$6-8 Bn To Palestinians If They Make Peace With Israel.

The Bush administration has opened discussions with European and Arab states on a four-year aid package of $6-8 bn for the PA that would be contingent on steps by Israel and the Palestinians to improve security and freedom of movement in Gaza and the West Bank. This would be the largest per capita international aid programme since World War II, says the World Bank.

The package was the subject of intense discussions at a donors meeting on Dec. 8 in Oslo, intended to help moderate Palestinian leaders after the death of Arafat and to prepare for the implementation of Prime Minister Ariel Sharon's decision to pull settlers and forces out of Gaza and parts of the West Bank. To support the new Palestinian leaders and send a signal to European and Arab leaders to step up their own aid programmes, the US announced in Oslo that it would add to the $200m it contributed indirectly to the Palestinians this year by channelling another $20m directly to the PA.

The New York Times (NYT) on Dec. 17 quoted a "senior administration official" in Washington as saying: "What you are seeing is a new effort to co-ordinate with Europeans and the Palestinians on these issues. The question is whether it will be possible after the Palestinian elections to reorganize Palestinian forces and get them to restore order. The answer so far has been no. But now there is a chance".

No pledges were sought at Oslo. Instead, the discussion focused on what aid might be realistic if Palestinian elections occurred successfully, and if voting was followed by Palestinians cracking down on militant groups attacking Israelis and Israelis lifting scores of road blocks and checkpoints to ease the transit of goods and people in Palestinian areas. The NYT quoted Salam Fayyad, the Palestinian finance minister, as telling it in a telephone interview from Qatar: "We are looking at the possibility of another $500 million a year or more, but it has to be in the context of conditions permissive to a much deeper development effort. That cannot happen unless conditions on the ground improve substantially".

Other officials said the target for the Palestinians was an additional $500m to $1 bn a year. Currently, international aid to Palestinian authorities has risen to about $1 bn a year, so the increase would be 50 to 100%. Despite the large aid amounts in recent years, economic conditions have plummeted and a lot of the funding was deemed wasted amid donor complaints of poor accounting practices. A large portion of the funding in recent years has gone not for development but to help the PA meet its payroll of 130,000 employees - a major jobs programme that has prevented destitution from more than 1m Palestinians.

Donors have been increasingly unhappy that so much of their money has gone to keep the PA afloat, however, and not to long-term economic improvement. But they say Fayyad has instituted reforms improving accountability and increasing tax collections. The NYT quoted Nigel Roberts, the World Bank's director for the West Bank and Gaza, as saying of Fayyad: "He's taken a number of measures establishing tighter control over public finance. But donors are also able to see that all their spending over the last four years has yielded very little, and they want to exercise some leverage over the situation".

As part of an increase in aid, the US would probably be called upon to increase its own funding and also pay more attention to European and Arab views in the peace talks as they demand a say in return for their own funding increases. The Palestinians have already started courting Arab states for the money. Last week, Fayyad was accompanying Mahmoud Abbas, who succeeded Arafat as chairman of the Palestine Liberation Organisation (PLO) and is on a tour of GCC states, some of which have not come through on past pledges. Fayyad and Abbas are arguing that GCC states can afford to be more generous because of high oil prices. In an important gesture to one donor state, Abbas apologised to Kuwaiti leaders for Arafat's failure to denounce Iraq's invasion of their country in 1990.

The NYT quoted Roberts of the World Bank as saying: "If you have those things in place, plus improved internal governance by Palestinians, then you can legitimately go to the donor community and say, 'Maybe your $1 billion a year hasn't produced much, but we think there's a case for doing even more in the next three or four years. This is going to require a huge push for the donor community". Roberts added that, while the Palestinians have instituted many reforms, many more are needed to establish the rule of law and eliminate payoffs and corruption. As for Israel's myriad checkpoints and road blocks in the West Bank, the Bush administration has long been pressing Israel to remove them to make the elections easier to conduct. But Israeli leaders plan to do so for only a three-day period before the voting.