Clouds Over the PA Economy

Several days ago the Palestinian finance minister, Salam Fayad, resigned. There were several different reasons given for this move.

Several days ago the Palestinian finance minister, Salam Fayad, resigned. There were several different reasons given for this move. The personal circumstances of Fayad, considered a top professional, are less interesting. What is more important is whether his resignation is connected to what is going on among top Palestinian officials, from an economic and financial perspective.

An economist by profession who gained experience and won a reputation by working at the World Bank, Fayad has not been involved in Palestinian politics. According to some reports, he resigned from the government because he wants to get involved in politics and declare his candidacy in his hometown district of Tul Karm. The Palestinian elections law requires that someone holding a position like cabinet minister who wants to run in an election must resign from his post some time before the elections.

But other reports (such as in the Al-Hayat Al-Jadida PA daily, from the end of last week) say Fayad resigned because Interior Minister Nasser Yousef, who is responsible for the security services, added to the Gaza services another 2,500 youths - almost all of them militants from Fatah and other movements. Yousef did this with the approval of Palestinian Authority Chairman Mahmoud Abbas (Abu Mazen), and plans to add another few thousand young Hamas and Islamic Jihad activists to the security services in the near future. Adding thousands of people to the security services would be a budgetary burden on the Palestinian treasury, and Fayad, according to these reports, would not have been able to stand for it.

Senior Palestinian officials explain that putting thousands of youths into the security services, especially in the Gaza Strip but also in the West Bank, is the only way Abu Mazen can obtain calm, security-wise. Tens of thousands of youths complete Palestinian high schools and universities every year and don't have anything to do. In the past, they came to Israel to work and returned home every evening with full pockets. Now the only way to calm them down is to have them join the PA organization. It doesn't matter where; the important thing is that they be placed in some sort of framework and receive a small salary.

For comparison's sake, at one point, some 20,000 Palestinian workers (mostly teachers) worked for the Israeli regime in the West Bank and Gaza, in addition to an unknown number of security officials. Some 160,000 people are serving in the Palestinian government, about a third of them in the security services.

The Palestinian treasury cannot afford to pay so many salaries. In addition, in the last few weeks, the PA has given senior Palestinian officials higher ranks and bonuses. Some refer to this as "election economics." Abu Mazen and his Fatah people want to win voters' hearts by presenting achievements like the opening of the Rafah crossing, and by making economic improvements and creating jobs. Palestinian election economics also includes the approval Abu Mazen has recently given for building plans and for developing projects constructed by municipal and village councils in the West Bank and Gaza. More than once, the Palestinian Finance Ministry has been bypassed as the projects get approved.

Where does the money come from? Generally, from the profits of the monopolies and the investment fund set up by Yasser Arafat and headed by his confidant, Mohammed Rashid, also known as Khaled Salam. The fund makes a good profit, and Fayad is officially responsible for it. However, Abu Mazen has final decision making power over the money, and there have been instances in which he used it to "do something for the people," despite Fayad's economic considerations.

The result, therefore, is the danger that the PA will undergo a financial collapse. Some complaints concerning this can already be heard in the street - such as that in the last few weeks, the Palestinian Social Affairs and Labor Ministry has not made good on some of its smaller payments, some NIS 300 a month, which families of people killed in the intifada receive.

On this background, Fayad's resignation is a warning sign of the serious economic complications facing the PA, which are liable to also have political ramifications.