The financial scandals of occupation are worse than the errors of judgement

It's an outrage that 6 months after the Iraqi Development Fund was authorised to bank oil revenues, there is no independent auditing system

The distressing loss of life on the downed Chinook helicopter has prompted expressions of surprise that Washington has no exit strategy. The absence of an exit strategy though is not so much surprising as it is revealing. For the neo-conservatives the prime motivation for the invasion of Iraq was to secure a new base for US influence in the region. Donald Rumsfeld and Paul Wolfowitz did not waste time on an exit strategy because they imagined they were going in to Iraq to stay.

One engaging consequence of their boundless self-confidence is that they were always perfectly open about their goal, and neo-con demands for a new strategic presence for the US can be traced back long before the victory of President Bush. The attack on the Twin Towers sharpened their designs on Iraq, not because there was a scintilla of evidence that Saddam had any connection to it, but because the multiple Saudi links brought home the urgency of identifying an alternative location for US bases. Immediately after the occupation of Iraq, Donald Rumsfeld visited the region to close the US bases in Saudi Arabia that now were thought redundant.

It is testimony to the dire security situation in Iraq that the same people who once regarded it as potential real estate for permanent bases, now embrace the search for the exit door. Unfortunately they have lost six months in which they have behaved and have come to be resented as occupiers who intended to stay. It is impossible to know with any precision how many Iraqi families, tribes and villages have been alienated in the process, as the occupying forces do not keep a count of the civilians they shoot. Even more extraordinarily, not a single US officer or soldier has been charged for any of the many occasions on which innocent Iraqis have been killed by mistake, including a patrol of policemen recruited and trained by the US authorities who were then ambushed and wiped out in a fire-fight by American troops.

The danger is that the occupying forces get trapped in a downward spiral in which increasing attacks on them are met by escalating repression by them with rising hostility on both sides. US forces are already approaching the mindset in which any Iraqi is viewed as a security risk. Hence their practice of bussing in from a different continent an auxiliary army of Filipinos to clean their barracks. This in a country with 70 per cent unemployment.

Which brings us to the other source of tension between occupied and occupiers. There are parallel economies, in one of which most Iraqis are dependent on food aid, while in the other US firms derive handsome profits from their country. This is becoming a scandal not just in Iraq, but back home in the States. Newsweek, not a subversive publication, last week asked why the coalition authorities were paying Halliburton, with its famous connections to Vice-President Dick Cheney, $1.59 per gallon of petrol, when the Iraq national oil company offered to provide it at 98 cents. The normal rules of public contracts were waived for Halliburton, which was awarded the contract without competitive tendering and with no rival bid to ensure value for money. The financial scandals of the occupation of Iraq may yet turn out to be as grave as the intelligence controversies that preceded the invasion.

Whether the Coalition Authority is being taken for a ride by its contractors is a matter of legitimate concern to Iraqis as their money helps pay the bills. It is an outrage, which neither the US nor the UK would tolerate in their own country, that six months after the UN authorised the Iraqi Development Fund to bank the oil revenues of the country, there is still no independent system of auditing in place. Famously Tony Blair promised that Iraqi oil funds would be used for the needs of the Iraqi people. We still have no way of knowing whether that is the case and the indications are that much of it is being applied for the costs of occupation rather than investment in reconstruction.

Our own Government has gone eerily quiet on Iraq. It appears to be settled wisdom along the length of Whitehall that the smart strategy is to move on and not remind the public of an unpopular blunder by talking about it. Yet we were told that the reason for joining the war was to retain influence over the Bush administration. If there ever was a case for exercising that influence it is to press on Washington how to get from the present débâcle in Iraq to a dignified exit.

The central imperative is easy to identify. The running of Iraq needs to be transferred to the Iraqis as fast as is feasible. Occupation by the US is unlikely to prove any more popular in the early 21st century than occupation by the British proved in the early 20th century. In the meantime the administration needs to be internationalised both to provide legitimacy and to supply expertise in nation-building which the US viceroys conspicuously lack. Perhaps the most malign consequence of the botched handling of the invasion's aftermath is that there is now a smaller UN presence in Iraq than at any time in the last decade of Saddam's rule.

If such a political strategy is to have any chance of succeeding it needs to be accompanied by a rather more sensitive economic approach than the Coalition Authority has yet produced. For starters, it must drop its practice of contracting out the reconstruction of Iraq to US companies who then fly in staff, who in turn send for US technology. This not only denies much of the economic benefit to local Iraqis, but probably results in a longer delay in getting the job done.

Water and electricity were restored more quickly after the first Gulf war, perhaps because local Iraqis were more experienced and inventive in the Heath Robinson fixes necessary to patch and mend obsolete equipment. Even this time round local Iraqis have got up and running the central telephone exchange, repairing 50,000 lines with paper insulation that would have had any engineer from Silicon Valley sit down and cry.

Then the Coalition Authority must shelve its grandiose plans to sell off every state asset belonging to the Iraqi people. In the long run this may be an essential step, but in the short term neither the Iraqi economy nor society is capable of absorbing such a sudden, sharp shock of dislocation. It is a decision that must be taken by the Iraqi people themselves, after the US has exited from their administration.

I am relieved that even the Pentagon now recognises the need for an exit strategy. I am, though, anxious that an exit strategy does not become code for cut and run. There is a danger that just as the deadline for invasion was determined by the military build up, rather than the UN weapons inspections, so the timetable for exit will be driven more by the date of President Bush's re-election campaign than by progress on the ground. We should never have got ourselves into this dilemma in the first place, but having occupied Iraq, we cannot walk away and leave it in the same violent turmoil as we have Afghanistan.