Money Day in Baghdad

U.S. troops distribute microgrants to help Iraqis rebuild their businesses.

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Sunnis shop at a local market in the northwestern Baghdad Ghazaliyah district.

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BAGHDAD—Around 10 a.m. on a Friday morning, a small group of American soldiers driving armored humvees pulled into Joint Security Station Casino in the Ghazaliya. Capt. Garrett Hooper and his team were understandably mum about their mission—slung over Hooper's left shoulder was an ordinary-looking backpack with more than $110,000 in neatly bound packets of greenbacks.

With equal innocuousness, local merchants began lining up outside Casino—at the back gate—having received a phone call in recent days setting up the appointment. Months ago, they had each completed an application for a microgrant of up to $2,500, funds that were now being distributed. The recipients were interviewed and had their fingerprints and eyes digitally scanned and entered into a database. Then they signed on the line and accepted a packet of bills.

In the past, soldiers distributing the money would arrive at the various small butcher shops, vegetable stands, and pharmacies in the local markets. They drew lots of attention—even attracting large groups of children who would follow the soldiers from shop to shop. The next day, invariably, those who had received the money complained that local toughs had robbed them or, worse, threatened them for "collaboration with the army of occupation."

Military officials hope that having grant recipients come to the combat outpost will reduce those tensions, though word spread quickly that Monday was payday, and grant recipients were concerned about walking home with a packet of hundred-dollar bills tucked in their tunics. "I will, God willing, make it home OK and hide the money until I can use it," said Saab, a Sunni auto mechanic who said he'd use the funds to reopen his repair shop. He worked with his sons and said the money would be used for salaries and parts.

The Americans hope so.

The soldiers here are under no illusions about where the money might go. "As long as it doesn't go to weapons, it's a step forward," says one officer. "That might not be much to hope for, but there's no real mechanism to account for what the money is spent on." Soldiers will follow up with those who receive grants, of course, but the residents of Ghazaliya are in no position to provide an audit trail.

The act of disbursing the grants is, nonetheless, a small sign that the war has entered a new phase. A year ago, the nearby market was nothing more than empty stalls, shuttered because of the ceaseless violence that shattered the economy and most of the standing structures in the small market.

Now, residents have reopened some of the shops and stalls, and the money might spur more expansion. "It does help with our credibility—most people distrust the government anyway, so it's good for us to follow through," says one commander.

The applications have taken weeks to process, and many residents expressed skepticism that they would ever see any money. "Should I even spend my time completing the forms?" one woman asked Capt. Thomas Melton as he talked with shoppers and business owners in the Nafla market. He promised to send out another application form.

With the backpacks of cash $100,000 lighter, Hooper moves on to the second phase of his mission. A smaller group of soldiers makes its way outside the concrete blast walls of the base into a nearby house, where four black-veiled women sit weeping on a small sofa. They are the relatives of four local men, killed when a bomb exploded under a bus in which they were traveling.

The men were part of the Ghazaliya Guardians, the name of the "concerned local citizens" group—essentially a neighborhood militia—funded and armed by American forces and partnered with Iraqi Army soldiers to staff the numerous checkpoints around the Ghazaliya. Members of the Guardians were and, some American officers are convinced, probably still are the same insurgents who target U.S. convoys daily with IEDs.

Since the Guardians are employed by the United States, their next of kin is entitled to a one-time payment of $2,500 if they are killed in the line of duty—in this case, a Shiite or al Qaeda attack against Sunni guards. (It's just a coincidence that this amount is the same as the microgrant.) "I'll admit I do have some inner conflicts about this—let's leave it at that," says Hooper, a JAG officer from Alabama who spent his first tour in Iraq as an infantry officer.