Excepert from Transparency International Global Corruption Report 2004

The Finance Ministry Takes Steps To
Increase Transparency

The [Palestinian Authority] Finance Ministry has taken steps to improve transparency of its operations. The annual budget and detailed monthly reports of budget expenditures are available to the general public on the Internet and for the first time the investments of the PA have been subjected to independent scrutiny.The 2003 budget was presented for discussion to the legislative council in December 2002 and published on the finance ministry’s new website. It included expected revenues from the investments managed by the recently established Palestine Investment Fund.

These were previously excluded from the budget, which exposed the PA to serious allegations of corruption and mismanagement.  Work is being done to unify accounting systems in the West Bank and Gaza in order to fully integrate financial operations. The development of a continuous online communica system between the two areas and the creation of a budget-monitoring unit to guarantee that all expenses are in line with the approved budget and audited periodically will help the integration process.  Also positive was a decision by the cabinet in June 2003 to cease all illegal deductions from civil service salaries. Often amounting to 5–10 per cent of the total, some of these deductions were started in 1996 to contribute to the unemployment fund. Investigations are currently in place to uncover precisely what happened to the funds.  In presenting the 2003 budget, Finance Minister Salam Fayyad spoke of the need for more stringent compliance with the procurement law, which calls for all public procurement processes to be put out totender. He threatened to use his authority to halt funds to non-compliant parties.

The integration of the petrol, tobacco and investment agencies with the finance ministry in May 2003 was a further step forward.There is still plenty of scope for improvement. The presentation of the budget occurred two months after the date prescribed by law and not all of the revenuesf rom state agencies were consolidated in the budget: the insurance and pensions fund accounts were missing. Some initiatives have been applied with little rigour. The payrolls of security personnel were supposed to be distributed through the banking system, replacing the habit of disbursing lump sums in cash to the heads of each service, but two months after the decision was announced in April 2003, only two security agencies had implemented the change. While Fayyad has started challenging the more powerful figures in his ministry, dismissing some (including directors from the finance ministry and from the petrol bureau), suspending others, no attempts have been made to bring those tainted with corruption allegations to book. 

One of the most significant developments was the decision to create the Palestinian Investment  Fund (PIF) to manage commercial assets. The PIF was establishedby presidential decree in October 2000, though it was not actually constituted as Prior to the creation of the PIF.  Little was known about where and how PA funds were invested. Suspicions abounded that officials were using investments to buy favour with economic elites or abusing their positions to seek partnerships in the private sector.The PIF aims to ensure that commercial acquisitions and portfolio investments promote economic growth and infrastructure development in Palestine, and are not used for political or private gain.The international ratings agency Standard & Poor’s and the US NGO Democracy Council evaluated the results of the PIF’s first 10 major investments to assess the fair market value of the investments and the transparency of their transactions. Results were posted on the finance ministry website in March 2003. 

The report discusses the availability and reliability of financial and other data, as well as how each asset is owned, organised and administered, and whether each could be judged to be both transparent and respectable according to international standards. According to the report, out of the US $630 million the PA had invested in79 commercial ventures worldwide, ownership details of about one-third of the equity were lacking. Fifteen of the companies involved ceased operating during the Israelire occupation.  Much remains to be done to ensure that the PIF is an effective agency. Of particular concern is the lack of mechanisms in place to regulate conflicts of interest. The articles of association, which form PIF’s legal basis, provide for a conflict of interest committee to monitor investments, but lack details about how the committee should be constituted. Also worrying is the lack of legislative oversight of the investments and a coherentnational investment policy toguide the PIF.

Notes
1. The poll was carried out by the Palestinian Center for Policy and Survey Research in
April 2003 with a sample of 1,315 adults, and a sample error of 3 per cent. See www.amanpalestine.
org/opinion_polls.htm
2. The ‘Quartet’ of Middle East mediators comprises the European Union, Russian Federation,
United Nations and United States; four other bodies involved in negotiations are Japan,
Norway, the World Bank and the IMF.
3. ‘The Palestine Investment Fund, Initial Report on Valuation and Transparency’ at: www.painv-
fund.com