The Palestinians' fiscal fighter

The new Palestinian Authority finance minister introduced a sweeping reform plan last week.

The stereotype of a Palestinian revolutionary involves a keffiyeh, nationalist slogans, and perhaps a Kalashnikov.

Salam Fayyad speaks softly and looks like an executive. He thinks of himself as a reformer. But as the new Palestinian finance minister, Mr. Fayyad is involved in radical change: cleaning up the shady, irregular, and sometimes corrupt financial world of Yasser Arafat's Palestinian Authority (PA).

"I feel there is something liberating about full transparency, it helps you sleep better at night," Fayyad says, drinking black coffee and waiting to hear whether an Israeli army curfew will be lifted and he will be able to get to his ministry in Ramallah.

With the media focusing on the military back-and-forth of the Middle East conflict, Fayyad, a former International Monetary Fund board member, has launched a series of lightning reforms to regulate the PA's spending and bring its unruly fiscal fiefdoms under control.

These reforms were capped last week by the formation of a holding company, the Palestine Investment Fund, to ensure full oversight over all Palestinian Authority holdings.

"Our view is that government is not the owner of funds, but the custodian," he adds. "This is the public's money." In other steps since taking office in May, Fayyad consolidated the PA's numerous bank accounts so that they all flow into one treasury account. And he issued a ban on using these accounts for expenditures.

"The average citizen does not even know, and many people in the legislative council do not even know all of the [PA] holdings," says Fayyad.

Swift action

After Fayyad took over, the Ministry of Finance stopped issuing checks without cover, says Hani Shawa, general manager of the Bank of Palestine, the oldest Palestinian bank. "We've definitely noticed a change," he says.

White House spokeswoman Claire Buchan on Thursday described the move as positive after President Bush "called for increased transparency and accountability [within the PA]. We regard the finance minister's actions as being consistent with the president's call."

Fayyad's cleanup comes at a critical juncture for the PA, with the US and Israel openly calling for Mr. Arafat's ouster. Fayyad's efforts could determine if the PA gets the money it needs to survive, and if it can convince skeptics that it can reform itself.

Many obstacles to success

Pessimists predict he will be thwarted by Arafat, if and when the anti-corruption steps hit too close to the PA leader, or by Israel, whose army strictures, officially imposed for security reasons, are paralyzing economic life.

Fayyad admits he is "a bit nervous" about the task. But in a job where he is certain to make enemies, he is aided by a quality almost unique in the Israeli-Palestinian context: he knows how to get his points across in a mild and unthreatening way. His realm is understatement.

"The whole setup of the PA is relatively new," Fayyad says. "Palestine was never an independent country with strong government, and the people running the PA don't have government cultures. People brought along habits not necessarily consistent with good governance."

When the PA established itself in the West Bank and Gaza Strip in 1994, officials close to Arafat who came from abroad began investing in everything from cement monopolies to petroleum ventures to a casino. Among them was Khaled Salaam, Arafat's personal financial adviser.

The spending and profits of the PA have long been kept hidden from the public eye. So has the flow of PA budget allocations. A 1997 internal Palestinian audit concluded that 40 percent of that year's budget was unaccounted for.

Fayyad says the establishment of the holding company, which he will direct, makes any PA business activity outside its purview illegal.

Under pressure from the international community and Palestinian reformers, Arafat asked Fayyad to join the cabinet. He had served as the IMF's representative to the Palestinian territories for seven years. Before that, he worked on the executive board of the IMF on reform programs for countries throughout the world. He stepped down from a senior post at the Arab Bank, one of the largest in the region, to take the job.

"It did not take me forever to put together my plan," Fayyad says. "I knew exactly what needed to be done."

Palestinian legislator Hassan Khreisheh believes that Fayyad's efforts, though well intentioned, are doomed to failure. "Arafat needs Fayyad right now. But I think after a month or two Fayyad will discover that he cannot do anything. If he does not give Arafat money, Arafat will get rid of him. Arafat cannot live with good people."

The Israeli factor

The other question mark is Israel, which is holding more than $300 million in PA funds that Fayyad says are badly needed to pay off debts for salaries, supplies, utilities, and rent. Under interim peace accords, Israel collects customs and taxes for Palestinian goods and services and transfers them to the PA. But it stopped doing so in December 2000, saying the money was being used for terrorism.

Last Wednesday, Israel promised to free up within days a second installment of $15 million of the frozen money and it has indicated willingness to transfer one more such installment. Raanan Gissin, a spokesman for Prime Minister Ariel Sharon, said the step signals a "vote of confidence" in Fayyad. He said of Fayyad's steps: "We are making some progress on economic reform, we are seeing a promising development and we are encouraging it. But we cannot say the same thing about security reforms and fighting terrorism."

Fayyad is able to travel between the West Bank and Jerusalem only by applying each time for a pass from the Israeli army. "There are no distinguished Palestinians today," he says. "We are all occupied. I don't in any way want to be accorded any privileges the average Palestinian does not get," he says.

"That would not be right."

"I'm convinced one day we will get where we are going," Fayyad adds. "We need to stay focused. We need to convince ourselves we can do it. And I hope that in the process we will convince the world we are worthy, as I believe we are, of having our own state as free people."

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