8. Memorandum submitted by the European
Commission
EUROPEAN COMMUNITY FINANCIAL ASSISTANCE TO
THE PALESTINIANS
CONTEXT AND
HISTORY: ASSISTANCE
BEFORE OSLO
AND BEYOND
1. European Community assistance to the
Palestinians began in 1971, when the first contribution was made
to the budget of the United Nations Relief and Works Agency for
Palestine Refugees in the Near East (UNRWA). This assistance continues
to this day, with international agreements between the EC and
UNRWA governing the Community contribution to UNRWA in its main
fields of operation, primarily health and education.
2. In 1980, the European Community put forward
the Venice Declaration, which expressed support for Palestinian
self-determination. Support from the Community budget then began
for a variety of NGO projects, in sectors such as health, agriculture,
and education.
3. Following the signature of the Declaration
of Principles (Oslo accords), a first donor conference was held
in October 1993 in Washington. Donors pledged more than $2 billion
to the development of the Occupied Territories.
4. The EC pledged
250 million in grants for the period 1994-98, in
addition to long term loans from the European Investment Bank.
By 1998, the Community had exceeded this initial pledge with commitments
of more than
400 million in the form of grants.
5. At the 1998 Washington ministerial donor
conference, the EC pledged a further
400 million for the period 1999 to 2003. Largely
because of the current emergency needs, EC pledges of financial
support have in fact been exceeded. From 1994 to the end of 2002,
the European Community committed approximately
1 billion in grants, and a further
500 million in contributions to UNRWA. On top of
that, bilateral EU Member State assistance is estimated to amount
to
2.5 billion over the same period.
6. Overall relations between the European
Union and the Palestinians are governed in the context of the
Euro-Mediterranean Process, as set out in the Barcelona Declaration
of 1995. This policy seeks to create an area of peace and stability
in the region, and to foster trade and cooperation between the
EU and its partner countries by creating a free-trade area by
2010. The Palestinian Authority participates in the Euro-Mediterranean
partnership as a full partner. As part of the Euro-Mediterranean
process, the European Union concluded an Interim Agreement on
Trade and Cooperation with the Palestinian Authority in 2000.
The Palestinian Authority is eligible for the Community's main
financial instrument for the Euro-Mediterranean region, MEDA.
7. The European Commission has sought to
implement its financial assistance programmes in close consultation
with Member States, as well as key stakeholders in the region
and the main international donors.
SINCE SEPTEMBER
2000: FOCUS ON
EMERGENCY ASSISTANCE
8. Since the beginning of the second Intifada
in September 2000, the social, economic and health conditions
of the Palestinian population have severely deteriorated. This
is largely as a result of Israeli restrictions on the movement
of Palestinian goods and workers within and outside of the West
Bank and Gaza, introduced in response to terrorist attacks and
violence. In addition, the Israeli government stopped transferring
customs and taxation revenue to the Palestinian Authority in 2000.
9. The Palestinian economy has shrunk by
almost a half over the last two years, exports have contracted
by 45%, unemployment has reached a level of more than 50%, and
around 60% of the population are below the poverty line of US$2/day.
Increasingly, families are becoming dependent on food aid and
the health of the Palestinian population continues to deteriorate,
with malnutrition on the increase, in particular in the Gaza strip.
10. To preserve some degree of social stability
by contributing to the maintenance of basic public services, law
and order, and a governance structure for the future, the EC and
other donors increased their financial support in response to
the crisis. Like other donors, the EC shifted its much of its
assistance from more long-term institution-building to badly needed
humanitarian assistance, support to refugees (through UNRWA),
and development assistance. The Council of the European Union,
together with the European Parliament, endorsed the use of budget
support in this context.
11. The long-term objective of EC assistance
has nevertheless remained, even in times of crisis : support for
the creation of an independent, democratic Palestinian state.
Against that background, the Commission has tried to maintain
institution building support for the PA, to continue support for
civil society through regional peace projects, and to promote
human rights and democracy. It also continued to provide targeted
institution-building support to the Palestinian Authority through
specifically designed programmes (eg supporting the reform of
the judiciary or a long term strategy for health management, strengthening
public finances, etc.).
SPECIFIC SUPPORT
TO THE
PALESTINIAN AUTHORITY
12. From June 2001 to the end of 2002, a
significant part of EC assistance was provided in the form of
direct budget assistance to the Palestinian Authority. This support
was directed towards securing expenditures such as public service
salaries, social, educational, health and other core functions
of the PA.
13. Specific conditions were attached to
budget assistance requiring the PA to carry out concrete reform
measures leading to :
— reinforced transparency in the PA's
public finances;
— a consolidation of all sources of
PA revenue in a single treasury account monitored by the International
Monetary Fund;
— a freeze on public sector hiring
— adoption of the Law on the Independence
of the Judiciary
— adoption of the Basic Law
— reinforced internal financial control
— strengthened external audit capacities.
14. These achievements have helped strengthen
reform of the PA especially in the fields of public finance and
expenditure control. Direct budget support thus sought to combine
both emergency and long-term objectives: it responded to emergency
needs by alleviating the pressure on the PA budget caused by the
interruption of Israeli transfers of tax revenue and the economic
effects of the crisis, while at the same time advancing the reform
agenda and institution building through conditions attached to
the assistance.
15. The impact of EC support, and in particular
its assistance to the Palestinian Authority, has been recognised
by the international community, most recently at the Ad Hoc Liaison
Committee meeting of international donors (including the EU, US,
Norway, and the World Bank) in London on 18-19 February 2003:
"Donors and the PA noted the continued
critical importance of external budget support, which had prevented
a collapse of the PA and injected cash into the Palestinian economy.
It has also been instrumental in supporting the PA's implementation
of essential reform measures. In addition it was noted that salaries
of the PA and international organisations remained one of the
few stable sources of income for a broad segment of the Palestinian
population, and as such were an important stabilising factor in
the Palestinian economy"
16. The World Bank has expressed the opinion,
in its report Two Years of Intifada, Closures and Palestinian
Economic Crisis, February 2003, that the budget support provided
during this period was one of the more effective measures taken
to alleviate poverty in the Palestinian population.
FROM DIRECT
BUDGET SUPPORT
TO THE
REFORM SUPPORT
INSTRUMENT
17. Following the resumption of monthly
Israeli tax transfers towards the end of 2002, the European Commission
adjusted its general budgetary support programme to focus on a
more tailored form of support in the form of a Reform Facility.
The overall level of EC financial support is maintained, but it
is linked more closely to progress in reform efforts and earmarked
for specific needs identified in co-operation with the PA Ministry
of Finance.
18. One of the needs identified is to meet
the backlog of arrears, mainly to the private sector and the social
security system. Many small firms, already suffering from the
economic effects of the closures, have folded as a result of unpaid
bills. More are at risk of bankruptcy. This has led to increased
unemployment, putting further pressure on public finances. There
are also arrears to the health and social security systems. This
has worsened the situation with respect to poverty, and public
health has deteriorated.
19. To mitigate these effects, the Commission
established with the Palestinian Ministry of Finance a new Reform
Support Instrument which consists of two elements: a Finance Facility
targeted on meeting arrears to the private sector and to social
expenditure, linked to reform-related conditions, and a Technical
Assistance component which accompanies the reform process and
assists in fulfilling the conditions.
FINANCIAL ASSISTANCE
2002-03: MAIN BUILDING
BLOCKS AND
MORE DETAILED
FIGURES
20. The overall package provided by the
EC for 2002 and 2003 includes support to the PA, assistance to
refugees, food aid, support to the health sector, the private
sector and municipalities, preparation for elections, institution
building and judicial reform. This package amounts to more than
half a billion Euros for 2002-03.
21. For 2003, the programming decisions
taken earlier in the year aimed to strike a balance between short
term, emergency assistance and more strategic, forward-looking
development support in preparation of a future democratic Palestinian
state as follows:
Short term, emergency assistance
— Approximately
100 million is provided in humanitarian assistance
(food aid, contributions to UNRWA, etc.)
—
15million emergency support to the health sector
is provided through the Emergency Services Support Programme administered
by the World Bank, covering recurrent non-wage expenditure to
enable the Ministry of Health to continue to offer primary health
care, and secondary and tertiary hospital care.
— The Higher Education sector is supported
with
7million, also through the Emergency Services support
programme administered by the World Bank, helping the Ministry
of Education to continue to provide higher education services.
— The private sector will benefit from
a
15 million emergency assistance programme in the
form of a revolving loan fund, helping small and medium sized
enterprises in the West Bank, Gaza and East Jerusalem to survive
the current crisis, with agriculture and services as target sectors.
Support to the reform efforts of the Palestinian
Authority
— A
90 million Reform support Instrument with two element
is designed to help advance the Palestinian reform process. It
consists of a technical assistance component (
10 million) which is a flexible tool to respond to
specific needs for technical assistance in support of the reform
process, and a finance facility (
80million) targeted on meeting arrears to the private
sector and to social expenditure, linked to the achievement of
financial reform objectives. These include : further improvements
to the internal audit system in PA ministries, elimination of
cash in all PA payroll transactions, progress towards modernising
the pension system for PA employees.
Other measures
— The TEMPUS programme is extended
to the West Bank and Gaza (
2 million) with the objective of contributing to
reform and modernisation of higher education systems by developing
inter-university co-operation between EU countries and West Bank/Gaza.
STRENGTHENING CIVIL
SOCIETY: THE
PROGRAMME IN
SUPPORT OF
THE MIDDLE
EAST PEACE
PROCESS
22. The EC supports specific initiatives
to further the peace process, in particular through civil society
and people-to-people contacts. For 2003,
10 million have been committed to the following components
:
— EU Partnership for Peace Programme
(
7 million): support to local and international civil
society initiatives which promote peace, tolerance and non-violence.
The objective of this support is to contribute to rebuilding confidence
within each society and between societies on both sides of the
conflict. An important new strand of this programme in 2003 aims
to bring some of our current individual activities together in
a more comprehensive and visible initiative against violence and
in support of victims of violence, on both sides of the conflict.
— Contribution to the development of
ideas for resolving final status issues (in particular refugees
and water) by providing factual/technical information and assistance
to politicians and negotiators in developing solutions and strategies
both on the European side and the parties in the region (
2.5 million).
— Support to the verification mechanism
for the road map (
0.5 million): The roadmap, in its latest version,
refers to the establishment of a formal monitoring/verification
mechanism for the implementation of the roadmap. The EU, as part
of the Quartet, has signalled its willingness to contribute to
an implementation/verification mechanism by offering technical
and/or logistical support.
23. In addition to the programme in support
of the Middle East peace process, funding for civil society initiatives
in support of human rights and democracy is also provided by the
European Initiative for democracy and human rights for which Israel
and West Bank/Gaza are focus areas.
September 2003
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