What Can We Learn from the Palestine Investment Fund Report? (JCPA-JERUSALEM CENTER FOR PUBLIC AFFAIRS) JERUSALEM ISSUE BRIEF Vol. 2, No. 27 By Mark Sloman 05/01/04)
JCPA-Jerusalem Center Public Affairs
JCPA-Jerusalem Center Public Affairs Articles-Index-Top
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 http://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
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
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."
* * *
Mark Sloman is a veteran public affairs consultant who has worked on
Capitol Hill and served in the U.S. Defense and State Departments.
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