US Doubts Its Role as Main Donor to Palestinians

Hints of waste and corruption have US wavering over $500 million aid package.

Inside the tall, white gates of the new Nawras Seagull country club in Gaza, children slide into pristine swimming pools while parents lounge in the sun beside them. Perhaps no one is more aware of the luxury than the residents of the Shati Refugee Camp down the street, where raw sewage flows down unpaved roads and shoeless children play in squalid sands.

As frustration over the conspicuous gap between rich and poor here skyrockets, there is a growing perception that Palestinian President Yasser Arafat has established a corrupt regime that benefits a few by siphoning off foreign aid meant for the many.

International donors to the Palestinian Authority (PA), the United States foremost among them, similarly have become disenchanted with the spending habits of Mr. Arafat and his inner circle. Closer to home, Palestinian independents say their leaders are making a mockery of American-sponsored programs aimed at long-term goals like instilling democratic values.

That, plus allegations that Arafat was behind the recent killings of Palestinians who sold land to Israelis, has American leaders threatening to halt aid.

There is a regional precedent. Under President Bush, a hold on US loan guarantees to Israel was used as a lever for compliance with US directives on the rate of construction in the West Bank and Gaza.

Stealing public funds?

Rampant rumors of corruption were validated late last month when an internal audit found that $323 million - about 40 percent of last year's budget - was wasted or misused. Some of the ministers, the Arafat-ordered report said, funneled donor countries' funds into their personal bank accounts.

The report was not released in full. But Attorney General Khaled el-Kidrah soon "resigned" in what human rights activists say was actually a dismissal for charging prisoners bail and pocketing the money.

The Ministry of Planning and International Cooperation is now calling the audit "superficial" and "erroneous." Minister Nabil Shaath told a meeting of donors in Washington that the audit gives a "distorted impression of poor financial management and performance by the Palestinian Authority ... particularly those [funds] contributed by donors."

In its seven-page clarification of the audit, for example, the PA says it pays for only 300 cellular phones used by officials. The audit had estimated that there were more than 5,000 phones in use, identifying them as wasting about about $5.5 million a year in public funds.

Even if the PA is able to convince the international community that the report was simply an attempt to identify departments that could be run more efficiently, it may have a harder time persuading Palestinians in the street. There, the most popular topic of conversation often is not the crisis in the peace process with Israel, but the posh villas belonging to power-brokers and security bosses.

"The impression here is that the whole authority, every minister and down to every policeman, is corrupt," says Eyad Sarraj, a Gaza human rights activist and Arafat critic. "In fact, not everyone is corrupt. But the feeling is that these people were poor on arrival and suddenly a few people started to be very rich."

There is palpable development in Gaza. A cleaned-up beach here and a park there. Projects to improve water quality and alleviate flooding, for example, often go unnoticed. Palestinians want improvement they can see, and many say they've seen too little.

"Our situation has not improved," says Adid Issaweh, a teen who lives in the Shati camp. "Instead of spending this money on private projects for ministers, they should be building factories and projects for the workers. The money that comes in from the outside isn't coming down to us."

Less aid than under Israel

Some Palestinians in the camps, who comprise about 60 percent of Gaza's population, complain that they see less aid money coming to them then they did under Israeli occupation. Then, agencies providing assistance to the Palestinian people did so more or less directly. Now that there is some form of government, the United Nations and others must work through the ministries of the PA.

That, many Palestinians say, has made room for political appointees to interfere in aid distribution and skim off programs.

UN agencies say that although they do operate through the PA, money is too tightly watched for such pilfering.

"We have to operate under a rigid set of financial rules and regulations," says Timothy Rothermel, chief of Palestinian assistance from the United Nations Development Program. "It would be would very surprising, an exception rather than the rule, if funds were not used for their intended purpose."

Other UN sources say that the drop in income since the PA came to power - partly due to loss of work in Israel - is the main reason Palestinians are seeing a declining economic situation that they blame on Arafat.

Ferdinand Smit, head of donor coordination at the UN in Gaza, says that the audit is more about waste than embezzlement. But that does not mean the talk of corruption is completely off base.

"It would be very naive to assume there was no corruption around this place," he says. "The story of corruption is really in the monopolies which are distorting the market.... They're shooting themselves in the foot."

Angering others, from the affluent to the destitute, is the growth of a system of favors. One needs a wasta - an important connection or middleman - to get anything done or attain a decent job.

"All of the people in the ministries are the nephews and nieces of the people in power," says Maher, who works at a falafel restaurant in Shati. "You need a wasta to get anything. You need a wasta to get a car like that," he says, pointing to the Chevy Suburban charging quickly past the camp.


To help create a "civil society" in Palestinian-controlled areas, the American government has launched a "democracy and governance program" with $15.3 million in spending.

Some $700,000 will go to an "Arab Thought Forum" for setting up public discussion groups and a citizens' rights center. A $2.5 million grant will "assess the capacity of local organization to fulfill an advocacy function."

A portion of a $700,000 grant will help televise "town hall meetings" on proposed laws. A $1.1 million grant will go to a US Republican-led institute to help private activists cooperate with the Palestinian Authority.

One purpose of the US money is to create "more decentralized local government," which would prevent Palestinian President Yasser Arafat from wielding too much power.

- Staff

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