Donor support for PA is waning

Diplomats at the Rome conference for countries donating to the Palestinian Authority warn of a significant drop in donor support for the PA. The Ad Hoc Liaison Committee conference in Rome, which officially opened yesterday, is seen as crucial to helping keep the Palestinian economy afloat and to tackling a humanitarian crisis.

"We want clear commitments from the donors to fund the $1.2 billion in urgent needs for next year's budget," said Foreign Minister Nabil Shaath, who will head the Palestinian delegation with reform-minded Finance Minister Salam Fayyad. Shaath is also expected to ask the donor nations to urge Israel to lift restrictions on Palestinian goods in Israeli ports.

The United States, Japan, the European Union and Norway, are the committee's biggest contributors, together with the Arab countries and the International Monetary Fund. However it is unclear where the money for the PA budget will come from this year, after the Arab countries, who had committed to contributing $30 million, had transferred only half that. The European Union, previously expected to contribute 10 million Euros monthly to the PA has also reduced its contribution, as a result of pressure from the European Parliament to contribute only to "identified purposes" out of concern that monies would be channeled to terrorist activities.

Potential donors are likely to ask some tough questions about financial transparency and corruption after an International Monetary Fund report found that $900 million was diverted from the PA's accounts during 1995-2000.

The IMF found that $591 million of excise tax revenues was diverted, most of it to the Palestinian Commercial Services Corporation, between 1995 and 2000. It found that the PCSC made a $300 million profit but none of it was channeled back into the budget. Palestinian officials have said it was all above board.

About $500 million of donor funds received would be earmarked for budget needs and $300 million for humanitarian assistance, Fayyad said recently.

The money is needed for infrastructure, humanitarian projects and to cover the salaries of thousands of Palestinian Authority employees, cabinet minister Maher al-Musri said. One European official involved in the transfer of contributions to the PA said, "Sharon has not changed and Arafat has not changed. Without a political plan in the foreseeable future, it will be very difficult to raise additional money for the PA."

A central factor in the donor nations' readiness to transfer additional funds to the PA is the amount of taxes of various kinds on goods purchased by Palestinians in Israel that Israel returns to the PA. The transfer of these monies has increased since Salam Fayyad became finance minister, but some NIS 890 million i is still being held up by the courts.

The European source noted that if funding to the PA was insufficient, it would have to cut salaries to its 150,000 employees, representing almost a million people, a measure that would have a negative effect on the PA's control of the Palestinian street.