REQUEST DELIVERY OF NON-PAPER: RESPONDING TO

UNCLAS SECTION 01 OF 02 STATE 038607 SIPDIS E.O. 12958: N/A TAGS: ECON EFIN KWBG PGOV IS SUBJECT: REQUEST DELIVERY OF NON-PAPER: RESPONDING TO ALLEGATIONS OF CORRUPTION IN PALESTINIAN AUTHORITY ¶1. This is an action request. Please see paragraph 3. ¶2. Some Arab states have raised allegations of corruption and non-transparent governance as reasons not to provide direct budget support to the Palestinian Authority (PA) government of President Mahmoud Abbas and Prime Minister Salam Fayyad. The Department requests that Posts deliver the non-paper in paragraph 4 to relevant interlocutors to respond to these allegations and urge immediate budget support. ¶3. Posts may draw on the following talking points when delivering the non-paper: -- Under President Abbas and Prime Minister Salam Fayyad, the PA has made great strides in establishing transparent and accountable government, which have been endorsed by the World Bank and the International Monetary Fund. -- The U.S. provided $300 million in direct budget support to the PA in 2008 - well above our 2007 Paris pledge - after determining that the PA had instituted the proper financial control systems. The Secretary has asked Congress to provide funding for another large cash transfer in the FY2009 Spring Supplemental. -- Having exhausted its reserves and credit, the PA needs $100 million in foreign donor assistance this month to pay salaries on May 6, meet regular educational, health and police expenses, and to pay private sector suppliers. -- We believe that the PA is using donor contributions wisely, in a transparent and accountable manner, and that the PA faces the extreme deficit that it claims. We urge you to act on the same set of beliefs and provide immediate support to the PA. ¶4. Start non-paper: Financial Accountability and Transparency in the Palestinian Authority The Palestinian Authority (PA) has made great strides in establishing transparent and accountable government, which have been recognized by international donors and the international financial institutions. As a testament to the reforms that the PA has made, the United States provided the PA with two separate tranches of budget support totaling $300 million in calendar year 2008. Before transferring U.S. tax payer dollars to the PA, Congress required, and the Deputy Secretary of State certified, that the PA had established a single treasury account for all PA financing and that all financing mechanisms flow through the account; eliminated all parallel financing mechanisms outside of the treasury account; and established a single comprehensive civil service roster and payroll. In addition, as part of the transfer agreement, the PA agreed to provide the U.S. Agency for International Development with audit rights for up to three years following the cash transfers to ensure that the funds are used for their intended purpose. The World Bank and IMF have endorsed the PA's budgetary and financial controls and account for its responsible use of budgetary assistance from donors, which totaled in excess of $1.7 billion in 2008. The PA's budgets, including revenue sources and actual expenses and commitments, are publicly available on the Ministry of Finance's (MOF) web site. In addition, the MOF has taken a number of additional steps to increase fiscal oversight and streamline budget execution, including by establishing a General Accounting Department and a Computerized Accounting System (CAS) to link the MOF to line ministries and ensure that funds are used for their intended purpose. (Source:"Macroeconomic and Fiscal Framework for the West Bank and Gaza: Third Review of Progress," International Monetary Fund, Staff Report, February 25, 2009, pg. 5) In its public reports, the World Bank encourages donors to provide financial assistance directly to the PA through the PA,s central treasury account (CTA). In its report to the International Conference In Support of the Palestinian Economy for the Reconstruction of Gaza, held on March 2 in Sharm al-Sheikh, the Bank wrote: All expenditures from the CTA are made in accordance with the national budget, and are disclosed in monthly reports that are available by the 15th of the following month. All salary STATE 00038607 002 OF 002 payments and major procurements are made by the Ministry of Finance with controls applied through a new accounting system.(Source:"Fund Channeling Options for Early Recovery and Beyond: The World Bank Perspective," The World Bank Group, March 2, 2009, pg. 10.) The World Bank and IMF jointly have agreed to monitor the PA's use of donor assistance through the CTA and provide donors with regular reports that account for the allocation of donor funds and the PA's progress toward meeting the development priorities as outlined in the Palestinian Reform and Development Plan (PRDP). In order to provide donors with another transparent method to channel assistance to the PA, the World Bank, in coordination with the PA, has established a trust fund that helps donors support the PA policy agenda expressed in the PRDP over a three-year period, 2008-2010. The PRDP-trust fund (TF) pools different donor funds into one administrative mechanism that reduces the transaction costs for the PA and participating donors, clearly links support to progress on reform, and provides regular and reliable disbursements to support priority recurrent and project expenditures in the PA budget. The PRDP-TF is audited by external auditors following normal World Bank TF management practice. The PA submits to an annual audit regarding the use of PRDP-TF funds. CLINTON