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Embargo didn't stop Palestinian aid flow

International Herald Tribune

By Steven Erlanger

Tuesday, March 20, 2007

JERUSALEM: Despite the international embargo on aid to the Palestinian Authority since the election victory of Hamas a year ago, significantly more aid was delivered to the Palestinians in 2006 than in 2005, according to official figures from the United Nations, the United States, the European Union and the International Monetary Fund.

Instead of going to the Palestinian Authority, most of the money was given directly to individuals or through efforts like the World Food Program. One result, some officials said, is that while starvation has been avoided, institutions are withering and a culture of dependence is growing.

The European Union and its member states alone are subsidizing one million households in the West Bank and Gaza, a quarter of the population, as part of their effort to avoid a catastrophe because of the embargo.

The Palestinian economy has sunk into depression since 1999 as a result of security restrictions that Israel put on Palestinian travel and exports, followed more recently by the international boycott and fierce Palestinian infighting between Hamas and Fatah.

In 2007, the United Nations began a humanitarian appeal for the Palestinians of more than $450 million, twice the 2006 appeal, the third-largest UN request, after Sudan and Congo, ahead of 18 other disasters.

"These numbers are quite stunning given the relatively small size of the population of the Palestinian territory," said Alexander Costy, head of coordination for Alvaro de Soto, the United Nations' special Middle East envoy. "What we do know for sure is that Palestinians, and their economy and society, are becoming increasingly dependent on humanitarian handouts, and this dependency is growing fast. For a state-in-the-making, I think, this was a step backwards in 2006 and a cause for alarm."

The International Monetary Fund and the United Nations say that the Palestinians got $1.2 billion in aid and budgetary support in 2006, compared with $1 billion in 2005.

They estimate that direct budgetary support was about $740 million in 2006, more than double the $350 million it got in 2004 and 2005.

But Salam Fayyad, finance minister in the new Palestinian unity government, says he thinks the Palestinians got about $140 million more than that in 2006 when cash from Muslim nations is counted as well as the amount smuggled in by Hamas officials from trips abroad.

"I say the minimum for direct budgetary support was $880 million in 2006 compared to about $350 million the year before," Fayyad said. He estimates total aid in 2006 was closer to $1.35 billion.

The United States, the European Union and Israel imposed their boycott on the grounds that Hamas supports terrorism and refuses a demand that it recognize Israel, renounce violence and honor previous Palestinian-Israeli agreements. The unstated aim has been to build enough disaffection among Palestinians that they would drive Hamas from power and replace it with the rival Fatah movement.

Fayyad, who is from Fatah, says the international embargo should be lifted for the new unity government that includes non-Hamas ministers like him, because much of the money coming in cannot be traced and some is surely being stolen or misappropriated.

Fayyad, a former official with the International Monetary Fund, is considered to be credible by the United States and the European Union. He met Tuesday with the U.S. consul here, Jacob Walles. (Page 7)

The larger amounts of aid Western countries poured into the Palestinian territories in recent months were aimed at making up for the inability of the Palestinian Authority to pay salaries. To a large degree, beginning in the summer of 2006, the European Union and Arab countries paid the salaries instead.

By the last quarter of 2006, full salaries were again being paid to Palestinian Authority employees, who during the year received about 55 percent of their salaries.

And that is despite Israel's decision beginning in March 2005, when Hamas took office, to withhold from the Palestinian Authority about $50 million a month Israel collects on its behalf in duties and taxes, after deducting the cost of electricity and water. Israel recently handed over $100 million of the sum as a humanitarian gesture to the Palestinian president, Mahmoud Abbas, a member of Fatah. Still, Israeli officials say that they are continuing to hold back $475 million in money belonging to the Palestinians, a big hole in the normal Palestinian budget.

While the United States and the European Union have led the boycott , they, too, have provided more aid in 2006 than 2005 to the Palestinians. Their officials cited the dual failure of the Palestinian Authority to pay full salaries and the difficulties in Gaza caused by Israeli security restrictions on Palestinian imports and exports. Their contributions were to private agencies and to UN agencies that deal with the Palestinians, like the UN Relief and Works Agency for Palestine Refugees in the Near East, the World Food Program and various health agencies.

In the case of the European Union, large cash payments also went directly to employees of the Palestinian Authority.

Washington provides more money to the UN refugee agency than any other country. Congress authorized $400 million in aid to the Palestinians in the 2005 fiscal year, including its aid to UN agencies, said Micaela Schweitzer- Bluhm, a spokesman for the U.S. Consulate in Jerusalem, which deals with the Palestinians. In the 2006 fiscal year, she said, $468 million was authorized.

The European Union, moved by the plight of Palestinians, set up a mechanism to pay partial salaries directly to nonsecurity employees of the Palestinian Authority and to help pay fuel bills, either to Israeli fuel companies or through the office of Abbas.

In 2005, according to Emma Udwin, spokeswoman for the European Commission, the European Union and its individual states contributed about ?569 million, or $757 million, to the Palestinians, not including contributions through UN agencies. In 2006, Udwin said, the European Union and its states spent ?694 million on the Palestinians, not including UN contributions.

The amount of aid has increased, but the structure of the aid has changed ? not to make lives better, but to keep them going. In 2005, 84 percent of European aid was classified as "nonhumanitarian"; in 2006, only 44 percent was classified as "nonhumanitarian."

The point, Udwin said, was to isolate the Hamas-run authority, "but not to punish individual Palestinians."

But rather than pressuring Hamas, the program is now paying 77,000 Palestinian households, or 88 percent of the salaried nonsecurity personnel of the Palestinian Authority, subsidizing nearly 470,000 people, plus another 73,000 households who are considered to have special needs with lower incomes.

Asked if the European Union could spend any more money on the Palestinians if it recognized the new Palestinian government, a senior European diplomat laughed and said, "We'd probably spend less."

Arab countries provided an estimated $400 million in 2006, the International Monetary Fund says.

Despite all the aid, the economic collapse meant the Palestinian gross domestic product dropped by 6.6 percent in 2006 and poverty figures rose by 30 percent over the previous year, unemployment was over 30 percent, those who would be unable to feed themselves now without aid reached 49 percent of Gaza's population and internal violence among Palestinians caused 10 times the number of deaths and injuries as in 2005.

Since 1999, before the second intifada led Israel, in the name of protecting its citizens, to reinvade the West Bank and set up various security restrictions, the Palestinian gross domestic product per capita has dropped 40 percent in real terms, according to the International Monetary Fund a severe depression. So even external aid of $1.2 billion or more does not offset the loss of what would have been another $2 billion in Palestinian Authority income.

In general, the Palestinians take in about $15 million to $20 million in taxes a month, Fayyad said, plus the $50 million or so from Israel. But the budget now is at least $170 million to $175 million a month, with a bill for wages and pensions alone of $115 million a month.

Currently, all Palestinian self-generated income, including the amount Israel collects but is not now delivering, is only about 60 percent of the monthly wage bill alone, and only about 40 percent of the monthly budget. So the Authority needs between $1.2 billion and $1.3 billion in foreign aid every year now just to break even - about what Palestinians, if not the Palestinian Authority itself, got in 2006.

Numerous aid officials think that the current aid structure for the Palestinians is highly inefficient and undesirable since it is not going to development or training but is simply being consumed by one of the most aid-dependent populations in the world.

"There is a real fear that Palestinian institutions that the international donor community has toiled to build and beef up over the years are being gradually undone," De Soto of the United Nations said in an interview. "This has grave political consequences, since these institutions are meant to be the foundation on which, one day, a Palestinian state will be built."

By having to redirect so much aid to humanitarian purposes, development aid has dried up.

"And by not engaging with government bodies that actually run Palestinian affairs, the international community has undercut its ability to promote the reform goals it advocates, to ensure that the Palestinian administration runs efficiently," he said.

By "efficiently," de Soto means running with less corruption and graft and more accountability.

A UN official who asked for anonymity said aid was keeping people alive rather than creating jobs or helping them to create economic opportunities.

Another official said: "The Palestinian Authority is a subsidized institution and always has been, and is now increasingly aid dependent. And it's a big problem. It's hard to do humanitarian aid that also helps development."

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