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Sunday, May 14, 2006

The Palestinian Authority: Facing Genuine Financial Crisis or Not?

As I've been telling you all week, the 'Palestinian Authority' has been crying to the world that it has no money. It hasn't paid salaries in two months. It has children out demonstrating in the streets that they are hungry and want food. We have seen puff pieces in the American media about people who cannot get dialysis and who are pawning all of their families' jewelry, which 'Palestinians' regard as an investment. Pressure is being placed on Israel to release money on the 'Palestinians' and on the United States to allow the Euroweenies to finance Hamas.

But the truth is quite different. The truth is that the entire 'financial crisis' is contrived - apparently to cover up Mahmoud Abbas Abu Mazen's involvement in financing terrorism....

The Palestinian Investment Fund (PIF) was established in 2002, when Salam Fayyad, appointed as PA Finance Minister to combat corruption, seized control of a portion of Yasser Arafat's ill-gained assets, located in the Palestine Commercial Services Company (PSCS), and placed them in a new more transparent fund. PIF's purpose was long term investment for the PA, not the funding of PA budgets, and it supposedly operated on the straight and narrow. The fund was run by a Board of Directors appointed by the cabinet and headed by the Finance Minister.

At one point, the Fund's managing director was Muhammad Rashid, Arafat's point man in financial matters. His presence does somewhat undercut the perception of this as a transparent fund; Rashid is not known for walking the straight and narrow. There are suggestions that to this day he is in possession of critical information about the Fund.

In January 2006, after the Hamas victory in the legislative election and before the new government was sworn in, there came an announcement from Abbas's office that he had assumed direct control of certain elements of PA administration, wresting them from the oversight of the cabinet. One of the things he allegedly gained control of was the PIF. What can be readily ascertained is that the Fund, worth roughly $1 billion dollars, is not controlled by the new Hamas Finance Minister, Omar Abdel-Razeq, who does not sit on the Board of Directors.

But while Abbas has appointed the current Board of Directors of PIF, it is not certain that he truly controls the Fund. Highly reliable sources indicate that Abbas may not be able to arrange the release of money from the PIF.

Muhammad Mustafa, current CEO of the Fund, says PIF has "nothing to apologize for," since in the last six months it has already transferred something close to $300 million to the PA. A good percentage of the Fund is collateral against loans and cannot be utilized. Were the remaining $200 million in assets to be liquefied, it would be "to the long term fiscal detriment of the PA." His implication is that no more will be forthcoming.

This state of affairs, however, is not the crisis it appears to be. Contacts with solid information regarding the machinations of the Palestinian Authority - all of whom have chosen to speak off the record - have described the current PA fiscal crisis as political or "artificial" in nature. Mustafa seems to agree.

While Abbas may not be able to access PIF monies, there actually are other PLO holdings he would be able to draw upon - holdings of a magnitude far greater than what he might have taken out of PIF. What is more, Abbas is not declining to draw on these funds because he wishes to weaken or control Hamas. Hamas's involvement here is peripheral: Abbas's fiscal problems predate the election.

The Palestinian Authority, until recently, was receiving more money per capita from the international community than any other political entity. Working with a welfare mentality, it was, to seriously understate the matter, complacent about its failure to use all international donations for legitimate expenditures or to provide accountability.

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.

Read the whole thing.


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