The EU's Temporary International Mechanism

by Brad Nielson

June 24, 2007

A lesson in how to break World Bank guidelines

The Temporary International Mechanism (TIM) began its work in June 2006. Made up of the EU, Norway, Switzerland and other countries, it is designed to facilitate and enhance the welfare of Palestinians, whilst avoiding distributing monies to Hamas. Services include the payment of various public servants, securing fuel distribution and providing health care.

The budget for TIM's second year of operation is projected at 200million.

In parallel, the World Bank has continued to publish reports in 2007 on prospects for the Palestinian economy and which have significant implications for the TIM. The analyses did refer in a critical manner to the policies of the government of Israel, highlighting the economic effects of the Israeli army's security operations.

They (for example in March 2007) were also specifically severe in condemning the poor fiscal policies applied by the Palestinian governments under both Fatah and Hamas, describing unjustifiable salary increases for an already unsupportable public sector. Despite the financial and social crunches of recent years, the PA's wage bill continued at an annual growth rate of 11%.

The work of the World Bank produced two major recommendations. First, the officials are adamant that although the aid alone will not secure peace nor necessarily promote economic growth, the help is essential to support the innocents caught up in the fighting between all sides.

Further, because of the way money has been directed to the Palestinians since January 2006 by circumventing the Hamas government through TIM, the single Treasury account established several years ago has been undermined. And it was this system, established by Salam Fayyad, which had been a key element of previous fiscal reform. (Fayyad has recently been appointed Prime Minister with control of the Treasury portfolio.)

In other words, what the World Bank is demanding is a reformed, if not intensified, role for the Palestinian Finance Ministry. That move would also facilitate tax revenues, previously withheld by Jerusalem, to be channeled into this corridor.

Unfortunately, the European Union has continually ignored this unique proposal until now. By the end of 2007, the EU is expected to have committed at least 320 million for the Palestinians including donations to TIM and UNRWA similar to the level of assistance in 2006. The system's weaknesses remain open for all to see.

One example of the potential leakage is that TIM allows for nearly 80,000 government workers to be paid. 40 percent of these people are residents of the Gaza Strip - many of whom are members of Hamas. Thus, TIM has become an indirect mechanism of transferring funds to Hamas. For the moment at least, President Abbas has indicated that these transfers will continue.

More importantly, as TIM took partial control for the funding of these services and salaries, the ruling elite has been able to abrogate itself of responsibility. In effect, this allows for the transfer of resources to military policies, either directed into the internal war against fellow Palestinians or externally against Israelis.

Where does this leave TIM, a potentially revolutionary body trying to apply the rules of accountability and transparency? Salim Fayyad, now as both Prime Minister and Finance Minister, has yet to implement fully the controls he knows are required and are expected by the international community. Therefore, just as during the days of Chairman Arafat, money will keep disappearing into a black hole created by the oligarchs and by the supporters of violence. The intended recipients will miss out, and the hope of peace is once again pushed out of reach.

It is Fayyad's responsibility to prove that he can implement and maintain a fundamental change in the use of donors' resources. It is the role of President Abbas to ensure that Fayyad is supported in this task and that the results can be shown to the Palestinian public.

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