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BAGHDAD-- Sky-high oil prices are pumping tens of billions of dollars into this country'scoffers, reaping a windfall for a war-torn nation plagued by unpassable roads, dilapidated hospitals and crumbling schools.

Yet most of this desperately needed cash is languishing in the bank. The reason: Iraq'sgovernment is so ill-equipped to handle the basics of finance, it is having trouble spending the money.

In 2006, the Iraqi central government spent just 22% of its $6 billion capital budget, which is aimed at improving Iraq'sinfrastructure, while the oil ministry spent less than 3% of its reconstruction money. In 2007, Iraq'sown official expenditure reports show ministries had spent 7% of their $10 billion capital budget as of November; officials estimate the final figure will be at least 50%.

Baghdad'scoffers are swelling: In three years, the country'sforeign-exchange reserves have more than tripled, to over $22 billion. Iraq also has more than $8 billion in bank accounts in New York and Iraq reflecting unused funds from oil-export sales. This is in addition to unspent budget funds.

Why the logjam? To begin with, the country has no system for electronically transferring cash and few officials trained in basic budget procedures. Its handful of computers is frequently foiled by power outages. Instead, many budget writers list expenditures and receipts by hand, on neatly lined columns drawn out with a ruler.

"This is my headache, my homework," groans Bayan Jabr, the country'sfinance minister, who says he stays up into the early morning signing approval documents for the purchase of simple items like computers.

Iraq'sswelling surplus is intensifying the already enormous pressure on Baghdad'sweak government. If officials can improve or restore basic services quickly, they may be able to convince Iraqis -- and international observers -- that the country is on the road to recovery. But if the delays continue, U.S. and Iraqi officials warn that desperate Iraqis may turn to crime or the insurgency to earn money, plunging the country back into a cycle of brutal violence.

"We need to move beyond security to create jobs and invest in our country, or we could move backwards," says Deputy Prime Minister Barham Salih.

Pressure is also growing in Washington, where politicians are growing impatient at the mounting cost -- almost $47 billion spent thus far -- of rebuilding an oil-rich nation.

Last Tuesday, the Senate Appropriations Committee held a hearing on the waste of U.S. taxpayer money in Iraq. "The Iraqis have a budget surplus," then-U.S. Comptroller General David Walker said at the hearing. "One of the questions is, who should be paying." Senate Armed Services Committee Chairman Carl Levin (D., Mich.) and committee member John Warner (R., Va.) sent a letter to the Government Accountability Office on March 7 asking the agency to examine why U.S. taxpayer money has been "overwhelmingly" used to fund Iraq'sreconstruction, "despite Iraq earning billions of dollars in oil revenue."

In response, Iraqi government spokesman Ali al-Dabbagh issued a statement Tuesday saying Baghdadhas worked hard to improve budget execution amid the armed strife and said the rate of spending would likely increase in 2008. Iraq will likely spend more on infrastructure in the secondhalf of this year, he added, due to a projected boost in oil revenue.

Foreign governments are growing worried, in part because the spending paralysis exacerbates the nation'sinability to cope with its many refugees. An estimated two million Iraqis have been displaced inside the country by war and sectarian violence, and the government hasn't been able to spend quickly for food, medicine and shelter, raising the prospect of a humanitarian crisis.

Iraq'sspending woes are partly grounded in Saddam Hussein'sauthoritarian rule and his centrally controlled economy. Taif Sami, a 23-year veteran at the finance ministry and now assistant manager of the budget department, says making spending decisions under the former Iraqi leader was fairly simple. Everything was determined by the dictator or his inner circle.

In the budget department itself, "nobody could say anything about the budget or object to it," Ms. Sami says of that time.

After the invasion, American officials briefly took control of most spending decisions. But after the U.S. relinquished power, political instability, infighting and horse-trading among the country'snew political parties created rapid turnover in the finance department. Three different men have served as Iraq'schief finance minister since 2004.

Iraq'smoney-transfer system is archaic. There are no ATMs and no nationwide system for electronically wiring cash. So, bricks of bills are disbursed across the country in trucks. Once an expenditure is approved, it can take months for the cash to be released, as couriers shuttle paperwork between the country'splanning and finance ministries.

Corruption -- already a big problem in Mr. Hussein'sera -- turned into an epidemic after the invasion. To fight it, the government pushed through a flurry of new rules requiring elaborate checks and approvals, including layers of signatures and stamps from senior officials. But with all the new rules, paperwork often got lost or botched. Officials didn't follow up.

Over the past two years, sectarian violence and the insurgency unraveled basic services, and unemployment ballooned. Yet while many in Baghdadand in the provinces receive only two hours of electricity a day, Iraq'streasury was swelling with oil dollars. Oil revenue for 2007 is estimated at $60 billion. Iraq's2008 budget is based on $57- a-barrel oil. Recently, Iraq'sbenchmark crude, called "Basra Light," was changing hands at $94 a barrel.

In May 2006, the chief finance job was given to Mr. Jabr. A prominent Shiite politician, Mr. Jabr served a previous stint as interior minister that was marred by accusations that he led an agency which engaged in bloody sectarian violence against Sunnis. Mr. Jabr says the accusations are overblown. Confident and impeccably groomed, Mr. Jabr has won the trust of American officials, who are trying to help his cause by providing budget-execution training to government employees.

After seeing how badly Iraq'sbudget was managed in 2006, Mr. Jabr, Deputy Prime Minister Mr. Salih and Planning Minister Ali Baban decided to give bureaucrats more power over spending decisions. They raised the ceilings for procurement contracts that don't require finance-ministry approval. Iraqi officials also boosted the amount of cash sent directly to the provinces.

But lower-level bureaucrats, unaccustomed to wielding spending authority or worried about being held accountable if something goes wrong, still come to Mr. Jabr for a green light. And some critics question some local governments' spending priorities. Baghdadmunicipal officials, for instance, have allocated funds for badly needed sewage-treatment facilities and health clinics. Yet the capital is also spending $113 million over a three-year period to pretty up its mangled sidewalks.

American mistakes have helped seize up the system, too. One of the U.S.'smost costly efforts to help the Iraqis with their spending habits -- an ambitious software program being developed by USAID, part of the State Department, and consulting firm BearingPoint -- has also gone awry. The project was halted last June, after four British security contractors and a consultant were kidnapped in a raid on the finance ministry the month before.

According to an October report by the U.S. Special Inspector General for Iraq Reconstruction, the program was also incompatible with separate financial-management systems being developed by the defense and interior ministries. Those two agencies were creating their systems under initiatives funded by the Pentagon. USAID says its system can adjust to other systems, but also says the Iraqi government didn't fully support the project.

In mid-January, the finance ministry, desperate for a computerized system, authorized the resumption of the troubled project. Three weeks ago, a video that aired on Arab television showed one of the kidnap victims, who said he and the other captors would be freed in exchange for Iraqi prisoners.

The U.S. already has spent almost $40 million on the currently mothballed program.