BAGHDAD -- Reeling from a sharp drop in oil prices, Iraq's security forces are trimming bloated payrolls and will be unable to purchase ships and aircraft that Iraqi officials had hoped would allow the country to develop a basic ability to fend off external threats by 2012, the United States' projected withdrawal date, according to U.S. military officials.

The budget crunch is also preventing the Iraqi government from keeping billions of dollars worth of U.S.-donated equipment in working condition, representing a potentially colossal loss for a key American investment, U.S. officials say.

The squeeze is threatening the progress of Iraq's security forces, already beset by ineffective management, corruption an d political interference. As the U.S. military begins to withdraw from cities this summer, the Iraqis will be increasingly in the spotlight.

"The budget crisis is going to degrade the rate at which Iraqis will be able to develop their capabilities," said Lt. Gen. Frank G. Helmick, who supervises the training and equipment of the Iraqi security forces. "We're in a situation that the Iraqis have not had to face. They can't pay for it, and we don't have the money to pay for it. For the first time, the Iraqis will have to prioritize, and these will be tough choices."

The Defense Ministry and the Interior Ministry will get $4.1 billion and $5.3 billion, respectively, this year -- roughly half the amount each was counting on last year when oil traded at $140 a barrel. Now oil, Iraq's main source of income, is $58 a barrel.

The most significant long-term initiatives jeopardized by the tightening budget are the development of a navy capable of securing oil platforms, an air force large enough to support ground operations, and a border force that can block the flow of fighters and weapons that have historically poured in through Syria and Iran, U.S. officials say.

Vehicles Breaking Down

Of paramount concern, the officials say, is the Iraqi government's failure to spend money on maintenance and spare parts for the vast fleet of armored vehicles and other military equipment donated by the United States in recent years.

The Iraqi army and National Police have received more than 5,000 U.S. Humvees in recent years and expect an additional 4,000 as U.S. troops continue to withdraw. Many vehicles are starting to fall apart, U.S. officials say. American military experts told the Defense Ministry that it needed to allocate at least $68 million this year for spare parts for U.S.-donated equipment. The ministry set aside $1 million, U.S. officials said.

As the Iraqi army's Humvees have begun to break down in the field, U.S. officials say, Iraqi commanders have cannibalized them for parts. Some commanders are reluctant to take the vehicles in for repairs because they are unlikely to get them back for months and because they do not want to give up a fuel stipend.

"This culture has not had the necessary system in place to maintain things," Helmick said. "What we want to try and avoid is having them drive something till it breaks and use the broken vehicle to go get spare parts [from]."

The United States has spent more than $628 million on building the Iraqi army's maintenance capabilities but has had limited success, the Defense Department's inspector general for Iraq reconstruction said in a report issued last month. That figure is $420 million more than the projected cost because the Iraqi government has not assumed responsibility for maintenance, forcing U.S. taxpayers to continue funding it, the report concluded.

'Ghost' Personnel

At the urging of U.S. military officials, both ministries recently started conducting personnel audits to trim payroll, which far exceeds their authorized manpower.

The audits are expected to purge from rosters thousands of "ghost" soldiers and policemen, those who exist in name only, U.S. officials said. They also will result in the dismissal of officers and soldiers who were hired despite disqualifying factors, such as illiteracy, advanced age and medical disabilities.

The Iraqi army has 262,000 soldiers on payroll, roughly 12,000 more than its authorized strength. Because Iraq's security forces are paid in cash that is passed down the chain of command, many commanders lie about how many soldiers they supervise, U.S. officials say.

According to the U.S. military's summary of the Defense Ministry's personnel audit, some Iraqi army majors make $70,000 a month through embezzlement. U.S. officials say they believe that as much as 25 percent of the ministry's annual payroll budget is stolen, according to a U.S. official who provided the confidential estimate on the condition of anonymity.

Because the audit is likely to expose corrupt officers, the U.S. assessment said, some Iraqi army leaders are "predicting violent outcomes." One senior Iraqi leader agreed to participate on the condition that the building where the audit is being conducted receive more security because "he's convinced someone is going to blow it up," according to the U.S. document.

The Interior Ministry, which had planned to add about 67,000 police officers this year, is instead freezing hiring. One of its top goals, to create a National Police brigade trained in counterinsurgency for each of Iraq's 18 provinces by year's end, has been indefinitely delayed.

The ministry employs 480,000 people and roughly 80,000 contractors -- above its authorized strength of 476,000, said Maj. Gen. James. M. Milano, who oversees police training.

The budget problems are also heightening concerns about the Shiite-led government's ability to continue paying U.S.-formed -- and formerly U.S.-funded -- Sunni paramilitary groups that are now under its supervision. The government promised to shift 20 percent of the 94,000 men in those groups to security jobs, but because of the hiring freeze, fewer than 5,000 have made the transition.

In recent months, many Sunni guards have walked away from their checkpoints after working unpaid for months. U.S. officials fear that the dissolution of the groups could refuel the insurgency, widen the sectarian divide and destabilize the government.

After the Iraqi parliament failed to allocate money to the program, the Interior Ministry, under pressure from the U.S. military, agreed to pay the men from its budget.

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