Israel Matzav

The 'Palestinian Authority' is crying 'wolf' about its finances

In the past, I have mentioned on many occasions (a search of my blog for Palestinian Authority, money returned 62 hits) that the 'Palestinian Authority' was anything but broke. In May, I blogged a lengthy article that made the argument that the entire 'financial crisis' in the 'Palestinian Authority' is contrived.

The PA carefully nurtures an image of poverty and need among its people. Indeed that need is real at one level. A December 2004 World Bank report, however, indicated that "55% of those who receive emergency assistance are not needy."

Large sums within the PA have been diverted for illicit purposes that are exceedingly likely to include terrorism. In February, PA Attorney General Ahmed al-Meghami reported that he had uncovered the theft or misuse of $700 million within the PA and suspected that billions were involved. Meghami identified 50 cases of administrative and financial corruption. PA controlled oil, tobacco and broadcasting corporations are involved; in one instance payments of $4 million in PA funds was made to a pipe factory that existed only on paper.

During the years when these irregularities were commonplace, international money - most notably European money - continued to flow to the PA. There was no need for fiscal accountability; it was not demanded.

OLAF, the European Anti-Fraud Office of the European Commission, conducted a two year investigation into European Union assistance to the PA budget. In March 2005, they released a report indicating that there was "no conclusive evidence" of European money underwriting armed attacks or unlawful activities. However, the possibility of misuse of funds existed because "the internal and external audit capacity in the Palestinian Authority is still underdeveloped."

Quite simply OLAF confessed to being unable to track where money sent to the PA ended up. This report, however, did not generate movement within the EU to terminate funding until there would be accountability. The response was to the flip side of the report: It was reassuring to the Europeans that there was nothing proved regarding the use of their money for terrorism. The European Commission wrote that "the EU contribution helped to alleviate poverty," and EU donations - hundreds of millions was being provided annually - continued to flow to the PA, via a designated fund in the World Bank.

The Palestinian Authority got the message. European money was something to be depended upon. That is, until late last year.

In November 2005, Nigel Roberts, World Bank Country Director for the West Bank and Gaza, wrote in a report:

"The PA has created a serious fiscal crisis for itself with salary expenditure essentially out of control."

With this, we come to the heart of the matter. It is the ostensible PA inability to meet payroll that we are reading about now - the failure of PA employed persons to receive salary that is allegedly engendering the current crisis. But, as Nigel Roberts indicated, this is a crisis that was in the making for some time.

Last week, Elder of Ziyon blogged a report released by the International Monetary Fund on the state of the 'Palestinian Authority's finances:

About 80 percent of the US$500 million (€394 million) in income in the past six months was spent on the ever-expanding government payroll and on fuel imports, leaving little for other budget items, such as welfare payments, the report said.

The report said the number of civil servants grew by 5,400 this year, to more than 142,000 in mid-June. Most of the hiring took place in the security services, and some 20,000 new recruits are currently being trained and could be added to the payroll in the future, the report said.

It now costs about US$100 million (€79 million) a month to cover salaries for government workers, compared to about US$80 million (€63 million) a month on mid-2005. The increase is also due to a generous across-the-board pay increase in late 2005.

"The government wage bill had already become unaffordable at the end of 2005," the report said. "Underlying the current fiscal difficulties is an increasingly unsustainable fiscal situation."

Hleileh warned that the current system of payments is setting back years of financial reform, carried out by former Finance Minister Salam Fayyad, who had set up a single Treasury account to clean up rampant mismanagement and corruption.

So if this is true, that means that there are now about 96,000 "security personnel" and they are planning to add another 20,000.

The grand total will then be 116,000 security people to protect 3.5 million people, or one policeman for every 30 PalArabs.

In this morning's Jerusalem Post, Evelyn Gordon notes that there is something else that the 'Palestinian Authority' does with its money besides hire unneeded employees and buy fuel: it buys weapons and the means of transporting them:

For instance, Israeli intelligence has detected more than 20 tons of explosives being smuggled into Gaza this year, along with sophisticated antitank and antiaircraft missiles. Most of this weaponry goes to Hamas, the ruling terrorist organization cum party, but significant quantities also go to terrorist groups associated with Fatah, PA Chairman Mahmoud Abbas's party. The purchase price for this materiel, including the cost of smuggling it into the Gaza, could have been used to cover the unpaid salaries of thousands of PA employees - but Hamas and Fatah would both rather buy arms than feed their people. And as long as this is true, giving either group more money would be futile.

I think that we all realize that the new Congress coming to power in January is more likely to see the 'Palestinians' in a favorable light than does the outgoing Congress. There is some danger that the new Congress will lead the United States into the type of open-ended financing of the 'Palestinians' that the Europeans have undertaken. Israel's friends in Congress must oppose further aid to the 'Palestinian Authority' - whether or not it agrees on a 'unity government.' The 'Palestinians' are already the largest per capita recipient of foreign aid in the world today, and they have used that money to finance terror and inefficient government. There is no justification for extending that record. Particularly when, as Ms. Gordon points out, their efforts at countering terrorism are non-existent.

posted by Carl in Jerusalem @ 7:44 PM