WRITTEN QUESTION E-0637/01

by Theresa Villiers (PPE-DE) to the Commission

(6 March 2001)

Subject: EU funding to Yasser Arafat

1. Could the Commission please confirm whether any EU funding has been passed directly to Yasser Arafat in cash?

If so, could the Commission confirm:

- what sums have been so paid;

- how much has been paid;

- what dates such payments were made;

- whether it is planned to continue to make payments in this way;

- from what budget line these payments came;

- what the specified purposes of the budget line in question were;

- what precautions the Commision is taking to ensure that the funds are used for the specified purposes;

- whether payments in cash breach any rules, laws, regulations or principles of good management?

2. Specifically, could the Commission confirm whether a decision has been taken to pay Mr Arafat between 20 and 30 million per month for as long as the emergency in the Middle East lasts?

Answer given by Mr Patten on behalf of the Commission

(15 May 2001)

The Commission has never funded either President Arafat or the Palestine Liberation Organization (PLO) directly. The beneficiary of all Community assistance to the Palestinian territories is the Palestinian Authority through the Ministries of Finance and International Co-operation.

In September 1997, the General Affairs Council requested the Commission to create a rolling fund for the Palestinian Authority to help cope with the budgetary impact of any freeze of monthly transfers of Palestinian tax receipts (VAT and customs duties) by the Israeli government. Israel is under an obligation to make these transfers under Article VI of the 1994 Israeli-Palestinian Protocol on Economic Relations (the Paris Protocol). A fund of 25 million was established in January 1998, under budget line 47-100 (MEDA). The conditions and functioning of the instrument are set out in a Financing Agreement between the Commission and the Ministry of Finance of the Palestinian Authority. Furthermore, the release of funds is subject to conditions aimed at ensuring the correct use of the funds, including the consolidation of expenditure and revenue, the control of current expenditure and the adoption of a balanced budget. Compliance with these conditions is monitored by the International Monetary Fund (IMF). Monies drawn from the fund are reimbursable, once Israel resumes its transfers.

In October 2000, the Israeli government froze clearance revenue transfers to the Palestinian Authority. In accordance with the commitments made under the above instrument, the Commission released 27,5 million ( 25 + interest) on 7 November 2000 from the facility.

In the light of the worsening situation in the Palestinian territories and the continued Israeli freeze of revenue transfers, the Commission decided on 13 December 2000, to establish a new special cash facility of 90 million under budget line 47-100 (MEDA). A first tranche ( 30 million) of the new instrument which is subject to the same conditions as the first cash facility was disbursed on 23 January 2001.

Since December 2000, the situation on the ground has worsened, as has the economic and budgetary situation of the Palestinian Authority, due the closure of the Palestinian territories by Israel. Since the beginning of the crisis in October 2000, Palestinian economic activity has decreased by 50 %, the poverty rate has increased from 21 % to 32 % and unemployment affects 38 % of the population. In addition, the closure policy and the financial crisis have severely eroded the ability of the Palestinian Authority to function as an institution.

Under these circumstances, and in order to deal with the needs of the Palestinian Authority in the longer term, the Commission decided on 13 March 2001 to convert the remaining amount of up to 60 million of the special cash facility into direct budgetary aid. This decision is fully in line with the conclusions of the General Affairs Council meeting of 26 February 2001, which stressed the need for the Union to play an important role in a concerted international effort aiming at avoiding economic and institutional collapse in the Palestinian territories, and to make full use of the funds available under the special cash facility for this purpose.

The disbursement of this budgetary aid is subject to the adoption by the Palestinian Authority of an austerity budget under close monitoring by the IMF and to the Palestinian commitment to take measures, inter alia, to fight corruption and increase transparency and good governance. The disbursement of budgetary aid will be done in the framework of a concerted effort with all international donors under the auspices of the Ad hoc Liaison Committee.