What Palestinians will do with $7.4 billion

When donors met in Paris last month and awarded $7.4 billion in aid to the Palestinians, a larger-than-expected package to be distributed over the next three years, many in the international community showed a new readiness to support the new Israeli-Palestinian peace push and provide a safety net for it in the form of economic stability.

Now Palestinian and foreign observers alike are keen to see how and where the money is spent, putting senior officials on the spot with questions of how they intend to avoid the corruption and mismanagement that characterized the Palestinian Authority (PA) in the past.

But unlike international relief in the past, this aid package – the biggest since the establishment of PA in 1994 – comes with meticulous oversight mechanisms that make it much more difficult for money to be siphoned off or embezzled, a senior Palestinian official says.

Moreover, various unions representing public employees have gained muscle and stature and are determined to see an appropriate portion of the money go to civil servants, some of whom have gone unpaid for months at a time in the past two years.

Cairo Arafat, the director general of Aid Management and Coordination in the Palestinian Ministry of Planning, says that it's no longer useful to speak of corruption as a blanket term.

"With any kind of program, you get the normal type of corruption. But there's so much competition now and so much talk of corruption that people are more aware of it and more likely to speak out about it than they were before," says Ms. Arafat, who is not a relative of the late Palestinian leader, Yasser Arafat.

"There have been few programs in Palestine that have not been exposed to internal and external audits. We had some projects that were being audited three times, audited, and reaudited," she says, to such an extent that the parties most profiting from the aid were Palestinian auditing firms.

Still, the battle for a fair slice of the pie is on. Several sectors – including teachers and medical workers – have recently been on strike against low pay and long hours. Union leaders say hundreds of other workers face being laid off or forced into early retirement, which some here argue would thin out inflated payrolls.

The PA remains the largest employer in the Palestinian territories, with at least 165,000 workers; some officials say that the PA could probably function with a third of that.

But on the other hand, the Palestinian private sector has been so stymied by political problems – particularly since the election victory of Hamas two years ago this month – that enough private sector jobs don't exist.

Union leader Bassem Hadaydeh says in this period of crisis since early 2006, PA officials dipped into and spent worker pensions.

"The PA has already spent the retirement funds of all employees in order to keep itself going," says Mr. Hadaydeh, the spokesman of the Palestinian civil servants' union. "They're trying to retire large numbers of workers, but have no retirement funds to give them. How can they talk about that and not have the amount to pay us? This will be one of the points of conflict between the union and the government," he explains.

Meanwhile, the prices of everyday goods and transportation have gone up, specifically in the past few months, due to the drop in the dollar (on which most Palestinian salaries are based) and the rise in gasoline prices.

"All our demands are meant to make the performance more satisfactory. It is all connected to the degree to which the PA doesn't have integrity in the eyes of the people," adds Hadaydeh.

But now, he admits, Palestinians have a new sense that the PA has become more fiscally responsible, particularly since Salam Fayyad, now prime minister, became the Minister of Finance in 2003.

"The abuse of public money has decreased since Salam Fayyad [took office]. The monitoring of money to the PA has increased drastically," he says. "The modalities used in the transfer of money are complicated and transparent and have a technically oriented approach, which makes corruption difficult to come in."

Samir Barghouthi, an economist who runs a Ramallah investment firm, says that of the amount of aid pledged, approximately 70 percent of the amount will go to public salaries and 30 percent will go to development projects, food relief, and assistance – especially to Gazans.

The biggest problem, he says, is indeed the bloated PA payroll. "There are many thousands of public sector employees who are not working. Some are living in Jordan or Egypt, some work from home, some work in the private sector but still take a salary from the government. There are people who are not even showing up in work because there isn't something to do," says Mr. Barghouthi.

He suggests the PA needs to push ahead with offering a retirement program, perhaps giving incentives by offering highly subsidized loans for people to start businesses.

"The Paris aid is just a mechanism to help people survive, which means after three years, when those monies are spent, we have to face the problem again, and in another three years," he says. "We should use this commitment to push for deep restructuring."