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Last Updated: Friday, 12 November, 2004, 16:46 GMT
Donors seek clarity on PA finance
Yasser Arafat's coffin
Will Mr Arafat's departure lead to greater financial transparency?
The death of Palestinian leader Yasser Arafat has thrown the finances of the Palestinian Authority and the PLO into the spotlight.

Both have a reputation for opacity at best and corruption at worst.

Donors underwrite the majority of the PA's budget - hit hard by four years of conflict - and have recently imposed conditions for accounting reform.

Now a key question is whether the change of leadership can let more light into Palestinian finances.

Better than it was

The improvement in recent years means that most donor money - about $1bn a year - now passes through international organisations with strict oversight.

We would hope that the leaders who follow on will use the power in their hands to carry out the reforms that are necessary
Emma Udwin, European Commission spokeswoman

The European Commission, for instance, channels most of its aid to the PA - some 65m euros - through a World Bank "Reform Trust Fund".

It last gave aid directly to the PA in 2000-2002, when it delivered 246m euros to make up for customs duties and tariffs the Israelis held back following the outbreak of fighting in late 2000.

Most of the Commission's 250m euros in aid goes via non-governmental organisations such as the United Nations' Relief and Works Agency for Palestinian Refugees (UNRWA).

Indeed, the International Monetary Fund now says that - after two reform agreements in 2000 and 2002 - the PA's budget "is quite exceptional" for openness by the standards of the region.

"It still needs work," said Emma Udwin, spokesperson for external affairs at the EC, "but it's much better than it was".

Mr Arafat's aim - shared by the international community - was a functioning Palestinian state, she said, and that demanded a functioning adminstration.

"Any change of leadership brings a new chapter. We would hope that the leaders who follow on will use the power in their hands to carry out the reforms that are necessary."

Investigations

But the death of Mr Arafat has seen the re-emergence of long-standing complaints about financial misdeeds.

Multi-billion-dollar estimates of how much money he had salted away have surfaced.

Although many relate to Mr Arafat personally, rather than to the behaviour of the PA or the PLO, most commentators acknowledge that it is difficult to separate the two.

For instance, a 2003 IMF report found that half the funds allotted to Mr Arafat's office - some $34m - were being spent on "transfers" with no further oversight.

A far greater sum, amounting to almost $900m between 1995 and 2000, had been sidetracked from tax and tariff income, and the profits of commercial activities.

It remains unclear where this money ended up and whether this was more because of administrative incompetence or corruption.

Off budget

Much of the PA's finances depend not on taxes but on duties, collected by Israel and paid into a bank account in Israel.

During the late 1990s, this was kept "off budget" and available to Mr Arafat.

In addition, staff payments were commonly made in cash - hardly surprising with many people lacking banking services, but still a potent channel for corruption.

The lack of accountability in the PA's finances triggered a breakdown of relationships between the PA and its donors in late 1999.

The result was a June 2000 agreement between Mr Arafat and the IMF's representative, Salam Fayyad, to centralise all revenue in a single account and to give the ministry of finance proper powers to control spending.

Mr Fayyad then became the PA's finance minister, and initiated an in-depth investigation.

It has yet to get to the bottom of how much money the PA has - or where it may have gone.

After four years of fighting and ruinous damage to the West Bank and Gaza, it may be a much smaller pot that the wilder speculations would allow.




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