Donors Slow to Aid Palestinian Territory

By Colin MacKinnon

Time for a tally. How much of the $2.4 billion that international donors promised one year ago has actually reached the Palestinian Territory and been put to work? Recall that $1.2 billion of this was described as "emergency funding." Recall, also, that the total disbursement of this emergency funding in 1994 was supposed to be $393 million.

Well, at summer's end 1994, the best guess is that of the $2.4 billion pledged, somewhere around $50 million has actually ended up in Palestine, and that mostly for day-to-day expenses.

What's holding things back is well known. Donor nations and multilaterals (like the European Union) have so far just not been willing to entrust the Palestinian National Authority with their money.

Donors complain of a lack of "transparency" and "accountability" at the PNA and PECDAR, the Palestine Economic Council for Development and Reconstruction. What the donors imply is that they're afraid that corruption or incompetence or both will lead the shaky PNA to squander their money and damage the program. PECDAR has yet to appoint an international consultant to oversee procurement and project management. The donors say they have legal guidelines that force them to scrutinize recipients and withhold funds when the recipients don't measure up. So far, they say, the PNA hasn't.

Fear of PNA misspending isn't the only problem, though.

World Bank officials will admit, if donors won't, that the donors sometimes haven't talked enough with the PNA and have tended to ignore the need for funding recurrent costs—salaries, administrative expenses and the like—in favor of infrastructure projects. The donors have been demanding administrative competence from the PNA but mostly haven't seen fit to help fund it.

How long this impasse will last and how it will be settled is anyone's guess. But going into autumn 1994, there's been no resolution.

The Jerusalem Question

Curiously, the issue of Jerusalem, supposedly political and supposedly put off for a couple of years, has intruded itself into the funding stand-off. Talks in Paris in early September between the World Bank, the PNA and the Israelis broke down over the issue of whether or not to fund Palestinian institutions in East Jerusalem. The Palestinian Authority, of course, wanted to; the Israelis flatly refused to allow it. Not much except rancor has leaked out from the meetings, but a Palestinian official has been quoted as saying that six percent of the Palestinians' 1994 $160 million operating budget was to be spent in Jerusalem.

Will Palestinian tourist companies have access to Jerusalem?

The question of Jerusalem will show up in contexts other than controversies over where aid money can be spent. Take tourism. The tourist industry should be a major contributor to the Palestinian economy. But will Palestinian tourist companies have access to Jerusalem? If they don't, they're really not going to make it commercially. Will they and the Israelis work out an accommodation?

As the Paris talks ended, the World Bank issued a curt, highly unusual announcement quoting Caio Koch-Weser, World Bank vice president for the Middle East and North Africa, who voiced his "deep disappointment at the way in which things have evolved...we cannot allow such meetings that are expected to mobilize and coordinate aid to the Palestinians to be derailed by the two main parties bringing their political differences to the table."

Shortly thereafter, Ahmed Korei, PNA minister of economics and trade and a
key negotiator at the Oslo talks last year, went public in an interview with the London daily Financial Times, expressing gloom over the lack of funding coming into the Palestinian Territory and threatening to resign. Korei is thought to hold Yasser Arafat responsible for the donors' slow transfer of funds. He is said to think Arafat scares off donors by continuing to insist on personally overseeing the disbursement of aid rather than delegating authority to responsible and accountable institutions that donors can trust. There, for now, the matter stands.

Risky Business

It's no wonder the World Bank thinks its program has some risks. Apart from the problem of ensuring proper use of donor money and apart from the ongoing Palestinian-Israeli disputes, say Bank officials, there are other obstacles that threaten the Palestine aid program.

For one thing, the program depends on basic political stability in Gaza and the West Bank, by no means a sure thing. Another problem, say officials, is a lack of competent Palestinian administrators. Top people in PECDAR and elsewhere are said to be good, but finding mid-level staff to actually carry out projects is not easy. Then, social, legal or financial issues, or political issues like Jerusalem, might crop up that can't be resolved and that in one way or another stymie work. Finally, Bank officials say, there are what the Bank calls "program risks." This means that maybe the Bank itself has gotten some things wrong, hasn't done the costing correctly on some of the projects it has recommended, or has backed projects that are simply unfeasible. None of this is unheard of.

So donors withhold funds, officials worry and threaten to resign, and PECDAR's roster of projects—it now runs to 2,600—remain for the most part unimplemented.

Some Things Are Going Right

It's not all bad news, though. There has been progress, and some things are happening. Some recent developments:

* The PNA and outside donors have reached agreement to build a $60 million port near the city of Gaza. It will be the first commercial harbor ever for the Gaza Strip. The PNA signed the agreement in August with an international consortium headed by Ballast Nedam, the Dutch dredging and construction company. The port won't take supertankers—it will have a depth of nine meters and take vessels only up to 5,000 dead weight tons—but it will give Gaza a measure of independence of Israeli ports. The Netherlands has agreed to donate some $22.5 million for the project. Like other major projects, though, work on the port will be held up until the PNA and the donors come to some kind of agreement about oversight. Construction will take a year.

* The U.S. Trade and Development Agency has brought five Palestinian energy engineers to the U.S. for training in power plant operation. Building up a new energy system in the West Bank and Gaza is a top priority. TDA is a U.S. government agency whose aim is to create jobs in the United States by getting U.S. firms involved in overseas projects at the planning stage. The agency brings influential visitors to the U.S., funds feasibility studies overseas, and gives technical aid.

TDA also has led a mission recently to Gaza and the West Bank to analyze needs in telecommunications, energy, waste water treatment, and transportation. It's also helped do a study on a refinery project in Gaza, funded a study of a proposed olive oil bottling plant in the West Bank, issued a grant to bring Palestinian telecommunications officials to the U.S., and is funding a study of what kind of air navigation systems the region—including Gaza and the West Bank—need.

* The U.S. Overseas Private Investment Corporation has just signed an agreement with the PNA. OPIC is a U.S. agency that fosters overseas sales by offering loans, loan guarantees, and political risk insurance to American companies operating abroad. The agency is looking at five projects it will likely support—a water bottling plant, a furniture factory, two hotels, and a factory making construction materials. Promised support totals $125 million.

* The World Bank is in the process of opening an office in Gaza. It will be headed by an economist from the Bank, Odin Knudsen, who's currently in Gaza looking for office space and staff. The office will oversee World Bank work in the Palestinian Territory and advise the PNA.

* Outside the PNA framework, USAID has given the Palestinian Housing Council $25 million for 1994. The European Union and Japan together have donated around $35 million to the Council, an independent non-governmental organization.

Colin MacKinnon is chief editor of the Washington-based Middle East Executive Reports.