April 30, 2006

Dear Funding for Peace Coalition member,

In January 2006, Hamas secured control of the Palestinian Legislative Assembly. This followed a string of victories in local elections during the previous six months.

Both America and Europe previously declared Hamas a terrorist organisation. Its success at the polls has been attributed by most commentators to a rejection of the dishonesty and corruption of the ruling Fatah elite, which for decades had governed the PLO and the Palestinian Authority.

A key question, then, is whether Hamas is acting swiftly to clear away the illicit ways of the previous regime and to introduce the reforms that the World Bank and donor countries have demanded for so long?

With some surprise, one of the first political targets of Hamas has been the former Finance minister, Mr. Salam Fayyad. He is known as one of the few politicians who brought about serious financial reforms during Chairman Arafat's leadership. He slashed the graft associated with the price of petrol and devolved several other monopolies, which had been abused to the benefit of the elite. Fayyad has been acclaimed, locally and in the diplomatic community.

Fayyad was elected under his own independent party to the Assembly. However, the Hamas news service, The Palestinian Information Centre launched a scathing personal attack on him:

Fayyad is known for his wrong financial policy that drowned the Palestinian people into the marsh of international and local debts that constituted the main reason for the present financial dilemma in the Palestinian arena.

And according to Palestinian sources, it is not just that the concept of reform - a programme agreed with the World Bank - which is being shelved. Evidence has emerged that, under Hamas officialdom, there is also persistent theft from the PA Treasury.

The spokesman of the Palestinian Government, Dr. Ghazi Hamad…. noted how the mismanagement has continued. A further "US$25 million were stolen from government coffers", since Hamas assumed power.


There have even been unconfirmed reports in the Kuwaiti media that US$450,000 was stolen from the hotel room of the new PA Foreign Minister, Mahmoud al-Zahar, whilst on a local visit to the country. Yet to be explained is why a senior minister might travel with a sizeable amount of ready cash, or where it came from.

Many Arab governments have offered a silent commentary on this continuing fiscal and moral irresponsibility. Although a few countries, such as Iran and Qatar have promised US$50 million each to the PA, there is little evidence to suggest that they represent a majority. More importantly,

The World Bank has noted in several of its reports, including that of November 2005, how many member states of the Arab League have consistently failed to deliver in part or in whole on their promises to the PA. The shortfall is in the hundreds of millions, if not more.


These issues question the accuracy of the reports of the financial crisis engulfing the PA. Even the World Bank has confirmed that the origins of the current troubles lie in PA financial mismanagement. Back in November 2005, two months before the elections, the World Bank observed how:

"The PA has created a serious fiscal crisis for itself with salary expenditure essentially out of control."


Untraceable money. Close neighbours not carrying out promises of aid. Financial irresponsibility. Donor countries are struggling to find a delicate balance between maintaining humanitarian aid, while ensuring that it is not diverted as in years gone by. A report from the European Commission and shown to the "Financial Times" has concluded that "48 per cent of Commission aid for the Palestinians involves contacts with the PA", which is now increasingly manipulated by Hamas.

One alternative approach has been suggested by Irwin Stelzer of the Hudson Institute in America.

...donors can regulate the flow of aid, cutting it off or reducing it if Hamas sponsors attacks on Israel, thereby rewarding good behaviour and penalising acts of terror. Not a perfect solution, but a workable one.


This approach certainly seems more balanced than certain European proposals to channel aid through President Abbas, a key figure who stood at the head of a kleptocracy that has so badly failed the Palestinian people for too long.

Brad Nielson
Funding for Peace Coalition

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