Examination of Witness (Questions 172-179)
MR ALAN
SEATTER
28 NOVEMBER 2006
Q172 Chairman: Good Morning, Mr Seatter,
and thank you for coming today. As you appreciate, we are two-thirds
of the way through our inquiry on Development Assistance and the
Occupied Palestinian Territories. Again as you will know, we did
visit the Occupied Territories, East Jerusalem and Israel about
two weeks ago. We met your colleague, Hans Duynhouwer, while we
were there and received a very good detailed briefing on what
is happening on the ground. Obviously, we are grateful to you
for coming so that you can perhaps both update that and also clarify
the wider role of the Temporary International Mechanism (TIM).
To go back a little bit to the creation of the TIM, there have
been some criticisms of it, not least from the Israelis, but from
other quarters as well. The first question to ask is: when it
was being set up, how well supported was it? Did member states
have reservations? Have those members sustained their reservations
or others developed any? If you had not put up the TIM, what else
could have happened? What else was considered?
Mr Seatter: Let me take us, to
go back a little further, to the Palestinian election on 25 January
because my Commissioner, Mrs Benita Ferrero-Waldner, visited Gaza
and the West Bank just before the election. It became clear to
her that the likelihood of a Hamas victory was growing. Even just
looking at the colour of the flags on the roofs of houses going
by, it became clear that there was a major political shift in
Palestinian public opinion. She wanted to prepare for the possibility
that the Palestinian government would be in difficulty, whatever
colour emerged from the election at the time. She gave instructions
to prepare a package of emergency aid, which the Commission announced
on 27 February of €120 million, €40 million of which
would go to fuel bills and €64 million to the refugees through
UNRWA, and €17.5 million in the form of budget support to
the interim government. The reaction of the Commission at the
time was to put in place on 27 February that package in anticipation
of a problem that could arise later in the year. The Hamas government
was formed on 29 March. After that, the situation became much
worse in the sense that Israeli transfers of the revenues that
belonged to the Palestinian Authority were stopped and the budget
of the Palestinian Authority was clearly unsustainable.
Q173 Chairman: Was that anticipated?
Mr Seatter: It had happened several
times before, so it was clear that Israel would not want to continue
releasing the money that is due to Palestinians under the agreement
between them, given the Hamas victory in the election. What happened
at that point was that we were always very well aware of the forecasts
of the UN and of the World Bank on the likely increase in the
poverty rate among the Palestinian population that was forecast
for 2006. At the meeting of the Quartet on 9 May, Mrs Ferrero-Waldner
proposed to set up a temporary mechanism because she realised
that the package that we had put in place in February was not
going to be sufficient. The money for the fuel bills was running
out and the payments to the refugees through UNRWA were proceeding
very quickly. It became clear that something needed to be done.
That was her proposal on 9 May. On 16 June, the Heads of Government
of the European Union approved a proposal to set up the Temporary
Mechanism. Many Member States made it clear that their approval
of this was conditional on a Quartet agreement. The Quartet agreement
followed the next day, on 17 June. We had negotiated the agreement
between the members of the Quartet so that it would be ready.
Q174 Chairman: This was an EU initiative.
How did the other members of the Quartet react? You say you got
agreement. Was that immediate or was there some discussion about
that?
Mr Seatter: The reason it took
between 9 May and 16 June to get an agreement was that there were
differences of views within the Quartet. Without going into what
those were, there was a range of opinion between those who thought
that the focus of this mechanism should be very narrow and those
who thought that it should be wide. We ended up, quite rightly,
somewhere in the middle. On 17 June, the Quartet endorsed this
mechanism. Our office opened on 26 June in Jerusalem and we began
to implement the mechanism. The disagreements were about how wide
it should be, what the coverage should be in terms of those who
were employed by the Palestinian Authority, and what kind of services
it should target. We ended up with something which focused on
the health service and protecting the health service to make sure
that basic services to Palestinians could continue to function.
We also ended up paying quite a lot for fuel. The reason for that
is that two days after we opened the office, the Gaza power plant
was bombed. On 4 July, the office of the Palestinian President,
Mr Mahmoud Abbas, asked us to begin emergency fuel deliveries
to hospitals, which we started on 11 July, followed on 20 July
by deliveries to water installations and on 27 July the first
payment to health workers. The first priority was to meet the
needs of the health service in the Palestinian Territories. I
have to say that there was a very strong view within the Quartet
that the mechanism should be delivered through the World Bank.
Our efforts in negotiating the agreement on the mechanism were
directed, first of all, to persuading the World Bank and to assist
them in setting this up, but it became clear that it was going
to take some time for them to do that. This is no criticism of
our colleagues in the World Bank who are extremely good but they
did not have the capacity on the ground to deliver something in
the timescale that everybody was expecting. So we took on the
task of paying the 12,000 workers, doctors and other staff in
the health service, which began on 27 July. That was, if you like,
the focus on the health service, which then broadened out a bit
later on.
Q175 Joan Ruddock: I want to clarify
this with Mr Seatter. You said that your Commission anticipated
that there would be a problem following the elections. Was it
anticipated in the sense that if Hamas was elected, there was
a problem or was the EU anticipating some problem anyway? There
has been a suggestion made to us I think that the EU was considering
withdrawing budget support. What was going on in that period when
elections were going on?
Mr Seatter: It was a combination
of two things. The first is that it is true that in November 2005
we in the European Commission did suspend a payment to the Palestinian
Authority. You will remember that this committee in your recommendations
three years ago said that we should deliver budget support through
an international mechanism grouping all donors together, and that
is what we were doing at the time through the World Bank Trust
Fund. We spent quite a long time setting that up. That fund made
payments to the Palestinian budget against certain conditions.
Amongst those conditions were a budget that was sustainable and
a proper control and auditing of the funds. It became clear during
the course of 2005, actually just before the elections, that a
number of decisions that had been taken by the Palestinian Authority
before Hamas took power were unsustainable and that it made no
sense to continue those payments.
Q176 Chairman: You mean the salary
increases?
Mr Seatter: That means the salary
increases and also the hiring of further people as well as the
failure to address the problem of external audit. We suspended
our payments at that point on the advice of the World Bank who
sent a team to investigate this. In any case, it was clear that
for 2006 there were going to be budget problems, whoever was going
to lead the government. What we did at that time was to work with
the World Bank and others to try to address the problem and help
the Palestinian Authority Ministry of Finance to get a grip on
the budget and make progress with the external audit, which I
have to say they did do because in February we were able to release
half of those funds. The second matter is the election of Hamas.
The grounds for the decision that the international community
took in relation to the Hamas government were laid, as far as
the European Union is concerned, two years previously when all
25 governments of the European Community decided to classify Hamas
as a terrorist organisation. From that moment on, it became clear
that there could be no question of any public funds going to or
through bodies controlled by the Hamas organisation. Two factors
were important there. There was a problem of sustainability of
the public finances; and there was the Hamas problem. Both of
those were playing.
Q177 Joan Ruddock: Can I be clear
about what you are saying and that is that really there had been
a problem but you were actually satisfied that progress was being
made?
Mr Seatter: We were not satisfied;
we were satisfied that some progress had been made because we
never released the funds in the end. We kept back a certain proportion.
Some progress was being made but not sufficient to make it sustainable,
in our view.
Q178 Joan Ruddock: In view of Hamas
being a terrorist organisation as defined by the EU, it was perfectly
obvious to the EU, was it not, therefore, that as they were standing
in democratic elections, as they had been accepted as being a
political party for the purposes of those elections, and as that
election was internationally supervised, there was going to be
a real dilemma there, which was of the EU's own making in a sense.
Mr Seatter: I would not say whether
it was of the EU's own making. Hamas had its own policy. They
were continuing to justify suicide bombings even after they took
over power. What my Commissioner did at the time was to try to
reach out before the election results came in to say that we would
be prepared to work with any government, whatever its composition,
as long as it was going to work for peace by peaceful means. Those
are the terms that she used and it was an attempt to reach out
to the people who were forming the government from the Change
and Reform Party. Our hope was that the Change and Reform Party,
which had a number of interesting points in its platform, would
move in the direction that was wanted by the international community,
but it became clear when there was a suicide bombing after they
took power which they justified, that, in the light of that, we
had very little choice.
Q179 Mr Duddridge: Returning to health
and the Temporary International Mechanism, during our visit we
were told that hospitals were only open for emergency services
and TIM money was not appropriate or was not used in East Jerusalem.
What funding has actually been disbursed? What funding has actually
been spent on medical supplies and how has that been distributed,
whether through the World Bank Emergency Service Support Programme,
through the UN or through the EU? Focus just on disbursements,
the money actually being spent.
Mr Seatter: Are you talking about
just supplies here or payments to workers as well? There are the
two elements involved here.
Mr Duddridge: Perhaps you could cover
both.
Mr Seatter: Up to now we have
made four payments to health workers. There are 12,000 health
workers on the payroll to whom we have paid an allowance of 1,500
shekels each time; so they have had four payments of 1,500 shekels.
That is everybody who works in the health service. There has been
no threshold of income, so everybody is covered by that. All that
money has been disbursed and paid. We are about to make another
payment in the next few days. On the supplies, and I take you
back to what I said before, it was the strong view of the Quartet,
and in fact it was agreed within the Quartet, that what we call
Window I of the mechanism, that is to say the supplies for the
health service and the payments to health workers, should be covered
by the World Bank through its Emergency Services Support Programme
(ESSP). It was also part of the agreement with the Quartet that
in advance of the World Bank being ready to deliver that, the
European Commission would make the payments. That is what we did
for fuel supplies and for medical staff. In East Jerusalem we
have made fuel deliveries to the hospitals in East Jerusalem,
so those needs have been covered. Not all of those are public
hospitals. Some of them are private hospitals and for those we
are not supporting the salaries. On the supplies, because we are
constrained to work through the World Bank in the terms of our
agreement through the Quartet, we made a payment to the World
Bank Programme of €8 million on 25 August. They signed an
agreement with the Office of the President in September. The World
Bank began making payments for supplies on about 28 October. We
estimate that by the end of this month, November, the expenditure
that will be disbursed through Window I through the World Bank
programme will reach $23 million, which is about half what has
been put in to Window I.
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