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The decision by the European Union, the United States, the World Bank and Israel to withhold aid to the Palestinian Authority (PA), until the new ruling party Hamas renounces terror and recognizes Israel’s right to exist, has been criticized as threatening to plunge the PA into a financial crisis. But a history of missing and diverted funding to the PA over the past decade underscores the difficulties in determining whether such aid will be routed to fund Hamas terror activities rather than support the day-to-day needs of the local population. 

BACKGROUND AND KEY FACTS

The European Union (EU) is the single largest financial donor to the Palestinian Authority and annually supplies over half a million dollars in aid to the PA. The EU Court of Auditors has been petitioned repeatedly to increase total contributions to a total of one billion euros ($1.2 billion), but requests have been denied because investigators are unable to account for 90 percent of the funds donated so far to the Palestinians. [1]

According to the PA, an increasing deficit in the economy continues to encumber “the weary Palestinian budget.” [2] The Palestinian Authority budget deficit for 2006 is estimated at one billion dollars, while PA cash assets worth $1.3 billion are secured in U.S. banks. [3]

If PA Chairman Mahmoud Abbas is unable to pay his 200,000 government employees at the end of this week, which is a likely scenario, international donors must question where their aid to the PA has gone.

In 2003, the International Monetary Fund (IMF) published a report that raised several questions that have yet to be answered regarding PA employment and salary payment methods. An audit of funds allocated to the PA for the 2003 budget revealed that of the $74 million that was contributed, $34 million (8 percent of the total budget) was reported for the payment of “transfers.” [4] ’Transfers’ refer to unidentified wages of civil employees. As part of the detailed report, the IMF examined the contribution of aid agencies in the West Bank and Gaza, such as the United Nations Relief and Works Agency (UNRWA), PA refusal to distribute earnings in the form of paychecks rather than cash, and insisted that the number of civil service employees be reduced.

Fears of fiscal mismanagement have motivated the World Bank to freeze 60 percent of the PA’s funds intended for workers’ salaries. The PA spends roughly $90 million a month on employee wages, which accounts for an increase in salaries as unemployment increases. According to a Jan. 20, 2006 Haaretz article, Fatah sources reported that prior to the elections, the Palestinian Interior Ministry hired about 16,000 new employees, 9,000 of which belong to the terrorist organization Al-Aqsa Martyrs Brigades. [5] In 2004, the Brigades were accused of receiving payroll funds directly from the Palestinian Authority.

KEY FACTS

• International assistance to the Palestinians amounts to over $900 million a year, most of which is donated by the EU. [6]

• Annually, the US awards $250 million in aid that is distributed by UN and other relief agencies. [7]

• In 2005, EU member states donated nearly $600 million to the Palestinians. [8]

• The US gave a total of $400 million to the Palestinians between 2004 -2005. [9]

• Until 2002, the EU had been donating $10 million to the PA on a monthly  basis; since 1994, EU member states had been contributing $1.5 billion intended for the salaries of teachers, health officials and police officers. [10]

RECENT DEVELOPMENTS

The Palestinian Authority’s economic woes are rapidly mounting as Israel, the European Union, the World Bank and the United States temporarily halt financial subsidies to the Palestinian Authority following Hamas’ sweeping electoral victory in the Jan. 25 polls and as a result of previous fiscal delinquencies. The anticipation of a Hamas-led government is encouraging monetary donors to reassess contributions transferred to the PA after it has repeatedly been accused of appropriating international aid to local terrorist infrastructures.

“Functional bankruptcy” is in store for the PA, according to World Bank representative Nigel Roberts. The Palestinian Authority receives almost $5 billion a year in assistance, yet unemployment is nearly 22 percent and over half of the Palestinian population lives below the poverty line. [11]

European Union aid in the sum of $35 million euros ($42 million) has been frozen since Nov. 2005 due to PA financial indiscretions; as of December, the World Bank’s multi-donor reform fund has been suspended [12] and Israel has postponed the transfer of nearly $60 million in tax and customs revenues due to Hamas’ forthcoming administration of the Palestinian government.

In response to the immobilization of international funds, Hamas is calling upon the Arab world to step in.

Hamas, a registered foreign terrorist organization (FTO) in the U.S., E.U., Australia and Canada, has already secured Syria’s assistance. [13] Syria and Hamas have long maintained political ties through Hamas’ political bureau in Damascus. According to an anonymous PA senior official quoted in Haartez, on Feb. 1 Saudi Arabia and Qatar collectively guaranteed emergency aid in the sum of $33 million to the PA. [14] Saudi, who allegedly accommodates a Hamas bureau in the Gulf, [15] will contribute $20 million and Qatar will provide $13 million in order to ease the PA’s financial debt. [16] Iran is also expected to pledge aid. [17]

Ramiro Cibrian-Uzal, EU ambassador to Israel has requested that in order for the Hamas-run government to receive assistance for the Palestinian people, the terrorist group must comply with three requirements: [18]

1. Be committed to non-violence
2. Recognize Israel
3. Accept previous understandings  and agreements, including the road map

The United States, European Union, United Nations, the Quartet (U.S., E.U., U.N.  and Russia), Israel and countless other countries all have appealed to Hamas to disarm and revoke its charter that calls for the destruction of Israel, but the newly elected political leadership of the Palestinian Authority is adamant in its refusal to do so.

[1] Ehrenfeld, Rachel, “EuroCash,” National Review, Dec. 10, 2003, http://www.nationalreview.com/comment/ehrenfeld200312100915.asp

[2] International Press Center and News Agencies “Arab, international calls to continue supporting PNA financially,” Palestinian International Press Center, Feb. 2, 2006,  http://www.ipc.gov.ps/ipc_new/english/details.asp?name=13315

[3] The Funding for Peace Coalition, “Supporting the Peace Process-Letter submitted to the UK Treasury,” EU Funding, Nov. 4, 2005, http://www.eufunding.org/Realpolitik/UKtreasury.html

[4] Bennett, Messrs. A., Nashashibi, K. Beidas, S. ,  Reichold,  S. and Toujas-Bernaté, J., “Economic reform and performance under conflict conditions,” International Monetary Fund, Sept. 13, 2003, http://www.imf.org/external/pubs/ft/med/2003/eng/wbg/wbg.pdf, p. 107

[5] Regular, Arnon, “Fatah’s Gaza trump card, Dahlan, takes on Hamas,” Haaretz, Jan. 20, 2006, http://www.haatretz.com/hasen/objects/pages/PrintArticleEn.jhtml?itemNo=672712  

[6] Guttman, Nathan, “Bush, Congress threaten to cut PA aid,” The Jerusalem Post, Jan. 28, 2006, http://www.jpost.com/servlet/Satellite?cid=1137605934575&pagename=JPost%2FJPArticle%FShowFull

[7] Ibid.

[8] BBC News, “Hamas urges EU not to end funding,” BBC, Jan. 30, 2006, http://news.bbc.co.uk/1/ji/world/middle_east/4661066.stm

[9] Ibid.

[10] Darshan-Leitner, Nitsana, “EU suspends funding to PA in wake of terror victims suit,” Independent Media Review Analysis, June 10, 2002, http://www.imra.org.il/story.php3?id=12404

[11] Eldar, Akiva, “World Bank official: Palestinians on verge of bankruptcy,” Haaretz, Jan. 11, 2006, http://www.haaretz.com/hasen/spages/668494.html

[12] News Agencies, “World Bank: Palestinian fiscal problems are ‘unsustainable,’” Haaretz, Feb. 2, 2006, http://www.haatetz.com/hasen/spages/677646.html

[13] Benn, Aluf, Stern, Yoav, Haaretz Correspondents and News Agencies, “Syria to call on Arab states in if Western Aid to PA cut,” Jan. 31, 2005, http://www.haaretz.com/hasen/spages/676654.html

[14] News Agencies, “Palestinian official: Saudi Arabia, Qatar promise $33 million in aid to the PA,” Haaretz, Feb. 1, 2006, http://www.haaretzdaily.com/hasen/spages/677646.html

[15] Levitt, Mathew, “A Hamas headquarters in Saudi Arabia,” PeaceWatch No.521, Sept. 28, 2005, http://www.washingtoninstitute.org/templateC05.php?CID=2378

[16] News Agencies, “World Bank: Palestinian fiscal problems are ‘unsustainable,’” Haaretz, Feb. 2, 2006, http://www.haatetz.com/hasen/spages/677646.html

[17] Ibid.

[18] Benn, Aluf, Stern, Yoav, Haaretz Correspondents and News Agencies, “Syria to call on Arab states in if Western Aid to PA cut,” Jan. 31, 2005, http://www.haaretz.com/hasen/spages/676654.html 

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