GAZA NEEDS INVESTMENTS, NOT DONATIONS

Expert says Palestinians don't need financial aid: Ex-International Monetary Fund official says investments, not donations, needed more to rebuild economy of territories -- James Sterngold, Chronicle Staff Writer

With Israel's disengagement from Gaza and the northern West Bank largely completed, the Palestinian Authority is struggling to provide a new kind of hope with an economic rebirth in the battered territories.

It is a monumental task, one that will require enormous amounts of outside assistance. But while the United States and other donors have pledged billions of dollars, a senior member of the Palestinians' new economic team says the flood of money is largely unnecessary at this time -- and some of it may be counterproductive.

"If you poured in a lot of financing at this time, it would not have a big impact. It would not be very effective," said George T. Abed, who retired earlier this year from a senior position at the International Monetary Fund, then was appointed governor of the Palestine Monetary Authority. "Governance is poor. It would be wasted."

Abed, 66, a UC Berkeley-trained economist, said the view from inside the territories is different from the perception some may have from the outside. Although unemployment and poverty are rampant, Palestinian banks are overflowing with deposits, he said, and many wealthy Palestinian entrepreneurs living overseas are eager to invest in the territories.

The immediate challenge, according to Abed, is building a modern system to handle the existing capital efficiently, not attracting more -- at least not yet.

"We're making healthy progress, but we're not there yet," Abed said in a series of telephone interviews from his West Bank office and home.

The Palestinians are at a critical stage as they seek to recover from the effects of the nearly five-year uprising known as the intifada, the decadeslong Israeli occupation and the corruption and fiscal mismanagement of the previous Palestinian administration, led by the late Yasser Arafat.

In an Atlantic Monthly article titled "In A Ruined Country," author David Samuels estimated that Arafat and his senior aides may have siphoned off as much as half of the $7 billion in aid to the Palestinian Authority. Samuels, citing an International Monetary Fund report, said Arafat may have personally taken $900 million just from 1995 to 2000, a figure that did not include the rake off from kickbacks and other forms of corruption.