RAMALLAH, 5 February 2008 (IRIN) - The European Union (EU) experiment to give aid to Palestinians in Gaza and the West Bank is coming to an end, to be replaced by another first-time mechanism.

On 5 February PEGASE (Mecanisme "Palestino-Européen de Gestion et d'Aide Socio-Economique"), a new instrument to channel EU and international development assistance to Palestinians in the occupied Palestinian territory, issued its first payments to Palestinian civil servants - 22 million euros - which they will receive on 6 February. This is the first step to replace the EU's Temporary International Mechanism (TIM).

"We will be moving away from budget support and towards development, presuming the economy can grow," Roy Dickenson, the EU head of operations in the occupied Palestinian territories (oPt), told IRIN, noting the long-term nature of PEGASE, designed for development and not only emergency aid.

The World Bank has stressed the need for freedom of movement for the economy to develop.

TIM was created in mid-2006, several months after the Hamas election victory and rise to power, leading to an international boycott of the Palestinian Authority (PA), an interim administrative organisation which governs parts of the West Bank and Gaza. TIM bypassed Hamas-led governments, offering a way to keep paying civil servants' salaries and pensions, allowances for the needy, running costs of hospitals and other public services, and fuel for the Gaza Strip's power station.

However, recent changes, namely the Hamas takeover of Gaza in June 2007 and the formation of a government in the West Bank by Salam Fayyad without Hamas members - combined with the peace track launched at Annapolis and the follow-up donor conference in Paris which raised some US$7.7 billion for the PA - meant the TIM was outdated, as there was cooperation with the government again.

PEGASE will allow for budget support and developmental aid, in coordination with the PA development plan presented in Paris, including investments in basic services such as health and education, public security, as well as the private sector, a senior EU official who preferred anonymity said. The reforms and institutional development will be led by the PA.

Both TIM and PEGASE have systems to closely monitor all payments and make sure none end up in the hands of groups or individuals on lists of "terrorists".

Some aid workers have pointed out flaws in the TIM, particularly its rigid nature, which made adding people to the payroll very difficult, for example. EU officials said this would be addressed under the mechanism, as would a central criticism regarding the lack of development plans.

Gaza

PEGASE will function in coordination with Fayyad's West Bank government and will continue to boycott the Hamas authorities in Gaza, a territory still under a tight lock-down with no exports allowed out and few imports allowed in.

"We won't give up on Gaza. Commissioner for External Relations Benita Ferrero-Waldner has made it very clear she won't let Gaza down," said the EU official, adding that the EU has given 60-70 percent of total aid to the Palestinians in recent years.

He admitted that the ability to develop the enclave was severely hampered by the import restrictions - including goods such as cement and pipes - as well as the fact that Hamas and the EU cannot cooperate until Hamas ends its call for the destruction of Israel.

However, Europe and the PA continue to pay the salaries of many civil servants in Gaza.

When the TIM is phased out next month, it will have spent 616 million euros, EU officials said, stressing their desire to encourage non-European states to donate through PEGASE, as some countries did through its predecessor.

The unique nature of the system was acknowledged by an EU official who said it was unlikely ever to be instituted elsewhere in the world, though certain aspects were educational.

"We've learned how to work through local banks and free-standing mechanisms, and not only through NGOs," he said.

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