Written evidence submitted by The Funding
for Peace Coalition
The Funding for Peace Coalition (FPC) actively
campaigns to ensure that the financial commitments of the European
Community towards the Palestinians reach their target population.
The need to re-establish an effective Palestinian
economy is apparent now more than ever. The FPC strongly welcomes
UK initiatives to support the efforts of Mr. James Wolfensohn
and the Quartet to promote economic development in the Palestinian
territories.
SOCIO-ECONOMIC
BACKGROUND
It is generally accepted that following the
launch of the Palestinian Intifada, the economic status of Gaza
and the West Bank deteriorated significantly. The Israeli market,
the main focus for Palestinian trade, was closed off. Whether
due to Israeli military procedures or internal Palestinian violence,
there has been a marked reduction of economic movement.
The World Bank has confirmed that from September
2000, over 100,000 relatively well-paid Palestinian jobs within
Israel were lost. Today, there is an immediate need to find proper
employment for tens of thousands of people currently in the pay
of a myriad of militias.
On top of these issues are the social inequities.
Transparency International (TI) is the world's leading independent
observer of corruption in individual countries. TI's chairman,
Peter Eigen, has emphasised the importance of fighting corruption:
"Corruption is a major cause of poverty as well as a barrier
to overcoming it. The two scourges feed off each other, locking
their populations in a cycle of misery. Corruption must be vigorously
addressed if aid is to make a real difference in freeing people
from poverty."
The Palestinian Authority (PA) publicly adopted
the reforms outlined by the IMF in its September 2003 report and
demanded by the international community as a pre-requisite for
ongoing financial support. In the following two years, TI's index
has shown a 13% decline in the PA's absolute score and a drop
from 78th position to 107th.
Many of the injustices are given form in the
presence of the refugee camps. For years, UNRWA and numerous NGOs
have been working in Gaza and the West Bank. Yet, as the Palestinians
participants noted in the recent BBC sponsored Doha Debate, there
is a credible case for stating that the leadership of the PLO
and the PA have ensured that the residents of UNRWA camps have
been kept in squalor; pawns in a larger game.
The FPC seeks to ensure that these practices
are brought to an end, in the name of both peace and social equality.
TI clearly points out that a poor Corruption Index score is not
a reason to stop aid. What it advocates is that all aid should
be strictly and firmly controlled to prevent it becoming a cause
of rather than a cure for poverty.
THE FINANCES
OF THE
PALESTINIAN AUTHORITY
Encouragingly, Mr George Abed, a former senior
official at the IMF and now governor of the Palestinian Monetary
Authority stated recently that the Palestinian banking sector
was "overflowing" with funds. This demonstrates the
ability of some local commercial sectors to sponsor new infrastructure
schemes. He was insistent that wealthy Palestinians, resident
locally or abroad, "are, generally speaking, attached to
their homeland. If the environment improves, they will definitely
come exploring investment opportunities."
At government level, the lack of transparency
of PA's accounting methodology was exposed by a detailed IMF report
in September 2003.
The most publicized finding of the IMF report
was the discovery and partial recovery of some $890m in diverted
revenues, where the Palestinian Investment Fund (PIP) acted as
a transparent holding company for the diverse assets of the PA
which had been hidden. Less noticed was the TMF discovery of PA
expense budgets being open to abuse and diversion to corruption
and violence. This was detected in poor budgeting and expenditure
controls, bad purchasing practices, cash payrolls, and excessive
public service salary budgets.
In order to refute charges of the diversion
of its budgets toward corruption and violence, the PA started
publishing its accounts on the internet. An analysis of the figures
and recent reports reveal:
1. The PA itself appears well funded. Its
financial reports show that, since January 2003, it has transferred
$151 million to Financial Reserves, and its net lending (or debt
retirement) over the period was a further $528 million. The PIF
accounts are not available on line in English as was anticipated
by the 1MF, but it is noted that the PIF transferred some $106
million to the PA Treasury this year.
While it is difficult to assess the total wealth
of the PA, it emerged from a recent legal dispute in America that
the PA holds $1.3 billion in cash assets in the USA alone.
2. The PA wage bill has now reached approximately
$90m per monthor about $ l,100m a year. In 2003, the TMF
had already identified the annual wages of $673m as excessive,
especially as so many of the services one might expect that the
PA undertake are provided by UNRWA.
The EU and individual member states together
have proudly claimed to be the major financial supporter of the
PA since 1993. However, as the PA is taking on board more
Al-Aksa people as "security" personnel and paying their
salaries, the soft underbelly of foreign donors is exposed.
There is ample evidence of ongoing PA employee
involvement in terror. Aside from some 20 cases listed in the
FPC report of September 2004, reports of more recent acts of violence
against innocent citizens, Israeli and Palestinians, clearly implicate
PA employees.
The funding of budgets that pay the salaries
of public servants who are involved in terror or its glorification
simply cannot be morally justified.
3. In the first 8 months of 2005, the PA
transferred $16m to the PLO. The PLO continues to operate under
its unchanged charter, which declares its sole raison d'etre to
be the violent removal of Israel from the world map. It is questionable
whether transferring funds to the PLO, directly or indirectly,
satisfies EU or UK legal requirements.
4. The level of corruption within the PA
itself is still of significant concern; financial, judicial and
political. Intelligence assessments are that, as a result of failures
of financial proprietary, "all international investment activities
in Gaza are subject to the ultimate control of local warlords
and terror groups."
Recent investigative reporting in Time Magazine
and other respectable journals highlighted the extent of the
corruption and violence. The recent words of a Palestinian Legislative
Committee should be stressed. It recommended the dismissal of
the current Qurei government due to a failure to impose order
on anned gangs and militias and a "clear failure in implementing
the reform and development plan, as well as in the war against
corruption."
Since 1993, the EU has donated over 2
billion in direct and indirect aid to the Palestinians. The total
from individual states doubles the contribution. Currently, the
Commission estimates that approximately 0.5 billion is being
given out annually. Direct aid to the PA from all donors, including
the World Bank Trust Fund, amounts to approximately 25% of current
annual expenditures.
Given the current instability in Gaza and the
West Bank, aid funding, which is not carefully and scrupulously
monitored, runs the significant danger of being used to reinforce
corruption. As Mr Eigen of TI emphasises: "Corruption is
a major cause of poverty as well as a barrier to overcoming it."
INTERNATIONAL AGENCY
RECOMMENDATIONS
The Committee is advised to consider the workings
of OLAF, the EU anti-fraud squad. Resulting from its two-year
investigation of contributions from Brussels to Palestinian organisations,
OLAF established a unique international expertise in advising
how donors should handle taxpayers' money. It sought to investigate
if the target population had been serviced efficiently, while
leaving no doubts in the minds of the citizens at home as to the
propriety of their representation.
In its press statement of March 2005, OLAF concluded
that:
. . . misuse of the Palestinian Authority's budget
and other resources, cannot be excluded, due to the fact that
the internal and external audit capacity in the Palestinian Authority
is still underdeveloped.
OLAF outlined five recommendations. Once generalised,
these should appropriately form the backbone of any effort, directed
to help the Palestinians. They ensure that resources are not be
diverted towards violence or corruption. These include:
(a) Agreements must contain safeguard and
monitoring provisions, closely coordinated across the international
community.
(b) A single system of auditing and monitoring
shared by all members and duly implemented.
(c) Support and controls for internal auditing
and on-going monitoring processes.
(d) Funds circulating outside statutory budgets
must also be subject to accountability.
(e) Practices, which are considered supportive
of terrorism, must be halted. These include paying the salaries
of those convicted for violence and other contributions liable
to be misunderstood.
The Committee is also urged to consider the
11 recommendations of the Financial Action Task Force (FATF),
of which the UK is a member. The FATF is an inter-governmental
body whose purpose is the development and promotion of national
and international policies to combat money laundering and terrorist
financing.
HOW TO
GIVE AID:
The World Bank has repeatedly explained that
a resolution of the economic crisis facing the Palestinians will
come about through steps taken to increase freedom of movement
coupled with deep reforms of the Palestinian social, financial
and judicial systems.
What is emerging is a unique opportunity to
ensure that aid is leveraged to direct the resources and wealth
of the PA, the PLO, Palestinian financial institutions and private
individuals towards the development of the Palestinian infrastructure
and economy, for the benefit of the Palestinian people, allowing
them to emerge from the poverty to which they are subjected.
It is recommended that donors direct their efforts
to projects that enable all sides to carry out their obligations.
RECOMMENDATION NO
1:
Future help needs to be delivered in a transparent
and accountable manner, directed towards ethically defensible
projects. An independent and public monitoring system should immediately
be introduced for all funds provided to the Palestinians. The
Palestinian public will be able to observe the actual level of
assistance being provided for them, and the propensity to misuse
taxpayers' money will be curtailed.
An appropriate working model is that currently
used by the World Bank (WB) for tracking its specific projects
in the West Bank and Gaza. The level of fiduciary care and transparency
is exemplary and has no doubt been a major contributing factor
to both the success of the WB projects, and the acceptance by
the WB as an "honest broker" by all parties. The careful
project planning, selection of local partners, and honest appraisals
of progress at every point, coupled with posting detailed reports
on the internet for all to see must be contrasted with the ongoing
criticism the European Commission has been subject to in the same
arena.
It is difficult to justify pouring more resources
into politicised NGOs or even UNRWA. It is advised that the latter,
at least in the Gaza region, be progressively restructured, if
not wound down. There is no longer any political validation for
keeping Palestinians in refugee camps, when they possess full
control over the whole of the Gaza Strip.
Former UNRWA Commissioner-General, Peter Hansen,
put it very well on 1 November 2005, in a speech at Washington's
Palestine Center:
There is no doubt that, at some point, the Palestinian
Authority should take over all of UNRWA's capacity in Gaza and
the West Bank. I would say the sooner the conditions for that
are ripe and it can be done, the better.
RECOMMENDATION NO
2:
When considering recommendations of infrastructure
projects, the Committee is advised to consider the for
concept. The idea is not just to gain Palestinian ownership
and commitment and appreciation of the true value of the investment
considered. It will also encourage the local populace to take
pride in its own economic revival and not rely on long-term charity.
The alternative was exemplified when Mr Wolfensohn
sought overseas investors to purchase the greenhouses left by
the Israeli settlers, who withdrew from the Gaza region in August
2005. Once the Israelis had ceased to protect the region, Palestinians
ransacked the agricultural facilities. It can be surmised that
if the investors had included local personalities, such malicious
waste may not have occurred.
An alternative to this proposal is to limit
donor participation in a project to 40%, 50% or 60% depending
on its size, scope and third party involvement.
RECOMMENDATION NO
3:
The Committee should consider the case for the
creation of a seed fund to co-invest in a growing number of Palestinian
start-ups. The recent ExpoTech 2005 in Ramallah, sponsored by
the Palestinian Information Technology Association, has demonstrated
that there are clear opportunities for investment, which will
encourage both employment opportunities and long-term economic
growth.
A possible derivative to this idea is that certain
parts of the investment might be reserved for companies seeking
an Israeli partner, thus helping to promote regional coexistence.
RECOMMENDATION NO
4:
All investment recommendations should carry
a pre-requisite of decommissioning of militias and private armies.
Both in Northern Ireland and in Afghanistan, this stipulation
has provided a greater sense of internal stability for the local
population. It has also decreased the potential for distortions
in the judicial, financial and democratic processes.
In this sphere, the Palestinian President, Mr
Abbas, made a welcome move, demanding that members of militias
must resign their posts before taking part in the forthcoming
elections.
SUMMARY:
The FPC recommends that the international community
attempt to find a moral set of proposals; proposals, which will
show with evident transparency that projects can be established
on behalf of the Palestinians themselves, and not just for an
oligarchic leadership. Economic growth, especially established
in partnership with economic neighbours, can only benefit all
seekers of peace in the region.
Dr Jürgen Bühler
Coalition for Israel
23 November 2006
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