense of one of the world’s most oil-rich nations are ignoring the broader consequences should Iraq lose more ground to the extremist group.

“You can’t look at this as an Iraqi fight,” the official said. “ISIL is a threat to the region, to the international community. It’s a mistake to look at this as an Iraqi or a Syrian fight. ISIL has shown the global implications they can have, and just their sheer brutality needs to be defeated. To characterize it as an Iraqi fight is wrong.”

Faily acknowledged the U.S. help and said that the Germans and Dutch, too, have contributed light weapons, equipment and anti-tank systems. But most battle-related costs, he said, are Iraq’s responsibility. That goes not just for the regular army and security forces, he said, but also for some of the Shiite Muslim militias known as the Popular Mobilization Forces.

“The actual fighting on the ground we’re financing ourselves,” Faily said. “Salaries, weapons, uniforms, equipment.”

But the budget crisis means that paychecks are late – “three months behind, four months behind,” Faily said – which, in turn, deals a blow to the morale of a fighting force that’s already much maligned for its evaporation during the Islamic State offensive that took Mosul, the second-largest city in the country.

“You want your professional army to deal with things professionally,” Faily said.

There’s also the risk, Faily said, of losing recruits to paramilitary groups, particularly the Iranian-funded militias that the U.S. government designates as dangerous “special groups.” Though just 35,000 special groups militiamen are part of the 120,000-person Shiite paramilitary structure, he said, the loss of manpower to them is a blow to the government’s effort to assert authority over all armed factions in the fight against the Islamic State.

Faily said Iraq’s finance minister is traveling to London and Washington next month in hopes of selling some $6 billion in Iraqi bonds, and that the Iraqi Cabinet is scrambling to cut spending in other areas, downsizing diplomatic outposts and halting some investment projects. Iraq also received a credit rating for the first time and secured a loan agreement from the World Bank.

Other budget trims have been more controversial, such as doing away with some high-ranking ceremonial positions and consolidating government ministries. The divvying up of official posts according to sect, ethnicity and political party was a longstanding tactic to appease the disparate groups that were jockeying for power after the fall of Saddam Hussein’s regime.

Though some analysts are hopeful that, in the long run, the changes will do away with an ineffective patronage system, they agree that in the short term the moves threaten to further aggravate internecine tensions, jeopardizing Abadi’s broad reform agenda. And that, according to U.S. officials and analysts, opens even more opportunities for extremists to gain from the disarray.

“If you believe, as I do, that deep political problems in Iraq created an environment that was ripe for ISIS to take over a third of the country, then you also believe that there needs to be some kind of political foundation to any long-term solution to the problem,” said Van Heuvelen, of Iraq Oil Report. “But if the way you’re used to finding political solutions is by throwing money at the problem and bringing constituents into the fold by promising them a slice of this very lucrative oil pie, then if that pie shrinks, your ability to create political solutions evaporates.”