Update on USAID Reconstruction Activities in Iraq

2:20 P.M. EDT

MR. DENIG: Good afternoon and welcome to the Washington Foreign Press Center. Welcome, also, to journalists assembled in London, the United Kingdom. We are very pleased this afternoon to be able to welcome back to our podium the Administrator of the U.S. Agency for International Development, Mr. Andrew Natsios.

Obviously Iraq is still very much in the news and we're very pleased that he's with us today to provide an update on USAID activities for the reconstruction of Iraq. Mr. Natsios will have a brief opening statement to make and then will be very glad to take your questions. Please take this opportunity to turn your cell phones off.

Andrew.

MR. NATSIOS: Thank you very much. It's a pleasure to be here. I did want to review just quickly if I could some of the accomplishments in terms of reconstruction. The message is not getting out adequately in my view.

A huge amount has been accomplished in a very short period of time. I've been involved in more than ten reconstruction efforts in the last 14 years. This is the fastest and most massive that's occurred anywhere in the world during that time period. In fact, AID has spent about $2 billion of the $2.5 billion, which was appropriated by the Congress in the first supplemental budget.

We have never spent that much money in one country since the Marshall Plan. This is a huge undertaking, and that is both for the food that goes into the food distribution system education sector, health sector, electricity and the other sectors. But let me just mention some of the accomplishments.

School just opened on the 4th of October. 1,000 -- more than 1,600 schools have been reconstructed, refurbished. That means that the electrical wiring has been replaced, new fans have been put in, new electrical lights, windows have been repaired, the latrines -- the bathrooms -- have been repaired, the plumbing's been put back on. And there are more than 1,600 of these schools across the country.

We've printed, working with UNICEF and UNESCO-- two UN agencies-- 5.6 million textbooks in math and science, and 76 different textbooks, but it's in the math and science area. They have been purged of propaganda and they were done through the UN mechanisms that are used all over the world for producing textbooks for these areas, but of course, they're in Arabic and they are sensitive to the cultural context in which they're produced. They worked with the Ministry of Education career Iraqi staff.

We also produced a million and a half back-to-schoolbags for every high school student. There are a million and a half high school students going back to school and they have a canvas bag with a calculator in it and a compass and pencils and paper and rulers and that sort of thing.

We've trained over 50,000 teachers in a more Socratic method of questions and answers, of debates in class as opposed to rote learning, which is not the best kind of educational mechanisms to use in our view, particularly in a democratic society. And so school buildings, textbooks, training of teachers -- there's a new direction for school and school now is back up to or exceeds the enrollment levels that had existed prior to the conflict.

That will also improve security because the kids won't be on the streets anymore. They will be in class where they belong. That will stabilize the society and order of family life a lot better because that's true in the United States, too. When our kids go back to school after the summer vacation it's a lot more orderly in our society when the kids are back in school.

Secondly, in the electricity sector, we're now back up to -- we were as of two weeks ago -- 4400 megawatts was the pre-war production of electrical energy in the country. And we've taken a couple of plants offline in the last week in order to preventative maintenance on them. The peak demand is in the summertime and we're now witnessing lower level temperatures in Baghdad and the central part of the country, so there's less demand.

We've also installed new electrical generators in the water -- the sanitation and water plants around the country in order to take those plants off the power grid, which will make the -- if there are problems with power transmission -- the water and sewer systems will still function because they will not be dependent on the electrical grid for electrical power. They will be -- they would get their power generated locally. This is an added security measure.

We also have initiated a massive reconstruction of the water infrastructure of the country, which is in terrible condition, which is one reason that the child mortality rate is so high in Iraq -- it's mainly because of filthy water. We have begun a whole reconstruction effort for the pumping stations, the water pumping stations, and the treatment plants and then the sewerage treatment plants.

The sweet water canal that goes from the Tigris River, that would be right from the Euphrates River to Basra in the south—it’s a principal source of water for the south-- is silted up, it's in bad condition. There's a larger reservoir that's about 30 or 40 percent full of silt. The contractors are now working on -- at a massive level -- to repair these and dredge these facilities so they work much less. So the water flow should increase dramatically in the southern area of the country very shortly.

The piping has been repaired in many of the cities. The last thing I would mention is something that is not widely known, which is that the great bulk of the contracts, sub-contracts, have gone to Iraqi firms. And that was because Ambassador Bremer asked that we employ as many Iraqis as possible. We have about 72 USAID staff in Iraq. There are another 600 contractor staff who are expatriates -- they're from other countries -- working for American contractors or subcontractors. And there are 55,000 Iraqis who are paid a daily wage to work in carrying out the subcontracts on rebuilding the 1600 schools, rebuilding dozens of hospitals, rebuilding 70 health clinics around the country, working on the water and sewerage treatment plants, working on community development projects.

We have also given out more than 800 small grants to these new municipal councils that have been formed. And the councils decide what the priorities are, and how they will spend the money, and then we work with them in developing capacity-building training programs for these new municipal councils on how you write a capital budget, an operating budget, how you develop an accounting system for money, how you prevent money from being stolen in the public sector, how you do proper procurement, so everybody can participate in it.

That training is going on now, but these 800 small grants are also meaning that the city councils and town councils at the local level are beginning their own reconstruction effort on smaller projects at the village and the city level. So anyway, those are some of the things going on. A lot of activity is taking place, and the fact that 55,000 Iraqis are now working on these projects is a testament to how the Iraqi people themselves are engaged in the reconstruction of their own country.

I'd be glad to answer any questions that you may have.

MR. DENIG: Let me remind you to please use the microphone and identify yourself and your news organization. Let's start with Khaled, in the middle there.

QUESTION: Hi, my name is Khaled Abdel Kareem with Middle East News Agency of Egypt, and my question is: You just told us about the goods news, and that's great. But can we get back for a moment to the bad news? What are the aspects when the construction processes are still lagging behind, and why, in your view? That's first.

And second, can you brief us on the extent of Arab contribution to the reconstruction process? Are the Arab companies providing any services over there? Thank you.

MR. NATSIOS: Well, in terms of the -- I could give you the subcontract breakdown from Bechtel. Okay?

There are 109 Iraqi companies that now have subcontracts with Bechtel. There are seven Kuwaiti companies, five Saudi companies. I don't -- there are three other. I don't know what the others are. But the great bulk, the great bulk of the contracts are going to Iraqi companies and other Middle Eastern companies because they're in the region, and we want as many Iraqis employed as possible.

Two, the reconstruction process is not lagging behind. The perception in the media, particularly in the Middle East, is that nothing's happening. That's simply not true. And I spent a week there in June, and my staff is there every day. 72 of them are giving me reports every single day. There's a massive reconstruction effort in the country going on right now. And if you want tours of these facilities with the local governing councils, to show what the facilities looked like before, we have photographs of before and after.

Many of these schools, by the way -- none of this damage we're talking about -- almost none of it, is from the war. It's from a deterioration of infrastructure because money was not put by the Baathist Party into public infrastructure from before the Iran-Iraq War. They put a lot of money in the late 1970s, and the early 1980s, in schools, hospitals, clinics, and once the war with Iran started, all that money got sucked into the military, and they haven't recovered from that. They have not recovered from that since 1983 -- 20 years ago. The port of Um Qasr is now one of the most modern ports in the entire Middle East. It's completely dredged, which has not taken place since 1983.

We've taken out the equivalent of 23 football fields of silt out of it. We've taken out 19 sunken ships and 250 pieces of unexploded ordnance, or bombs, out of the facility. Now, any large ship can go into it without any trouble at all, which was not the case, and hasn't been, again, since the early '80s.

QUESTION: (Inaudible.) Just likely, but I'm sure it's not all hunky dory. There must be some --

MR. NATSIOS: No.

QUESTION: -- some parts, which are failing, behind which you hoped to have more progress. What are these aspects, which you wish to have progress in Iraq?

MR. NATSIOS: Well, obviously, you see it in the evening news all the time that there have been security incidents. What you don't have is, of course, no one reports the areas where there have been no security incidents. No one has reported on the villages which have not had one single incident from the beginning of the reconstruction process, and there are large numbers of villages and cities like that, particularly the southern part and the northern part of the country.

The big thing that I look at whenever I go to a country that's just been a war or a conflict is the markets. Are the markets functioning? Because merchants don't take risks if things are highly unstable. And there's more things on the markets now in the streets of Baghdad than there have been in 20 years. And people will tell you that. You can see the new television -- they're watching your TV programs. They've got the new dishes, the satellite dishes outside, to get broadcasts from other countries. And that's a function of the economy beginning to function.

MR. DENIG: Okay. Let's go to Germany, up front here.

QUESTION: Michael Backfisch, Germany Business Daily, Handelsblatt. Could you provide us some more key data about the progress which has been made, compared to pre-war level? As I understand, 89 percent of electricity is at pre-war level. What's the equivalent in water supply, health care and other areas? And what's the percentage of the country which is sort of back to normal right now? And in contrast to that, what are your worries in the problem areas?

MR. NATSIOS: Well, electrical power is at 100 percent of pre-war levels as of a week ago. What we did in the last week is there are two plants we had to take offline ourselves. It was not because of sabotage or breakdown, but we had to conduct preventative maintenance that had not been done in a couple years on those plants. And so the important thing is, is there enough power being generated for the requirements of the country? The peak low in Iraq is during the summer months -- July, August -- June, July, August are the top months. Now we're into October and the demand is much lower because the heat has diminished, you know.

Most of the political unrest in Iraq in the last 200 years has taken place in July in August. And that's something that is not well known. Most of the reporting that's been done on how things were going in Iraq was during July and August. I was in Basra in June, and it was 125 degrees Fahrenheit. I don't know what that is Celsius, but I have been all over the world -- I have never been to a place as hot as Basra. And the people from Basra, the Iraqis in Basra said it's not the head of the -- it's not the peak of the summer. In the summertime it gets up to 140 degrees, which I couldn't even conceive of.

That is beyond us now. That is behind us. And the plan is to increase the number of kilowatts from 4400, which is what it was before the war, to 6,000 by next summer, because we will have another peak next summer and we expect a lot of industries to come back online, because pouring all this money into the economy is having an effect.

We've got factories working just to build desks for the Iraqi ministries that were looted. We've got 2,000 Iraqis working full time building desks and tables for Iraqi government ministries. And that's going to go on until -- but they're using electricity -- and as the economy begins to pick up, there's going to be more need for electricity and that's why there's this plan that Bechtel has, and Ambassador Bremer, to get the load up to at least 6,000 megawatts by next June.

In the area of water, water supply now is above pre-war levels in all the major cities: in Baghdad, in Basra, we could go down the list. The question is not how much water, but the purity of the water. We do not have a really good, accurate indication of what the purity level is of the water, but you can tell from the child mortality rates. They're extremely high. The child death rate in Iraq, according to data that was provided by the UN agencies prior to the conflict, were about 129 - 131 per 1,000 of the kids died before they were five. The comparable rate in India, for example, is 102. Half of Africa is lower than 100. Jordan it's 27. In Western Europe and the United States, it's about 10 kids die before their fifth birthday.

So Iraq has an extraordinarily high rate. Why is that? Because of poor immunizations. We've immunized, now, 3 million Iraqi children under the age of five from the major diseases, which is what they were dying from. We have provided a supply of 30 million doses of vaccines that are being distributed by the Ministry of Health and being kept on supply to make sure all the kids are being properly immunized.

We've rehabilitated 20 delivery hospitals serving 300,000 residents in Basra. We have about 100,000 pregnant and nursing mothers and malnourished children who are receiving high protein biscuits which will raise their nutrition level, because they had very poor -- a very serious problem with iron deficiencies, anemia. 50 percent of the women who were pregnant had severe anemia and they were not being treated properly.

And so, you can go through the list, and in the health sector, things are improving. We've also distributed, I think, 3 or 4 million doses or oral re-hydration salts, which is what a kid should take if they get diarrhea, severe diarrheal disease from dirty water. There were almost none in the country that were being used before. I was shocked at the low level of usage. Probably the lowest level in the world was in Iraq. And apparently there was a real problem in getting the oral re-hydration salts distributed -- UNICEF had terrible problems with the Iraqi Government in allowing the stuff out of the, out of the warehouses.

So I think one thing that will take a little longer is the sewer treatment plants are in terrible condition. Many of them were completely destroyed in May and June, and there were 14 of them in Basra -- in Baghdad. At least they're pumping. Sometimes -- some areas of Baghdad, the sewerage was really in the streets because the pumps weren't working. The pumps have been repaired now, but the treatment plants will take about 6 to 8 months to completely reconstruct, which we're in the process of doing.

QUESTION: How much of the country would you say is back to normal?

MR. NATSIOS: I would say that at least 70 percent of the country is back to normal. In fact, in many areas, it's substantially improved over what it was before the war: in terms of the markets functioning, in terms of public services being provided, like water and like health services. Health services are far better now than they were before the war. The budget for Iraq for health was $10 million for the whole country before the war. It's now $200 million a year.

MR. DENIG: We'll take the gentleman in the red tie in the back, please.

QUESTION: Alan Beattie from Financial Times. Mr. Natsios, as you know, there's been quite a lot of criticism of the lack of transparency of the -- of USAID's and the CPA's operations in Iraq --

MR. NATSIOS: I'm not aware of any criticism of AID. I don't know about anybody else.

QUESTION: Okay, about CPA --

MR. NATSIOS: --and everything that we've done has been completely transparent. It's on our website, it's been on our website for eight months. Anybody who wants to see it, just look up the website. All the contracts are there, all the subcontracts are there, all the budgets are there. They've been there all along. Anybody who wanted to could look them up.

QUESTION: Okay. Can I -- if I can broaden this out --

MR. NATSIOS: Sure.

QUESTION: -- to the, you know, the general reconstruction. I mean, in view of, for example, the fact that open tendering for contracts still haven't been introduced and --

MR. NATSIOS: Sir, you say these things, and I read some of the stuff in the Financial Times. It's simply inaccurate. You keep repeating these things, they are not accurate, and I think it's really deceptive to do it. So I would urge you to get your facts straight.

QUESTION: Okay, I'm asking you --

MR. NATSIOS: There is open tendering for all AID contracts, sir. There was open tendering prior to this, okay? Under the Federal Contracting Law, we did do tendering. One, since the war started, there have been full and fair competitions for these contracts. We just awarded an agriculture contract. It was full and fair competition. It was on the website. Anybody could bid on it, and they did. And it was awarded. And we've just bid another one for a major $1.5 billion construction contract. That was also on the Web.

QUESTION: When you say Internet, does that include all international companies or just U.S. companies?

MR. NATSIOS: No. We are following federal law, and that is not a matter of transparency, sir. It's a matter of federal statute. And it's a public statute. And other donor governments like the British Government, and the European Governments and the European Union do exactly the same thing. I've seen no criticism in your articles, sir, about any European countries that do exactly the same thing. The French Government has always done only French companies bidding. But you never mention that in your articles.

QUESTION: Okay. I don't want to get into a back and forth, because it's not true that we've never criticized hired aid and other countries. U.K. Government, by the way, has abolished hired aid. But if I can just -- if we can just, if we can just now push it forward, a large proportion -- I don't think the Administration's yet given the amount, but I think it's --

MR. NATSIOS: Let me just go back to this. It is a function of federal law, so it's irrelevant what -- what you think should be the case. The fact is there are federal laws AID must comply with.

QUESTION: Sure. Can I -- but let me just put this forward.

MR. NATSIOS: Yes.

QUESTION: AID -- I think the Administration said a large part, or much, but haven't given the proportions of the U.S. contribution of $20 billion or so --

MR. NATSIOS: I'm sorry?

QUESTION: -- will be, will be -- the U.S. contribution to reconstruction will be spent bilaterally --

MR. NATSIOS: That's correct.

QUESTION: -- and a small part will be through the trust fund. Can you just say what causes you to give that breakdown? Why not put it all through the trust fund?

MR. NATSIOS: Why would we put any of it through the trust fund? The trust fund is not designed for major donors. We're the largest aid agency in the world. We're larger, by far, than any UN agency. We're larger in operation than parts of the -- some of the international banks. The purpose of the trust funds in all of the major reconstruction efforts in the last 15 years, even before the end of the Cold War, was to create a mechanism for small aid agencies that are not operational to be able to do things.

You know, a small country of four or five million people may have a large, you know, by their standards, want to make a large donation. They don't have people on the ground to carry it out. They don't do things in the developing world operationally and they don't have mechanisms to do it. So these trust funds are created -- and two were announced just a few days ago by the World Bank and UNDP for these countries that don't expect to be sending people into Iraq to carry programs out.

But that's always been the case. And we created these trust funds in order to make it easier for smaller countries that are not -- do not have operational aid agencies to do that. But AID spent $14.9 billion last year. I mean, if we put all that money in trust funds, the trust funds would break down because they can't handle that much money.

We are operational on the ground. We are working in a collaborative way. I talk with my friends who are development ministers in other countries all the time. Hilary Benn, who is the new minister of DIFID, was in to see me, I think, last week or the week before -- week before last. I talked to Susan Whelan, the Minister of Development in Canada, the head of CIDA all the time. I was on the phone with the head of the European -- the agency of the EU that carries out their aid programs yesterday about a matter, not in Iraq, but another country.

So we talk regularly, we coordinate. In major sectors, there are interests -- for example, the restoration of the marshes. There's a deep interest in Britain, in Spain, in Canada and in Italy on that. And our technical people have been meeting all along on that. A lot of our money directly goes not from trust funds from AID through UN agencies. We put $200 million in cash through the World Food Program that ran the food program, the public distribution system, from the time the conflict began until this November. That was in cash from the U.S. Government, plus 500,000 tons of food.

We've given UNICEF, I think, $50 million. We've given UNESCO $10 million. We've given the World Health Organization $10 million. And so rather than put money in these trust funds, we move it directly into the UN agencies that are operating on the ground, that have high levels of transparency and competence in their programming, and that we've worked with around the world. So there is an integrated international effort that is going on in Iraq, even though it may not be highly visible.

MR. DENIG: Let's take the lady in the last row, please.

QUESTION: Laurie Kassman from Voice of America. Talking about the internationalization of the -- of aid to Iraq, what are your expectations for the donors conference, and how much -- we talk in terms of $20 or $55 billion globally, but how much would you say is needed for the next year?

MR. NATSIOS: There is -- on our website, once again, it's attached to the contract, the $1.5 billion follow-on contract for reconstruction that's on the website now that's being bid -- or I guess you use the word tendered. And attached to it is the infrastructure assessment that was done by Bechtel of all infrastructure in the country. That is the template that even the international organizations are using now. There's no point in repeating what Bechtel already did. And they've done, I think, a remarkably good job that's quite comprehensive. And, to a great degree, the CPA budget on the infrastructure side was based on the Bechtel assessment.

Now, some of that is going to be carried out in the second contract that has not been -- we haven't chosen a company yet. And it's a full, open competition, so we don't know who will be chosen. But we do know many countries are making large contributions. Japan has announced $1.5 billion toward reconstruction in Iraq, the UK, £554 million, which is about $900 million, U.S. Spain has announced $300 million; the European Union, $230 million; South Korea, $200 million, and they've already contributed $600 -- $60 million. And the World Bank, I guess, has made some announcements -- not announcements, but they're beginning to consider what they'll be doing over the next four or five years.

So countries are beginning to commit. We don't have a comprehensive list. I'm leaving for Madrid tomorrow and we'll see what people pledge. I went to the Afghan meeting though, in Tokyo. It was very interesting. There were a lot of surprises. We had not realized that certain countries would be pledging in Afghanistan, but they did.

QUESTION: For one year? I'm sorry, for one year? It may be on the website, but it's not on radio.

MR. NATSIOS: Oh, sorry about that. You mean for what year?

QUESTION: In one, for one year -- next year, how much do you estimate is needed?

MR. NATSIOS: Well, the U.S. budget for next year is, for Iraq, is $20 billion, and that includes the security sector, in other words we're planning the police and the retraining of the army which is not our function. That's the Pentagon's function. And then for the other things I was talking about earlier. But it also includes fire stations, which we have not -- we've done a couple of fire stations, not a lot of that. And so the other donations that will be made, contributions that will be made by these other donors will be on top of that.

MR. DENIG: Okay, let's go to Thomas.

QUESTION: Thomas Gorguissian, Annahar, Lebanon. I will avoid politics, don't worry.

(Laughter.)

My first question is related to the numbers. I mean, you mentioned that it's already $2 billion was spent. It is for this fiscal year, or next fiscal year, part of the fiscal year? Because my --

MR. NATSIOS: The budget the CPA submitted, my memory is -- is this for one year or is it first 15 months?

Oh, the first one. The first one was for 12-15 months. The first supplemental budget was 12 -- and our contracts were all for about that period of time.

QUESTION: 12-15 months?

MR. NATSIOS: 12-15 months.

QUESTION: So -- and your are expecting how much from this $20 billion to be for -- your kind of projects instead of --

MR. NATSIOS: We -- it depends how you -- is a fire station in our area or isn't that the Pentagon's area? That's more of a, you know, area.

QUESTION: Okay.

MR. NATSIOS: But I would say about $12-15 billion of the $20 billion are in the areas that AID traditionally works in, plus some. We don't normally build fire stations in the developing world, but Iraq is really not a developing country. It's a developed country that happened to be under an oppressive government.

QUESTION: My other question's related to this -- the details of the -- what you explained. First, education. I mean, when you say 1,600 schools, of how many schools? I mean --

MR. NATSIOS: There are about -- I think there are about 6,000 schools in the country. But many of those schools are in areas like Baghdad, particularly in Baathist party neighborhoods, which are in very good shape, so they didn't need to be reconstructed. We did the ones that were in the worst shape according to the assessment that we had done.

UNICEF actually had done a survey in the mid-90s. It was a little dated and things had changed in what some of what UNICEF had reported. And so in some areas the schools had been abandoned that we rehabilitated. There were no schools functioning in the villages we were in. So we took the worst ones and did them first.

QUESTION: Is AID organization -- I have -- I ask two questions, too. First, how much you are focusing all over the country and just not focus on Baghdad? Second, how much is of these projects are permanent projects and not -- there is no sustainability in it? Or there is sustainability in it?

MR. NATSIOS: Well, there's been a big debate about, you know, the need for the second supplemental and all this. The fact is, at some point in the near future, we believe sooner rather than later, the Iraqi oil fields will be back functioning, and they will provide enough generating revenue for the country to run itself.

The difference between Iraq and say, Poland or Romania -- no, Romania's not a good example -- Bulgaria, we'll say -- is they have a source of revenue: oil. Most of the Eastern European countries -- Romania's an exception, although their oil fields aren't in very good shape -- have a source of revenue -- do not have a source of revenue. They had to rely on economic growth.

If Iraq gets their policies right and they move into a stable market economy, democratic, under democratic system of government, I think it can be the richest country in the Middle East, mainly because the number of highly educated technocratically skilled people in Iraq is very high. I was -- I am astonished at the level of competence. And they're not only competent technically in their disciplines, like medicine, they're also very good managers. They made systems work that were profoundly dysfunctional. And they did it because they're very, very skilled managers. And they're very hardworking. There are countries in the world where it's difficult to get the workforce focused in a highly efficient way. They are a highly skilled workforce and they have a lot of what I would call "work ethic values," which are proving very useful to us, which is why we're enabled to employ 55,000 people on this reconstruction.

All those factors, some of which are invisible. They're not -- you don't see people's work ethics physically. You can see someone working but our people are telling me that this is very unusual and there are a lot of building blocks for a highly stable, prosperous economy at some point. So what I'm saying to you is it is sustainable because they have oil.

MR. DENIG: Okay, let's go to India, right there.

QUESTION: Parasuram, Press Trust of India. There was a report in one of the newspapers here, I don't know whether it was correct, that even the radio (inaudible) saying every Iraqi was entitled to free food rations --

MR. NATSIOS: That's correct.

QUESTION: --whether that is true and also, if that is so, how are you dealing with that problem now?

MR. NATSIOS: We worked with the World Food Program last December and said that -- arguably the World Food Program is the best food logistics institution in the world in or outside the UN system. And I have great respect for them. I worked with them for many years and they have taken over the food distribution system -- the public distribution -- the PDS, as it's called, which is a quasi-Soviet-style distribution system.

Twice a month, families get a ration of ten commodities. Theoretically, it was highly efficient. What we're finding out though, it was used for political control purposes. The NGOs have discovered, and the WFP, that in some villages and cities, 20 percent of the population were not on the ration list. They had been taken off because they were politically suspect or they were regarded as opponents of the regime.

And we'd noticed very high rates of malnutrition in some -- from bad nutrition and from inadequate caloric intake in a number of cities. And the only -- we couldn't understand why, given everybody was on the public distribution system. And we found out later, after looking into it that a lot of people weren't on the system because they were regarded as suspect.

The system has basically been improved over what it was because everybody's on the system now. All the people who were taken off have been put back on, and everybody is getting their ration. And we did that -- I think the first distribution was just before I arrived in June for my first trip -- the first week of June -- and so we really have not had a disruption of the system. It's worked very efficiently. There have been no food riots. There have been no demonstrations. There have been no complaints.

In terms of disruption of the old system, we basically improved its management, working with the United Nations and the NGOs, but I'm not sure it's a long-term way in which the food system should be run. I think perhaps, for poor people, the lowest income, there needs to be some food security system in place. But there's a debate as to how that should be running -- how that should look -- and the decisions have yet to be made.

So we're basically running the system with the UN and in November it will transition to the Ministry of Trade. The Ministry of Trade will run the system as it did before.

MR. DENIG: Let's go to London for our next question, if you could introduce yourself, sir.

QUESTION: Would you allow Iraqis to have a final role in choosing some projects?

MR. NATSIOS: Yes. Definitely. These -- our experience in the development community is that unless projects belong to the community, they're not sustainable. There's -- financial sustainability is one thing, but the other kind of sustainability is a sense of ownership.

And what we are finding out in some of the villages is that we were repairing the schools, and unless we got the parents involved in protecting the school, it would just get looted again, or damaged again. And so we used the community development principles, the NGOs and aid agencies like AID or DIFID or CIDA use all the time in the developing world that the community needs to be involved. And we are forming, by the way, parent-teachers' associations, which are quite new to Iraq, where parents are involved with governing the school with the teachers.

Because we also know from data from the United States, from Europe and from developing countries that when parents are involved in their kids' education, their achievement levels increase. And this is quite interesting because a lot of the parents have never had to work with teachers before in a school. But that means local ownership.

The 820 grants that we've given out to local councils are entirely decided locally. They make their own decisions. We help them do the procurements locally so that there's financial accountability, but they make the decisions as much pri -- and then they work on the projects themselves. And we're finding there's a whole effort to do a lot of trash-garbage cleanup and refuse in some of the cities. And we're finding women's groups now are forming to help with this very enthusiastically. In fact, we're getting much higher levels of participation that we traditionally get in these kinds of programs in other countries.

MR. DENIG: Do you have another question, London?

QUESTION: Sir, it's a great thing to have 55,000 Iraqi working on some of your projects. But you are talking about a nation with 50 percent of unemployment. Would you have in mind to create a system of social security for thousands of thousands of people lost their jobs, especially in the military?

MR. NATSIOS: We actually have a program that we started to run. We did it in what used to be called Saddam Hussein City, but it's called Sadr City now. It's a Shia -- a poor Shia area in Baghdad -- and we did begin a program. It employed about 15,000 people. That, by the way, is not included in the numbers that I gave you, and it worked quite well.

We've done this in a number of cities, and we're trying to expand this, but they're really not permanent jobs. The way permanent jobs are going to exist in Iraq is an expanding economy. And that's the most important source of jobs. You can't have the state or the aid agencies providing all the jobs.

Should we increase the number beyond 55,000? Actually, we should, and we're going to do that. That's the plan is to roll out -- as more of this money is spent, more and more subcontracts will go up to Iraqi companies, and that will increase employment. But ultimately, it's going to be the private sector that drives a lot of this.

But it's a good point. It's very well taken.

MR. DENIG: Okay. Let's take the lady in the middle.

QUESTION: Sue Pleny from Reuters.

MR. NATSIOS: Yes.

QUESTION: With so much of the contracting -- with the work going out to subcontractors, how can you be certain that the subcontracting is a fair and transparent process, and what safeguards are in place? Because there have been reports that the turnaround times for tender, they're only sometimes three days and that companies don't get enough time to bid, et cetera, et cetera, and some of those are USAID subcontracts.

MR. NATSIOS: Okay. There is -- federal procurement regulations for subcontractors and how they function. I will ask. I have not heard any reports of that, but that doesn't mean that that hasn't taken place. And it also may be you have to ask what it was for. If someone's buying paper clips, they're not going to have a huge tender. They just buy them, and there may be just a few days where there's a bid out. I don't mean literally paper clips, but it may be a small contract.

QUESTION: I think (inaudible).

MR. NATSIOS: Right. And so, especially if they need them immediately, something that's, you know, a real immediate requirement. So, but I will ask. I have not heard a report, and I have -- I get daily procurement updates, as to what's happening. They are supposed to be advertising these and making them very public. We want this done in a transparent way.

The more bidding there is, the lower the price is -- the more we can get done. It's the more efficient way of doing this. And so -- I spoke with the, about 300 or 400 Iraqi businesspeople in June when we began the tendering process. And we went through this, and then there was a long training session that Bechtel's done.

One thing Bechtel has done, which I have to commend them for, is many of these countries did not have capital. These Iraqi companies did not have capital with which to pay their employees or to buy equipment, and Bechtel fronted their own money, not our money, in order to make these Iraqi companies functional, so they could bid and do things.

Because if we didn't do that, very few of them would be able to bid. They would not be able to meet the contracting requirements. And it's worked quite well I have to say. Bechtel says they're very pleased with how that's going.

MR. DENIG: Let's go to Reha, in the back, Turkey.

QUESTION: Thank you. Reha Atasagan from Turkish Public Television. One of the four aims is to expand economic opportunity, and yet very recently, the CPA took a decision, which limits profit transfers out of Iraq -- cash, and cash only to $10,000 U.S., and the Turkish businessmen who were doing business with the Iraqis are very upset. Why do you think this decision was taken if $10,000 is not a lot of money, I mean?

MR. NATSIOS: I'm not aware of the decision. I'll look into it. Could we make a note of it? I was not aware they had made that decision.

MR. DENIG: Okay, Jennifer. Let's go to Finland, in the back there.

QUESTION: Jyri Raivio, newspaper, Helsingen Sanomat, Finland. Are the NGOs are back in Iraq, and would you need the NGOs back in Iraq?

MR. NATSIOS: Well, back in Iraq may be a slight misunderstanding of the situation before the conflict. There were very few NGOs in Iraq before the war. I counted maybe five or six. There were no American-based NGOs. There were some European NGOs and I think CARE Australia was in there. But it's not an NGO-rich country mainly because the UN was doing their own work independent of the NGOs through the ministries. I don't know if the Government of Iraq wanted many NGOs in the country either, because NGOs tend to be rather independent.

The AID has given out some very large NGO grants, both for the emergency phase at the beginning -- I think there were about six NGOs that we worked with on those grants. And then another six or seven competitively bid, because we don't -- you don't competitively bid emergency contracts because you have to get them out quickly. We never do competitively bid emergency operations.

But for the follow-on development -- community development projects -- we did. And we had a bunch of -- I think there were seven of them, and they're like $6 million each, for a year or two.

We do need them. They're doing some very good work. But the work they're doing is not so much the spending of the money in projects. It is the whole notion of developing civil society. We've been giving a lot of small grants to small, newly formed human rights organizations within Iraq; for example, some of the worst massacres took place outside Al-Hilla and in the Kurdish area in 1988 during the Anfal campaign.

And we've given these because we think having a lot of independent Iraqi NGOs that are formed around human rights issues or women's issues or community development will, in fact, develop a civil society outside the government or the private sector that will strengthen the capacity of the country to be -- to become a stable democracy.

So they have a role to play, yes, but it's not like -- it's not a third world country where we need the NGOs to do the same thing they would do, say, in Afghanistan, which is among the poorest countries in the world. It's not the same thing. This is more like Romania in 1989 than it is like Afghanistan -- to develop the country.

MR. DENIG: Last question. Let's go to Japan.

QUESTION: I am Nakano with JIJI Press, and you mentioned the Japanese Government's financial contributions. At the next stage, what kind of contribution or activity do you expect to Japan or -- and I think your counterpart in Tokyo will be the JAICA and --

MR. NATSIOS: I know JAICA is --

QUESTION: Yeah. And do you think that JAICA's role in Iraq is very important? And you know that recently Mrs. Ogata, Sadako Ogata, became new represent. And what's your comment on that?

MR. NATSIOS: Well, we congratulate -- I sent her a note to congratulate her. She's one of the legendary figures in the international aid system. We all had a little celebration in AID because she is so respected. We think it was a wonderful choice by the Japanese Government, and I look forward to working with her at the -- I will see her at -- will she be going, do you know, to the -- to Madrid?

QUESTION: Yeah, I don't.

MR. NATSIOS: You don't? I hope she goes because I hope to see her. But we don't have -- I mean, we don't have -- each aid agency makes their own decisions, but the way the system has traditionally worked is there is a set of projects that need to be done in any country in a postwar setting, and different international institutions will choose different projects to carry out for their funding. And, for example, we're building the road from Kabul to Kandahar in Afghanistan, and it's a joint project run between USAID, JAICA and the Saudi Arabian Government. This happens all the time. You get together and you jointly plan these things.

MR. DENIG: Good, thank you very much, Mr. Natsios. And I just remind you, ladies and gentlemen, that tomorrow at 12 noon we'll have another Iraq-related briefing with Under Secretary Larson from State Department, Under Secretary Taylor from Treasury Department, giving a preview of the Madrid donors conference.

Thank you.