Vol. 2, No. 27 May 1, 2003
According to a 345-page report prepared by Standard & Poor’s and the Democracy Council, the Palestinian Authority has approximately $600 million invested in 79 commercial ventures worldwide.
The report fails to address other monies controlled by the Palestinian Authority and the Palestine Liberation Organization.
It does not endeavor to see how well the Palestine Investment Fund and/or the Palestinian Authority, which oversees the PIF, meet their fundamental responsibilities to promote economic growth and infrastructure development for the Palestinian people.
By failing to address the cult of corruption that permeates the Palestinian Authority and the PLO, the report diverts attention from a major obstacle to real economic, social, and political progress on behalf of the Palestinian people and paints a thin veneer of respectability on decades of fiscal impropriety and malfeasance.
An Accounting of Palestinian Assets
A 345-page report prepared by Standard & Poor’s and the Democracy Council for Palestinian Authority Finance Minister Salam Fayyad was recently released for public review (www.pa-inv-fund.com). The report attempts to account for the Palestinian Authority’s assets in order to provide Fayyad with a base from which to create a new financial system. Fayyad, a former International Monetary Fund official, is considered by Israel, Europe, and the U.S. to be a serious reformer intent on bringing fiscal accountability to the Palestinian Authority.
The investments covered in the study are held by the Palestine Investment Fund (PIF), a “separate legal entity that aims to acquire/invest, and to sell/dispose of portfolio investments, liquid investments and temporary investments that promote economic growth and infrastructure development in Palestine.”1 In short, the PIF is an organization intended to create a valuable revenue stream to fuel Palestinian economic progress.
PA Investments Worth $600 Million
According to the report, the Palestinian Authority has approximately $600 million invested in 79 commercial ventures worldwide, a figure based on those investments identified by Palestinian Authority officials for inclusion in the study. The report looks at investments in ten privately- and/or publicly-held companies, six in the telecommunications sector and the balance in biotechnology, insurance, the gaming industry, and cement. The stated goal of the study was to assess the fair market value of the investments and the transparency of their transactions.
Standard & Poor’s conducted the valuation assessment, relying on three standard methodologies: income approach, market approach, and net assets approach. The Democracy Council, a U.S. non-profit organization, prepared the transparency diagnostic. The goal of this measurement was to “identify for the Board of Directors of the fund (or the committee thereof overseeing the transparency diagnostic) characteristics in each category that may not be acceptable by internationally recognized standards of transparency.”2 If such characteristics were discovered, recommendations for remedying the deficiency would be provided. Referring to each investment, the Council determined that “based on the methodology employed and analysis conducted, no significant adverse information has been reported that would disqualify [name of company] from being included in the Fund’s investment portfolio.”
The report is, without a doubt, a professionally prepared product offering a sound assessment and estimated value on the PIF’s current portfolio. It is, with one minor exception, free of politics and/or bias. The exception is found in the section listing the limitations encountered by the auditors as they conducted their research. The report states: “[I]n certain instances the scope of our engagement was limited by lack of information, including historical and prospective financial statements, access to management, the current operating status of the investment and the particular political and economic factors currently impacting commercial businesses in Palestine and the adjacent region.”3 At present, Palestine is not a recognized state and the authors’ decision to refer to Israel as “the region,” rather than by its recognized national identity, is an unfortunate bow to their client’s political and military objectives. However, a footnote found later in the report does note: “For the purposes of this report ‘Palestine’ refers to areas currently under the control of the Palestine National Authority (PA).”4
After briefly reviewing the findings, Fayyad commented that commerce is “an honorable profession, but it’s not for the state,” and that the identified assets would be sold off at market value.5
A Partial Report of PA Holdings
The report is proof of Mr. Fayyad’s commitment to better Palestinian governance and seems to indicate that the PIF is duly diligent in determining how to invest its funds and conducts these transactions within acceptable international parameters. Unfortunately, the report fails to address other monies controlled by the Palestinian Authority and the Palestine Liberation Organization, and it does not endeavor to see how well the PIF and/or the Palestinian Authority, which oversees the PIF, meet their fundamental responsibilities to promote economic growth and infrastructure development for the Palestinian people. Furthermore, by failing to address the cult of corruption that permeates the Palestinian Authority and the Palestine Liberation Organization, the report diverts attention from a major obstacle to real economic, social, and political progress on behalf of the Palestinian people and paints a thin veneer of respectability on decades of fiscal impropriety and malfeasance.
Western Intelligence Estimates of PLO Assets
In 1990, the U.S. government estimated that a 5 percent tax charged to every Palestinian working in an Arab country had generated PLO assets ranging from $8 to $14 billion – revenues above and beyond international contributions. In 1993, just prior to the signing of the Oslo accord, the British National Criminal Intelligence Service reported that the PLO generated a considerable portion of its budget from “extortion, payoffs, illegal arms dealing, drug trafficking, money laundering, fraud, etc.”6 Immediately after the signing of the Oslo agreement, the Palestinians received an additional $3 billion from the U.S. and the international donor community. A year later, a British intelligence report stated that Yasser Arafat controlled assets worth $10 billion and that the PLO had an annual budget of $2 billion.7
PA Rule Brings Economic Disaster
Yet, despite these resources, the per capita income of a Palestinian living on the West Bank or Gaza has steadily decreased since the Oslo signing and the establishment of the Palestinian Authority in May 1994. In 1993, GDP in the West Bank was $3,500 and $2,800 in Gaza. A study completed by the Yad Tabenkin research center in Israel estimates that, had the pre-Palestinian Authority rate of growth continued, average GDP would have risen to approximately $7,000; a figure close to that of Saudi Arabia and one that dwarfs the average GDP in Egypt, Syria, and Jordan.8 Prior to the outbreak of Palestinian-instigated violence in September 2000, the Palestinian GDP had fallen to approximately $1,300. Today, as a result of the violence and terror, the average Palestinian earns even less.
Yasser Arafat’s control of the PA had led to economic disaster for the Palestinian populace. While initial attempts to account for Palestinian assets are useful first steps, only a real change in leadership will permit real economic progress for the Palestinian people.
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1. Palestine Investment Fund, “About Us,” www.pa-inv-fund.com.
2. Michael C. Wierwille, Managing Director, Standard & Poor’s, Initial Report on Valuation and Transparency as of January 1, 2003, Introductory letter to the Board of Directors, p. 9.
3. Ibid., p. 18.
4. Initial Report on Valuation and Transparency as of January 1, 2003, Standard & Poor’s and the Democracy Council, p. 17.
5. James Bennet, “Palestinian Assets ‘a Mess’, Official Says, New York Times, March 1, 2003.
6. Rachel Ehrenfeld, “Arafat’s Corruption: The Source of Palestinian Suffering?” Washington Times, March 15, 2001.
7. Richard Z. Chesnoff, “How Arafat Rips Off His Own People,” New York Daily News, July 9, 2002.
8. Ehrenfeld, “Arafat’s Corruption.”
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Mark Sloman is a veteran public affairs consultant who has worked on Capitol Hill and served in the U.S. Defense and State Departments.