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Saturday, January 21, 2006
EU Says Donations to PNA Could Not Be Unconditional

EU Says Donations to PNA Could Not Be Unconditional
European Union Suspends $42m in Aid, World Bank Freezes 60% of Funding

Palestine Media Center - PMC

Facing a "suffocating financial crisis," Palestinian officials have no
immediate comment yet on an EU decision on Tuesday to suspend 35 million
euros ($42 million) in aid to the Palestinian National Authority (PNA),
coming shortly after freezing 60% of funding for the PNA's operational
budget by the World Bank.

The European Union has suspended 35 million euros ($42 million) in aid to
the Palestinians, citing their lack of budgetary discipline, visiting EU's
commissioner for external relations Benita Ferrero-Waldner said in Jerusalem
on Tuesday.

Ferrero-Waldner said European aid to the Palestinians had previously been
held up in 2002 and 2003, said such donations "could not be unconditional."

The Palestinians reportedly receive about $1 billion a year in international
aid - about half the PNA's budget. The European Union is the largest donor
to the PNA and EU assistance is slated to reach $312 million in 2006.

The EU "sanction underscored intensified foreign donor scrutiny on the PNA
since Israel quit the Gaza Strip last year after 38 years of occupation. The
impoverished territory is widely seen as a testing ground for statehood,"
Reuters reported on Tuesday.

Visiting the region ahead of Palestinian legislative elections on January
25, Ferrero-Waldner said half of 70 million euros ($84 million) donated
through the World Bank in November has not been released, and that the issue
was under discussion.

"The biggest donor is the European Commission, and we have not paid because
the benchmarks have not been fulfilled," she told reporters in Jerusalem.

"We have a long-term commitment with the Palestinian people that we would
like to improve their living conditions (but) we are not only pumping money
into the Palestinians without asking for very clear benchmarks," she said.

"There has to be a credible finance minister, but there also has to be a
budget and the budget should also remain within the limits of what the
budget has foreseen," she added.

There has been no replacement appointed for Salam Fayyad, who quit as
Palestinian finance minister in November to run for parliament, leading the
"Third Way" national list.

Before resigning, Fayyad predicted aid from a World Bank trust fund would be
cut in response to ballooning Palestinian government wage costs. The trust
has paid out at least &230 million to the Palestinians since its founding in

Early in January, Fayyad said that, "there is no doubt that the Palestinian
Authority is going through a suffocating financial crisis," adding: "We are
in desperate need of Arab aid."

A tour by Palestinian President Mahmoud Abbas in the GCC countries early in
January has yet to yield results.

Budgetary Discipline . a Pretext?

Budgetary discipline, cited by Ferrero-Waldner as the reason for freezing
the EU 43 million dollars in aid to the PNA, could be confused by
Palestinians as a pretext to cover US and EU latest threats to review their
aid to the PNA should the Islamic Resistance Movement "Hamas" join a new
Palestinian government after the January 25 elections.

The United States and the European Union blacklist Hamas as a "terrorist
organization" and joined their Quartet partners, the United Nations and
Russia, recently in a statement opposing Hamas' participation in the
elections unless it disarms and recognizes Israel's right to exist as a

The EU and US positions vis--vis Hamas adopts the Israeli official policy
and corners Palestinian President Abbas in a very difficult position.

The EU move could not be strictly isolated from Palestinian accusations of
pressuring the PNA on Hamas and of interference in Palestinian elections.

"It will be complicated for the European Union to continue financing
Palestinian Authority activities if Hamas continues to play a negative role
in the process and will not renounce violence," said EU foreign policy chief
Javier Solana on December 18.

"The taxpayers in the European Union, members of the parliament of the
European Union, will not be in a position to sustain that type of political
activity," Solana added.

However some Palestinian candidates have accused the ruling Fatah movement
of using the PNA to employ thousands of would-be voters and raise the
salaries of others to improve their chances in the elections.

The First Donors' 'Sanction'

Nonetheless the EU move was the second "sanction" by the donors to the PNA.
The World Bank had frozen 60% of the funding for the PNA's operational
budget shortly earlier.

The World Bank representative in the West Bank and the Gaza Strip, Nigel
Roberts, told Israeli online daily Haaretz on January 10 that the PNA's lack
of responsibility "forced the Bank, supported by the European Commission,"
to freeze 60 percent of funding the PNA's operational budget.

This far-reaching step was taken because the Palestinians did not fulfill
their commitments on "budget control," he said, adding that the PNA raised
salaries "at a time when resources are unavailable."

However Roberts warned also that the PNA "is facing a crisis that could
unable it, as early as next month, from paying the salaries of at least
130.000 officials and members of its security forces."

The PNA "is on the verge of functional bankruptcy; its failure to pay the
hundreds of thousands of employees will make them unable to buy their basis
daily needs, which will directly affect thousands of suppliers and merchants
who earn their living from the employees," he added.

Roberts noted that the amount of assistance the PNA is getting - reportedly
$5 billion in five years, or $300 per capita annually - is the highest
granted to any entity since World War II, Haaretz reported.

"To maintain the deep involvement of the donors, and their diplomatic
attention, as well as the desire of the private sector to invest additional
money, the PA must improve its performance," he said.

A donors' conference in London in December refused to pledge aid to the PNA
until after the legislative elections.

Palestinian Central Bureau of Statistics (PCBS) said that there was an
increase of 9% in the number of unemployed persons between 2nd and 3rd
quarter of 2005 while the consumer price index increased in the Occupied
Palestinian Territories (OPT) by 1.93% during October 2005.

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