THE World Bank has issued the Palestinian Authority with an ultimatum to put an end to rampant corruption or lose hundreds of millions of pounds of vital foreign aid.
The Bank’s top official in the region, Nigel Roberts, said Yasser Arafat had to stop the handing of large cash payments to his security commanders - used to keep them loyal to Arafat personally - and other financial practices open to corruption.
Otherwise, he said, the Palestinian Authority risked losing the support of the international community.
In an interview with Scotland on Sunday, Roberts said the Palestinians were receiving the largest amount of money per capita in the history of foreign aid but this was still not enough to balance the budget.
He said it was now crunch time for the Palestinian Authority: support the reformers, led by Finance Minister Salam Fayyad, or face financial ruin.
At a conference of foreign donors in Rome last year, the Palestinian Authority (PA) asked for $1.2bn (645m) to alleviate its current financial crisis.
Robert said: "To get that money will require a very forceful programme of continued commitment to reform by the PA and by the Palestinian Ministry of Finance. Without evident commitment and progress towards tightening these systems and improving accountability, the PA will not get the money it needs."
A massive hole has appeared in the Authority’s budget, which has been hard hit by Israeli military closures of Palestinian areas and other measures aimed at halting Palestinian attacks.
In the years leading up to the Intifada, aid averaged 240m a year. It soared to 645m in 2002 before falling back to 475m last year, a drop of 14%.
Roberts said this amount of aid to one area was unparalleled. "The level of assistance in the three years since the Intifada is at an extraordinary high level," he said. "It’s a level of something over $300 (160) per capita. According to our calculations, that is the highest per capita aid transfer in the history of foreign aid anywhere."
Roberts said that while there had been a reduction in aid, this was mainly the result of a cut from Arab League States and a smaller amount from the European Union: "The PA is certainly very short of money. The high level of commitment [from foreign donors] is by no means enough to offset the various economic pressures."
As the result of Israel’s blockades and closures of the West Bank and Gaza Strip to bolster its defences against Palestinian militants, the Palestinian Authority has forecast this year "an un-financed budget gap" worth 350m.
Roberts said the 645m currently being asked for by the Palestinian Authority had therefore been deemed to be reasonable, but it would only be made available provided strict financial controls were met. He said that great strides had already been made under Fayyad, himself a former employee of the World Bank.
But at the same time, Roberts said there were particular concerns that had to be addressed.
These include the payment of the salaries of the Palestinian security forces in cash rather through bank accounts.
Observers say this is designed to benefit Arafat, by making the commanders and officers feel dependent on his goodwill. They point out that the potential for corruption is obvious.
From his offices in Ar-Ram in the West Bank, Roberts said this suspicious was shared by the international community at large.
He said the issue of the cash payments to the police remained politically sensitive but there was also strong support for raising standards from the "reformers" within the Palestinian Authority, who recognised the need for higher levels of financial accountability and transparency.
The question remains, however, whether the pro -reform movement within the Authority can win out against the powerful forces resisting change, chief among them being Arafat himself.
He clings to power despite efforts by the United States and Israel to push him aside in favour of a new Palestinian leadership.
Palestinian Labour Minister Ghassan Al-Khatib told Scotland on Sunday the Palestinian Authority needed the request for 645m in aid to be met to prevent it from collapsing.
"If this Palestinian Authority is to survive, this is the minimum that is needed, and by the way, a little bit more than half of this sum is supposed to go to the budget deficit, in addition to other parts going to reconstruction to what has been done by the occupation and job creation projects and humanitarian projects," he said.
Al-Khatib said that the Palestinian Authority had been forced to take desperate measures, including selling shares in its mobile telephone company and borrowing from abroad.
"The Palestinian Authority is selling its shares because of the economic difficulties and desperation, but more dangerous, in the last month, the Palestinian Authority had to borrow from private banks in order to be able to pay the salaries of the government in the last month," he said.