NEW YORK (CNN/Money) -
Frozen Iraqi assets worth $1.7 billion have been consolidated in a federal account that will be distributed to the war-damaged country, the U.S. Treasury Department said Thursday
A Treasury spokesman said that seventeen of the world's biggest financial institutions have complied with an executive order to turn over the funds, which now rest in an account at the Federal Reserve Bank of New York.
"Discussions are in progress as to how those assets will be returned to the Iraqi people," said the spokesman, who could not yet say how the funds will be used.
Rebuilding will be costly in Iraq, a country that before the U.S. invasion suffered crumbling infrastructure, poor healthcare and the economic isolation of U.N. sanctions.
To that end, the U.S. is also trying to secure an estimated $6.6 billion in Iraqi assets held in overseas bank accounts that may contain some personal assets of Saddam Hussein, his family, and other high-ranking Iraqis.
The $1.7 billion came mostly from Iraqi government assets frozen during the first gulf war a decade ago. But some of the overseas money, the spokesman said Thursday, may have been generated from smuggled oil.
A March 20 letter from Treasury Department Secretary John Snow to William J. McDonough, the president of the Federal Reserve Bank of the New York, asked for the creation of an account to hold the seized assets. The money had been held by some of the world's biggest lenders, including Citigroup, J.P. Morgan Chase, Bank of New York and Banc One, the Treasury Department said
Snow's letter came after Bush issued an executive order confiscating "non-diplomatic Iraqi government assets in the United States" and authorizing the Treasury Department to "marshal the assets and to use the funds for the welfare of the Iraqi people."
The government has cast the financial deployment as a step toward rebuilding an economy choked by a decade of sanctions, mismanagement and now another war.
"It's not ours," the Treasury spokesman said Thursday. "It's the Iraqi people's."
Still, other forms of humanitarian aid are needed and expected.
According to a recent study by the Council on Foreign Relations, rebuilding Iraq could cost $20 billion a year for several years. Edmund O'Sullivan, editor-in-chief of Middle East Economic Digest, recently told CNN the cost of the job could total $200 billion.