Memorandum by the Funding for Peace Coalition
1.1 There is substantial evidence to show
how and to where international aid directed to the Palestinian
Authority has been diverted away from intended destinations. The
result is that under the existing systems, external support for
the Palestinians has neither led to substantial reductions in
poverty nor reaped a peace dividend.
1.2 The current situation is unacceptable
The generosity of western taxpayers
The average Palestinian is left without
resources promised, as monies are diverted to the needs of the
corrupt or to the violent.
Victims of other global conflicts
are left with a smaller portion of the pie.
1.3 The FPC calls on all donor countries
to the Palestinians, of which the EU is arguably the largest group,
to find a moral set of proposals; proposals which will establish
projects on behalf of the Palestinians themselves, and not just
for an oligarchic leadership. This will have the added advantage
of engaging the support and confidence of the government of Israel.
1.4 The FPC's four specific proposals are:
The selection of ethically defensible
projects, with transparent monitoring.
Investment in infrastructure projects
on a "pound for pound" basis, securing Palestinian ownership,
commitment and protection for the projects.
Creating a seed fund to co-invest
in a growing number of Palestinian start-ups.
Decommissioning private militias
as investment proposals are implemented.
1.5 As such, it is essential for both the
Palestinian Authority (PA) and the donor community to enact the
full recommendations of the World Bank, as issued in February
The PA must reduce the level of the
civil service and salaries.
The PA should reconsider its pension
policy, which is fiscally unmanageable.
Donors, who contribute directly or
indirectly to the PA, must insist in advance on measures which
install and sustain transparency and accountability.
1.6 It is time to apply accounting practices
applied to all other domestic and overseas projects.
2.1 Following the 1993 Oslo Accords, the
EU decision to support the Palestinian Authority fiscally was
not merely designed to balance American aid given to Israel. It
was an attempt to prepare the Palestinians for statehood, securing
good governance and a sound economy. From 2002 until mid 2007,
25% of PA expenditure has been financed by direct contributions
from overseas, primarily from the EU and member states. This means
that on-going PA activity is derived from European contributions.
2.2 The World Bank has continuously assessed
the direct impact of Israeli control on the Palestinian territories.
Between 1968 and 1999, economic growth as measured by real GDP
in the Palestinian territories increased by 5.5% per annum on
average (4.2% in Israel).
2.3 Between, 1999 and 2006, citing Palestinian
sources, the World Bank estimates
that real incomes dropped by approximately 30%. As will be explained
below, while the World Bank attributes the proximate cause of
this decline to Israeli military activity and the retention of
taxes collected on behalf of the Palestinian Authority (PA), they
identify a series of fundamental and structural reasons for the
sharp decline in wealth.
2.4 It is impossible to know exactly how
much money has already been given to the Palestinians in direct
and indirect aid since 1993. Research efforts of the FPC and others
place the figure between $14 and $20 billion, including nearly
US$2 billion from USAID.
At the low end, that is around $1 billion a year or about $4,000
of aid per personan astoundingly large amount, outstripping
any other aid emergency, including Sudan and the Tsunami relief
2.5 The World Bank
observes that at least US$ 1 billion has been received on average
every year for the past five years, with the amounts increasing
2.6 The EU has frequently claimed to be
the largest contributor to the Palestinians. In September 2005,
from the Commission noted that "taking the contributions
of the Commission and the EU member states together, the European
Union provides around 500 million each year to promote stability,
economic regeneration, and reform.
2.7 The question is how effective has it
been in reducing poverty and has it encouraged a strengthening
of the peace process?
3. THE EFFECTIVENESS
3.1 Much of the EU aid has been distributed
through a myriad of agencies within the EU such as ECH0,
as well as external bodies like UNRWA and the WHO. From the second
half of 2005, USAID and the EU have channeled greater efforts
3.2 While the use of NGOs seems outwardly
commendable, some of the beneficiaries of this public moneyeg,
ANERA, Badil and Adalahhave been linked to the political
agenda of the PA as opposed to practicing wholly social goals.
As the Strategic Studies Center
in Gaza commented, 85% of NGOs in Gaza are wasting resources and
not serving society as required.
3.3 UNRWA and other agencies can point to
the construction of classrooms or health care centres, the payment
of teachers' salaries, or even the empowerment of specific local
3.4 In parallel, there is an overwhelming
appreciation that the large sums of money described in the previous
section should have brought the donors and the Palestinian people
a much higher return. For example, few families have moved out
of the refugee camps, even when Israeli forces withdrew from the
Gaza Strip in August 2005. The FPC is concerned that significant
levels of the investments cannot be traced.
3.5 It was because of such fears that over
30% of MEPs requested a thorough report. OLAF, the ombudsman of
the EU, investigated 391.3 million in direct assistance
from the EU between November 2000 and February 2005. For reasons
still to be explained, this public body was never allowed to publish
its work. However, in a press release, OLAF observed that:
"... risks of misuse of the PA budget and
other resources cannot yet be excluded. This is primarily due
to the fact that the internal and external audit capacity in the
PA remains underdeveloped ... There are consistent indications
to support the hypothesis that it cannot be excluded that some
of the assets of the PA may, have been used by some individuals
for other than the intended purposes."
3.6 Of issue to donors, particularly from
Europe, is that this concern of the seepage of money is still
prevalent today. One of the major recommendations of the World
Bank report in February 2007just as OLAF had hinted at
two years previouslyis the immediate improvement of internal
controls with the PA financial system.
3.7 In other words, there is substantial
evidence to suggest that European donations, whether disbursed
directly or indirectly to the PA, via EU mechanisms or via the
statutory bodies of various member states, have been diverted
to other causes. The detailed examples of such misappropriation
can be listed under three main categories:
financial mismanagement; and
the support of a violent sub-strata.
3.8 The following sections rely heavily
on evidence gathered by the World Bank and its support staff in
Ramallah in the Palestinian territories. As part of the implementation
of the Road Map, the efforts of The World Bank have been accepted
by most sides in the conflict.
3.9.1 There are many manifestations of Palestinian
financial misappropriation. In an interview with FPC,
a year before the triumph of Hamas at the polls, Matt Rees, the
former correspondent for Time Magazine in Jerusalem observed
that if you ask a Palestinian what is the root of his problems,
he will quickly use the word "occupation". If you dig
a little deeper, the phrases of nepotism, corruption and autocracy
come rushing through.
3.9.2 At the top of the tree, public funds
have supported an elite kleptocracy in conditions of opulence,
particularly the late Chairman Arafat
and his wife, Suha Arafat,
in her current lifestyle. Similar accusations can be leveled at
leading members of the Palestinian diaspora.
3.9.3 The Palestinian Attorney-General,
Ahmed al-Meghami, uncovered
in February 2006 a trail of corruption involving expenditures
of the Palestinian Authority (PA) involving dozens of officials.
The total known value is $700 million, with a suspicion that the
final figure will be larger.
3.9.4 On a day-to-day level, if the aid
had been effective in alleviating poverty, the World Bank would
not have been moved to comment that:
"55% of those who receive emergency assistance
are not needy ... 32% of the needy do not receive emergency assistance."
3.9.5 "Corruption hits hardest at the
poorest in society," Wrote Mary Robinson, the former UN High
Commissioner for Human Rights. In his final report in November
2005, Nigel Roberts, the then World Bank country director for
Gaza and the West Bank, stated that:
"Consistently, 80% or more of the Palestinian
population is reported in opinion polls as believing the PA is
seriously corrupt, and demanding change... Attacking corruption
is very difficult. It requires... transparency, clear penalties
for violators, and a willingness to indict and punish those officials
who have abused their office..."
3.10 Financial Mismanagement
3.10.1 In President Abbas' first year as
President in 2005:
The IMF officially commented that
thousands of new militants had been integrated into the PA.
Abbas sanctioned a scheme for the
distribution of salaries and a range of fringe benefits
to terrorists imprisoned in Israeli cells. It is estimated that
these payments have cost the internationally subsidised PA Treasury
around $100 million over three years.
He approved a 13-20% wage increase
in the run up to the Palestinian elections, decried by the IMF
as a "substantial breach of the Wage Bill Containment Plan".
3.10.2 By November 2005, the World Bank
observed that "The PA has created a serious fiscal crisis
for itself with salary expenditure essentially out of control."
3.10.3 Fifteen months later, the World Bank
has returned to its criticisms.
It does speak of certain progress in Palestinian reforms. However,
the main focus is on many of the same maladies as reported by
the Autumn of 2004; corruption, fraud, inflated pension schemes,
ghosts and double dipping on the payroll, and others who do not
perform the tasks they are nominally employed to do.
(i) "The PA's past irresponsible spending
policies, have exacerbated the current crisis."
(ii) "For a decade or more, the PA has
been able to avoid hard choices with regard to its public employment
(iii) "In the public sector, employment
is driven by a host of complex and powerful dynamics. Some are
understandable... Others are less so, such as the extensive use
of employment within the PA for purposes of political patronage,
payments to non-existent and/or non-attending workers, and illicit
payments to double dippers."
(iv) "New social benefit programs were
launched and pension laws adopted which have also increased the
burden of social transfers for the PA... When viewed as a ratio
of average employee earnings, PA pension schemes are among the
most generous in the worldfar more generous than those
in many donor countries... "
And in a comment on poor management by donor:
(v) "Donor efforts to contain the wage
bill through vehicles such as the Public Financial Management
Reform Trust... allowed the PA to expand recruitment as revenues
3.10.4 To quantify the damage of these policies,
the World Bank estimated that a return to wage levels of mid 2005
would save nearly US$1 billion over five years. A further 25,000
reduction in PA personnel (civil and military) out of around 160,000
payees will have a similar effect.
3.11 Funding an Arms Trade
3.11.1 On Saturday, 16 December 2006, President
Abbas gave a full address in Ramallah. CBC news
quoted Abbas as saying in referring to the Israeli withdrawal
Thank God, we liberated one important part of
our lands. We received dozens of investment projects from Arab
countries and Western countries and Japan and economic projects
and tourism projects, but they never happened. Why? Because we
are determined to fire rockets.
Controversially, Abbas revealed here a prime
rationale for the failure of foreign investment in Palestinian
projects. The risk factor is simply too high. Money has been lost
because of the fighting, both against Israel and inter-factional.
Resources have either been diverted to financing weapons or have
been sucked into political strife.
3.11.2 The FPC has consistently protested
that European funding of the Palestinians has contributed to increased
violence against both Israeli and Palestinian civilians. If there
is any lingering doubt as to whether the PA's "underdeveloped"
audit capacity had been exploited, Fuad Shubaki, who served as
the finance chief in the Palestinian security forces, confessed.
He admitted that Chairman Arafat had strategically used donor
aid to finance military missions against Israeli citizens.
3.11.3 Similarly, consider the US$100
million in Palestinian tax withholdings released by Israel in
early this year. The government in Jerusalem was pressured to
hand over the funds, with promises that the investment was to
be used for humanitarian causes and for salaries in the social
services sector. When the money was received, a senior aide of
Abbas, Rafiq Husseini, revealed
that Abbas will pay the security forces "from a fund of $152
million (118 milion), including $100 million (78 million)
in tax rebates recently transferred by Israel... "
3.11.4 Appendix D of the 2004 FPC report
detailed over 25 direct instances of Palestinians involved in
acts of terror and employed by the PA. At the very least, the
FPC has detailed
how many of these terrorist activities have a direct detrimental
effect on the Palestinian economy and the ability of the average
Palestinian to live the semblance of a normal life.
3.11.5 Three more recent examples are presented
here. They demonstrate how the pattern of abuse of Western taxpayer's
largesse has not altered course in the past two years. The violence
is orchestrated from the top and is endemic.
In September 2005, Husam Khader,
a Fatah member in the previous Legislative Assembly, pleaded guilty
to transferring PA finances to the Al-Aksa Brigades for military
On 20 February 2006, the Israeli
security service's released details of the capture Tanzim military
operatives in the Bethlehem area, including the leader of the
group, Jabr Fouaz Eid Akhras. They had repeatedly attacked Israeli
neighbourhoods in the south of Jerusalem. The salaries of the
Tanzim members are paid for by the PA.
The attempted attack on the Karni
crossing point with Israel on 26 April 2006 was directed by Mamtaz
Dougmoush. According to Israel military intelligence, "Dougmoush
routinely participated in meetings of senior Hamas leaders, in
which Hamas authorised Dougmoush's planned terror activities.
Hamas also supplies weaponry, professional guidance and assistance
in terror training for Dougmoush's cell."
3.11.6 For further confirmation of Palestinian
diversion of western donations for military purposes, it is necessary
to read the conclusions of the World Bank:
The challenge of reducing the burden of wage
expenditures for the security services will be a particularly
difficult one. As noted in Chapter 3 on civil service reform,
even at current staffing levels of around 65,000 (excluding trainees),
the PA security services are unaffordable and the value for money
received from these forces is poor.
3.11.7 The use of PA budgets, supported
by various donor schemes, to fund a violent infrastructure extends
well beyond the direct funding of militant salaries.
The generous pension schemes alluded to above, together with the
Palestinian Prisoner Affairs ministry's annual budget of around
$50 million, routes public funds to provide a social safety net
for those terrorists imprisoned, maimed or killed in the line
of their "duties" of attacking civilians on all sides.
3.11.8 Instead of bringing peace and prosperity,
aid is being used for violence. It pays for the rifles and rockets
pointed against both Palestinian and Israeli civilians. It is
this madness, through enhanced controls of donors, which needs
to be brought to a swift end.
4. A CONSTRUCTIVE
THE EU AND,
4.1 The World Bank has established itself
as a credible, neutral and sober voice of reason amongst the horrors
and inconsistencies of the region. In its 13 pages of recommendations,
the World Bank is quick to recognise that Israel has a key role
to play in helping to create a stable environment. The overwhelming
remainder of suggestions directly targets the PA and donors together.
4.2 To paraphrase its executive summary,
the World Bank has spent over seven years warning of the financial
and fiscal excesses of the Palestinian Authority (PA). And again,
in February 2007, it demands that aggregate expenditure must begin
to match revenues and that the composition of the expenditures
needs to relate to basic social issues. This involves:
Reducing the level of the civil service
and cutting salaries to the levels of 2005.
Formulating a realistic pension policy.
The restoration of reforms of Salam
Greater transparency and accountability,
backed up by proper internal audits.
4.3 In parallel, the World Bank sees sustained
donor support as essential. However, the assistance is not to
be given carte blanche. Donors, such as the EU, are called
upon to ensure that their aid will not go to waste yet again and
that taxpayers' generosity is not further abused. In return for
continuing to transfer sums to the PA, donors must insist on the
implementation of wide structural reforms in administration. These
Help the PA to institute controls
on spending, including the wage bill.
Ensure that monies are channeled
through the PA accounting system, as opposed to the President's
office, where the investment cannot be tracked.
Bring the accounts into line with
international standards so that transfers can be properly monitored.
4.4 The underlying theme is that donors
can no longer invest in the PA as in the past. This has sent the
wrong signals to policy makers, encouraging financial mismanagement.
In the future, monies should be released as the PA demonstrates
consistently that it is developing a system of open government,
designed for the benefit of a nation and not elite groups.
4.5 The FPC is encouraged by the recommendations
of the World Bank. In a policy paper submitted to the UK Treasury
in November 2005, the FPC offered four concrete suggestions to
bolster the Palestinian economy, similar to those now offered
by the World Bank.
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.
It is difficult to justify pouring more resources
into politicised NGOs or even UNRWA. As former UNRWA Commissioner-General,
Peter Hansen, declared in 2005: "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."
Recommendation No 2:
When considering infrastructure projects, donors
are advised to consider the "Pound for Pound" concept.
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 in Gaza
left by the Israeli settlers. 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.
Recommendation No 3:
The EU should consider the creation of a seed
fund to co-invest in a growing number of Palestinian start-ups.
The ExpoTech 2005 in Ramallah, sponsored by the Palestinian Information
Technology Association, demonstrated that there are clear opportunities,
for investment, which will encourage both employment opportunities
and long-term economic growth.
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.
1 http://www.erf.org.eg/9th%20annual%20conf/9th%20PDF%20Presented/Finance%20-%20Macro/FMP%20Sebastien%20Dessus.pdf Back
Ibid P36. Back
http://eufunding.org/accountability/Nielson1.html and http://eufunding.org/accountability/corruption.html Back
http://www.eufunding.org/terror/ProfitsOfTerror.html and http://eufunding.org/accountability/AbuIssah.html Back
Various agencies have reported in 2006 that Mrs Suha Arafat had
left for Tunis after French prosecutors announced that they had
launched an inquiry into the transfer of $9 million into her French
bank accounts. Back
http://www.imf.org/external/np/dm/2005/121405.pdf page 6. Back
http://www.imf.org/external/np/dm/2005/121405.pdf (Page 4) Back
Executive summary of February 2007 report: ttp://siteresources.worldbank.org/INTWESTBANKGAZA/Resources/PERVol1Feb07.pdf Back
21 http://www.cbc.ca/world/story/2006/12/16/palestinian-election-call.html Back
This is money collected by the government of Israel on behalf
of the PA, under the terms of the 1993 Oslo Accords. Press reports
say that Israel is currently withholding a further US$500 million.
It is understood that the funds will be handed over, when the
PA can prove that the sums will not be diverted to Hamas or fund
actions against Israeli civilians. Back
Karni is an important crossing point for Palestinian workers
looking for employment in Israel and for the transfer of goods
between the two sides. Due to constant attacks, it has remained
closed for many weeks, which has also hampered humanitarian efforts
in Gaza. Back