Economy

Following the 2006 legislative elections, won by Hamas, Israel has ceased transferring the $55 million tax-receipts to the PA; since the PA has no access point (ports, airports, etc.) to receive taxes, it is Israel that is charged with this duty. These funds accounted for a third of the PA's budget, two thirds of its proper budget, and ensure the wages of 160 000 Palestinian civil servants (among them 60 000 security and police officers), on which a third of the Palestinian population is dependent.[citation needed] Israel has also decided to increase controls on check-point, which has been since the beginning of the Second Intifada a main cause of the 2001-2002 economic recession, which the World Bank has compared to the 1929 economic crisis. Furthermore, the US and the EU have stopped direct aid to the PA, while the US imposed a financial blockade on PA's banks, impeding some of the Arab League's funds (e.g. Saudi Arabia and Qatar) from being transferred to the PA.[50] On May 6 and 7, 2006, hundreds of Palestinians demonstrated in Gaza and the West Bank demanding payment of their wages. Tension between Hamas and Fatah has been slowly risen with the "economic squeeze" on the PA.[51] The UN institution underlines that unemployment, which was estimated to 23% in 2005, would increase to 39% in 2006, while poverty, estimated at 44%, would increase to 67% in 2006.[50]

[edit] Foreign aid and budget deficit

Due to conditions in the territory it administers, the Palestinian Authority (PA) has received unprecedented financial support from the international community. According to the World Bank, USD $929 million were given by the international community to the PNA in 2001, $891 million in 2003 and $1.1 billion in 2005 (representing 53% of the budget in 2005). The main objectives are support to the budget, development aid and public health. In 2003, the US funded $224 million, the EU $187 million, the Arab League $124 million, Norway $53 million, the World Bank $50 million, the United Kingdom $43 million, Italy $40 million, and the last $170 million by others.[citation needed] According to the World Bank, the budget deficit was about of $800 million in 2005, with nearly half of it financed by donors. "The PA's fiscal situation has become increasingly unsustainable mainly as a result of uncontrolled government consumption, in particular a rapidly increasing public sector wage bill, expanding social transfer schemes and rising net lending," said the World Bank report. Government corruption is widely seen as the cause of much of the PA financial difficulties.[citation needed]

[edit] Economic sanctions following January 2006 legislative elections

Following the January 2006 legislative elections, won by Hamas, the Quartet threatened to cut funds to the Palestinian Authority. On February 2, 2006, according to the AFP, the PNA accused Israel of "practicing collective punishment after it snubbed US calls to unblock funds owed to the Palestinians." Prime minister Ahmed Qorei "said he was hopeful of finding alternative funding to meet the budget shortfall of around 50 million dollars, needed to pay the wages of public sector workers, and which should have been handed over by Israel on the first of the month." The US Department criticized Israel for refusing to quickly unblock the funds. The funds were later unblocked.[52] However, the New York Times alleged on February 14, 2006 that a "destabilization plan" of the United States and Israel, aimed against Hamas, winner of the January 2006 legislative elections, centered "largely on money" and cutting all funds to the PA once Hamas takes power, in order to delegitimize it in the eyes of the Palestinians. According to the news article, "The Palestinian Authority has a monthly cash deficit of some $60 million to $70 million after it receives between $50 million and $55 million a month from Israel in taxes and customs duties collected by Israeli officials at the borders but owed to the Palestinians." Beginning March 2006, "the Palestinian Authority will face a cash deficit of at least $110 million a month, or more than $1 billion a year, which it needs to pay full salaries to its 140,000 employees, who are the breadwinners for at least one-third of the Palestinian population. The employment figure includes some 58,000 members of the security forces, most of which are affiliated with the defeated Fatah movement." Since January 25 elections, "the Palestinian stock market has already fallen about 20 percent", while the "Authority has exhausted its borrowing capacity with local banks."[53]

[edit] Use of European Union assistance

In February 2004, it was reported that the European Union (EU) anti-fraud office (OLAF) was studying documents suggesting that Yasser Arafat and the Palestinian Authority had diverted tens of millions of dollars in EU funds to organizations involved in terrorist attacks, such as the Al-Aqsa Martyrs Brigades. However, in August 2004, a provisional assessment stated that "To date, there is no evidence that funds from the non-targeted EU Direct Budget Assistance to the Palestinian Authority have been used to finance illegal activities, including terrorism."[54]

A separate EU "Working Group" also issued a report in April 2004, adopted by a 7-6 vote, which covers the period from the end of 2000 to the end of 2002, stating that EU aid has not been siphoned off to Palestinian militants carrying out attacks on Israelis: "There is no conclusive evidence, to date, that the EU non-targeted direct budgetary support was used to finance illegal activities, including the financing of terrorism".

Furthermore, the EU has changed the way it funded the Palestinians and now uses targeted aid for specific purposes. From April 2003, money is only handed over if various conditions are met, such as the presentation of invoices for bills the Palestinians need to pay. The EU remains the biggest donor to the Palestinian Authority.

[edit] Payments to Palestinian prisoners in Israeli prisons

On July 22, 2004, Salam Fayyad, PNA Minister of Finance, in an article in the Palestinian weekly, The Jerusalem Times, detailed the following payments to Palestinians imprisoned by the Israeli authorities:[55]

1. Prisoner allowances increased between June 2002 and June 2004 to $9.6m monthly, an increase of 246 percent compared with January 1995-June 2002.
2. Between June 2002 and June 2004, 77 million shekels were delivered to prisoners, compared to 121 million between January 1995 and June 2002, which is an increase of 16 million shekels yearly. The increase of annual spending between the two periods registers 450 percent, which is much higher than the percentage of increase of the number of prisoners.
3. Between 2002 and 2004, the PNA paid 22 million shekels to cover other expenses — lawyers’ fees, fines, and allocations for released prisoners. This includes lawyers’ fees paid directly by the PNA and fees paid through the Prisoners Club.

Economic Relations