Europe's Abject Failure

by Brad Nielson

Sept. 13, 2005

It is time to take stock. Over ten years of European fiscal and political ineptitude have produced trivial benefits to the Palestinians, while contributing immeasurably to the level of, hatred, death and agony in the Middle East. As part of what the World Bank has described as "the highest per capita transfer in the history of foreign aid", the European taxpayer has already sunk over €4 billion in succouring the Palestinians.

Two alternative glimpses of the Palestinian Authority's (PA) extensive holdings were recently revealed. Both exude a refreshing candour, as well as a chilling foretaste of possibly more suffering ahead.

George T. Abed, the governor of the Palestine Monetary Authority, was interviewed by the San Francisco Chronicle. He observed that the Palestinian banking system is "overflowing" with money. Financial aid is simply no longer required, and may even be counterproductive.

And in a Rhode Island court, the children of a married couple, murdered by Palestinian terror, succeeded in obtaining an order to freeze the PA's cash assets in America. Assertions that the PA's American holdings exceed US$1.3 billion will jolt those conditioned to the cries of its impoverishment. And that does not include real estate holdings in the US. Also excluded are vast assets in the Palestinian territories and other locations around the world.

Meanwhile, children throughout the areas administered exclusively by the PA suffer from malnutrition, poor health and atrocious education - all calculated to swell the ranks of one truly notable Palestinian achievement: suicide bombers.

This grotesquely lopsided picture is primarily a European production. Since 1993, the European Community's economic muscle has been flexing in strange ways - not so much to improve Palestinian life as to counter-balance American influence in the region. EU statistics show the Community has poured €2 Billion into the PA's coffers both directly and via regional NGOs and such international organisations as UNRWA. About the same amount again has been donated by sovereign European states.

The Funding for Peace Coalition (FPC) has consistently called for responsible philanthropy to benefit Palestinian society. But for the contributions reach their desired objectives, controls have to be put in place to ensure that. This has not happened, and prospects remain bleak. The tragedy proceeds unchecked.

Europeans have deliberately avoided proper balances, despite clear and public warnings. It is now plain that European gifts have done far more to enhance the private wealth of Palestinian 'insiders' and to finance a plethora of militias, mostly directed by salaried PA officials. European funding has made possible a war of terror against the PA's civilian enemies - both Israeli and Palestinian - rather than establishing the infrastructure for a Palestinian homeland.

Corruption amongst the Palestinian leadership is widespread, endemic and brazen. Arafat's huge private fortune is well-documented. The current Prime Minister barely escaped an investigation by the Palestinian Parliament into his financial dealings. And 22 ambassadors are being recalled from Palestinian embassies, primarily for flaunting an opulent lifestyle. The list of instances is long and sad.

At the same time, the PA continues to be a central player in violence and terror. In September 2005, three more examples were exposed: the guilty plea entered in the recent trial of Palestinian parliamentarian Husam Khader; the rebellion of Al-Aksa Brigade members demanding payment of salaries by the PA; the assassination of Arafat's nephew by rival PA factions. And so more tales are added to the current inventory.

Religious leaders on the PA's payroll contribute significantly to the Palestinian culture of violence. While their speeches are supposedly vetted by the Abu Mazen administration, they continue to preach hatred. Their targets include not only Israel or the infidel Christians, but also the very donor nations that fund their salaries.

And the future? The PA used European funding to invest in a new school curriculum with new textbooks. IPCRI, an Israeli-Palestinian cooperation team, concluded in its evaluation of these new books: "…it is not difficult to come to the understanding that the main political theme imparted to the students is that Israel should not exist and that is essentially the Palestinian goal… there is a need to make real revisions and amendments in the Palestinian textbooks." European funding is knowingly and purposefully used to cultivate a new generation, which hates its neighbours.

In March 2005, OLAF, the ombudsman's office of the EU, released a press statement. It followed on from a two-year investigation into EU funding of the Palestinians. EU officaldom, which had so strenuously supported the funding of the Palestinians, claimed that OLAF had arrived at the same conclusion as the European Commission: "There is no proof that EU taxpayers' money has been used to fund Palestinian terrorism or other illegal activities."

It is clear that the OLAF report said no such thing. OLAF's own press release concedes that: "...risks of misuse of the PA budget and other resources cannot yet be excluded."

The full OLAF report has still not been released. This leaves impartial observers to choose between relying on a press release, and concluding that the investigation was just another part of the massive decade-long cover-up by leaders of the Commission.

Abed's revelations and the Rhode Island trial provide a tragic corroboration of events: an immensely wealthy Palestinian leadership, intent on transmitting a picture of servile poverty, has deliberately perpetuated misery in its territories. How? Artificial preservation of refugee status for most of their people; confining them to UN-sponsored "refugee camps" - actually fast-growing slum towns - where socio-economic conditions are intolerable; and directing their despair and hatred towards an external enemy.

The EU has proudly maintained its historic status as one of the principal donors to UNRWA's US$400 million statutory annual budget - not to mention funding for additional special projects. UNRWA is the main international agency for helping Palestinians. One cannot help but ask. Now that the Palestinians in Gaza live under direct PA rule, why is Europe propping up the UNRWA refugee facilities rather than redirecting it s resources to eradicate poverty in Gaza?

Europe's politicians and bureaucrats face a sad truth. They have failed those who they intended to help. They have misled their own constituency. They have caused mass sorrow and a loss of hope in the entire region. It is time to impose strict controls to ensure that European funding is directed where it is needed, before yet more suffer.

The full interview with George Abed is reproduced below:

Expert says Palestinians don't need financial aid

Ex-International Monetary Fund official says investments, not donations, needed more to rebuild economy of territories

James Sterngold, Chronicle Staff Writer

Sunday, September 4, 2005

With Israel's disengagement from Gaza and the northern West Bank largely completed, the Palestinian Authority is struggling to provide a new kind of hope with an economic rebirth in the battered territories.

It is a monumental task, one that will require enormous amounts of outside assistance. But while the United States and other donors have pledged billions of dollars, a senior member of the Palestinians' new economic team says the flood of money is largely unnecessary at this time -- and some of it may be counterproductive.

"If you poured in a lot of financing at this time, it would not have a big impact. It would not be very effective," said George T. Abed, who retired earlier this year from a senior position at the International Monetary Fund, then was appointed governor of the Palestine Monetary Authority. "Governance is poor. It would be wasted."

Abed, 66, a UC Berkeley-trained economist, said the view from inside the territories is different from the perception some may have from the outside. Although unemployment and poverty are rampant, Palestinian banks are overflowing with deposits, he said, and many wealthy Palestinian entrepreneurs living overseas are eager to invest in the territories.

The immediate challenge, according to Abed, is building a modern system to handle the existing capital efficiently, not attracting more -- at least not yet.

"We're making healthy progress, but we're not there yet," Abed said in a series of telephone interviews from his West Bank office and home.

The Palestinians are at a critical stage as they seek to recover from the effects of the nearly five-year uprising known as the intifada, the decadeslong Israeli occupation and the corruption and fiscal mismanagement of the previous Palestinian administration, led by the late Yasser Arafat.

In an Atlantic Monthly article titled "In A Ruined Country," author David Samuels estimated that Arafat and his senior aides may have siphoned off as much as half of the $7 billion in aid to the Palestinian Authority. Samuels, citing an International Monetary Fund report, said Arafat may have personally taken $900 million just from 1995 to 2000, a figure that did not include the rake off from kickbacks and other forms of corruption.

The new leadership at the Palestinian Authority is trying to put that era in the past. And Arafat's successor, President Mahmoud Abbas, and his team are relying not just on new economic officials, like Abed, but also on a new model, resembling the one China embraced in the 1980s (and, to some degree, Israel in its early years) -- attracting investment and expertise from expatriates to build export-oriented industries, as one crucial step to creating Palestinian jobs.

The approach differs with many other Arab states, which generally have centrally planned economies with huge state-controlled monopolies.

In the long term, Abed said, private capital and internal reform will be more important than government contributions or funds from public institutions such as the World Bank if the Palestinians are to create a self-sustaining economy with jobs that rely on growth rather than aid.

"There are things that require funds, and things that require reform," said Abed. "We can produce high single-digit growth in the first year or two of our administration if we can make those changes in things like the judiciary, education and the government.

"The Israeli withdrawal (from Gaza and the northern West Bank) will have little impact without the economic and other changes," he added.

The Palestinians already receive the highest per-capita donor aid in the world, according to James Prince, a consultant to the Palestinian Investment Fund and co-author of a recent report, "The Economic Road Map: Beyond the Israeli-Palestinian Conflict."

The funds, Prince said, have not done much beyond ensuring a minimum standard of living. But they have left the economy weakened because little of the money has been used to encourage private investment. Job gains have been temporary, he said, and the Palestinian Authority has been left with a huge, cumbersome public sector.

"Many of the donor programs have not only been ineffective, they have harmed the economy," said Prince. "Cash is not the issue. What you need is investor confidence."

Of course, some governmental assistance will be required to build new roads, refurbish the airport in Gaza, and build a seaport and other infrastructure. President Bush recently promised $50 million in U.S. aid specifically for housing and other infrastructure in Gaza following the Israeli pullout.

Bush also appointed James D. Wolfensohn, the former president of the World Bank, as head of a multinational effort to pull together up to $3 billion in financial aid.

In April, Abed was appointed by the Palestinian Authority to a four-year term as governor of the Palestine Monetary Authority, a nascent Palestinian central bank that regulates the banking system and eventually, it is hoped, will issue a currency. He earned his doctorate in economics from UC Berkeley, and taught there briefly as an assistant professor in economics. He said he is just one of many well-educated Palestinians who are eager to return to their homeland and help build a vibrant state, but he realizes the odds are daunting.

According to World Bank figures, Palestinian per capita gross domestic product, a basic measure of economic output, has plummeted from $1,493 in 1999, before the intifada broke out, to an estimated $904 this year. The poverty rate has soared from 20 percent in 1999 to 54 percent. Unemployment is approximately 28 percent.

Meanwhile, the Palestinians -- with one of the highest fertility rates in the world -- have seen their population soar from 2.48 million in 1995 to 3.64 million today, according to Palestinian Authority statistics, which means a large bulge of younger Palestinians will be coming into the workforce each year.

Abed said that the banking system in the Palestinian territories is generally sound -- healthier, in fact, than most banks in neighboring Arab countries, such as Egypt, Syria and Jordan. The problem, he said, is finding opportunities to make loans.

The 22 Palestinian banks regulated by Abed's authority have a total of $4. 3 billion in deposits, he said, but only $1.8 billion in loans in the territories, a relatively paltry figure. He said that the authority is seeking to increase the loan figure by 50 percent in the short term by creating a more business-friendly environment and better regulation.

Glenn Yago, director of capital studies at the Milken Institute in Santa Monica and co-author of the "Economic Road Map" report with Prince, said he estimates that overseas Palestinians may have as much as $60 billion in wealth, at least some of which could be funneled into the territories if the financial climate becomes attractive.

"There's an interest in doing it," said Yago. "How to do it is the only question."

"Palestinians are, generally speaking, attached to their homeland," Abed said. "If the environment improves, they will definitely come exploring investment opportunities."

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