Fight to Control Purse Imperils Palestinian Plans

A struggle for control of the treasury of the new Palestinian Authority is under way, sharply dividing the political leadership and putting the economic future of the Palestinian territories at risk.

On one side are Yasser Arafat, head of the authority and chairman of the Palestine Liberation Organization, and his finance and planning ministers, according to well-placed Palestinian sources.

Arafat and the ministers want the $2.5 billion in economic assistance promised by the West to be spent by the authority. For them, the issue is political control of Palestinian economic development, with Palestinian leaders deciding priorities and responding to their people’s needs.

On the other side, sources say, is the authority’s economy minister, Ahmed Suleiman Khoury, and the Palestinian Economic Council for Development and Reconstruction (PECDAR). They want all aid to go through the council and its Western-trained economists, engineers and managers to ensure efficiency and prevent corruption.

Khoury, severely critical of Arafat’s practice of reserving all key decisions for himself, is threatening to resign, a move that would embarrass Arafat both here and abroad. Khoury has also questioned the integrity of some Palestinian businessmen who are seeking big contracts from Arafat.

Siding with Khoury and his council for the most part are Israel and Western donors, international institutions such as the World Bank that collect and allocate the funds. They fear waste and corruption on a multimillion-dollar scale if Arafat handles the money.

There are two fundamental sets of issues:

* Arafat’s one-man style of decision-making versus the demand of many Palestinians, especially in the West Bank, for open government.

* A development strategy, setting Palestinian priorities for long-term growth, that will be decided by political leaders--or by economists.

The struggle is still at an impasse, with the Palestinian Authority only able--and even then with the greatest difficulty--to get minimal operating funds; few of the big projects that will be the basis of Gaza’s reconstruction after 27 years of Israeli occupation have received even preliminary approval because of the dispute.

“The World Bank prefers to deal with technocrats who don’t have political direction from the Palestinian leadership,” Mohammed Zuhdi Nashashibi, the finance minister, commented this month. “This is not acceptable.”

Palestinian officials criticize the Western donors’ selection of the World Bank, known largely for its high-living bureaucrats and penchant for mega-projects, to oversee aid here. Only after a year, they note, is the World Bank planning to open a local office.

Khoury, who represented the PLO in secret negotiations with Israel on the autonomy agreement and who was then appointed by Arafat as managing director of the Palestinian economic council, defended the agency’s selection as the “Palestinian address for major aid projects.”

“At this point, PECDAR is the only well-organized Palestinian institution,” Khoury said in an interview this month. “It should be the central body (for receiving aid), or there will be real problems with Palestinian fighting Palestinian and no assistance coming in as donors flee.”

According to the council, the Palestinian Authority has received only $65 million of the $750 million it was promised in aid for its first year. This has meant hand-to-mouth financing of normal operations, pay for the police and a delay in Palestinian assumption of responsibility for health care and welfare services in the West Bank.

The Palestinian Authority has drawn up a budget of $135 million for the next four months, and local economists expect that it will be able to finance only half that, at most, from tax collections.

Western donors are increasingly concerned by the infighting. “We know Abu Alaa (as Khoury is better known), and we trust him,” a senior European diplomat said. “With him in charge, PECDAR can provide the accountability and transparency we require.

“But time is increasingly out of hand,” the diplomat said. “There is an urgency in getting the Palestinian Authority up and running so it gains credibility among the people of Gaza and the West Bank. Arafat has been using this to get donors to drop our conditions. The pressure is really intense because we can’t let this effort fail.”

Under a compromise worked out by Terje Larsen, the United Nations’ new coordinator for the Middle East, some assistance will flow through U.N. agencies, Palestinian sources said.

But Arafat, continuing to resist direct donor financing of large projects and the use of the Palestinian economic council as an intermediary, has stripped the council of all decision-making authority and decreed that all aid programs be “coordinated” with Nashashibi’s finance ministry. As a result, some key council officials are resigning to take posts in various ministries.

Khoury’s resignation remains on Arafat’s desk. But the two men are still discussing their differences.