PHILADELPHIA — Philadelphia. When Kuwait disappeared into the Iraqi maw last August 2, the Palestine Liberation Organization found itself bereft of its second-largest source of funds. To make matters worse, Yasser Arafat's enthusiastic endorsement of Saddam Hussein's aggression caused the Saudi government, his largest donor, to cut off financial support. The United Arab Emirates, Qatar and Egypt followed suit.
The alienation of so many contributors has serious consequences. In November, Mr. Arafat estimated the financial loss to his organization at $10 billion. PLO income appears to be about half what it was before August 2. PLO employees, armed and not, have already experienced pay cuts and more reductions lie ahead. Though the PLO can be counted on to rebound from adversity, this blow will severely crimp its activities and its ambition to remain the dominant Palestinian organization.
PLO spending has been a matter of dispute. Forbes and the Wall Street Journal estimate the 1986 budget at $154 and $156 million, respectively. The Economist put it at $250 million. Looking at the 1989 budget, Neil C. Livingstone and David Halevy, authors of ''Inside the PLO,'' estimate $675 million; the Near East Report has the highest figure of all, $2 billion.
The PLO did publish a budget in 1987, pegging it at $197 million. Two years later, the figure had reached $274 million. Like Soviet military budgets, these figures hide more than they reveal. They appear to exclude expenditures by Fatah and other constituent groups of the PLO. My estimate, based on the reports of spending patterns and income, is that PLO expenditures reach $500 million a year -- about the same as the budget of a city the size of Cincinnati.
Historically, money for this impressive budget has derived primarily from three sources: dividends and interest on investments; legal and illegal commercial activities, and contributions from governments. Fearing liens and other legal problems, the PLO breathes not a word about its assets. As Atallah Atallah, a renegade PLO intelligence chief, explains, Mr. Arafat uses ''Mafia techniques [designed] not to leave a trace.''
Some of this money is held in gold and real estate, but much of it is highly liquid. Investments have been made around the world, especially in the West. Several institutions hold PLO funds, including the Gulf Bank, the Central Bank of Algeria and the National Bank of Kuwait. (Presumably assets in Kuwaiti banks are now history.)
The most important bank by far is the Arab Bank, with some 350 branches around the world, $1 billion in capital base and $13 billion in deposits. Owned in part by the PLO, the Arab Bank handles the organization's working accounts.
In the early 1980s, when assets were greater and expenditures fewer, the PLO virtually lived off of interest and dividends -- but no longer. Assuming an annual return of about 7 percent, the income from PLO assets amounts to some $150-200 million a year. If the budget is $500 million a year, the PLO is experiencing a shortfall of some $300-350 million.
From 1970 to 1982, when the PLO ran a state within a state in Lebanon, its revenues derived mostly from a wide array of legal and illegal commercial activities. On the legal side, the PLO got ,, involved in some interesting ventures, like the Modern Mechanical Establishment, an iron and steel company south of Sidon that paid no taxes, used coercive sales methods and engaged in predatory pricing. Then, after forcing the competition out of business, it raised prices.
Lebanon's anarchy offered unbounded opportunities for illegal activities: drug trafficking, protection rackets, robberies, hijackings and the training of foreign terrorists.
Other activities brought the most spectacular results. The December 1975 capture of OPEC oil ministers reportedly netted the PLO $20 million. A few months later, the PLO participated in what the Guinness Book of World Records calls the largest bank heist of all time. Robbing the Beirut branch of the British Bank of the Middle East brought the PLO one-third of the loot, between $16 and $33 million.
The expulsion from Beirut in 1982 ended this financial golden era. Also, while annual Soviet-bloc aid once amounted to the equivalent of tens of millions of dollars in cash, arms, training and intelligence, Eastern Europe's liberation and the ravages of perestroika have dried up this source.
Deprived of these sources, the PLO has in recent years become heavily dependent on handouts from Arab presidents, kings and emirs -- a demeaning return to pre-1970 circumstances. Gone are the days when Mr. Arafat had the leeway to act independently of his state sponsors.
The PLO has steadily received at least $100 million a year from the Arab states since 1973, but the annual amount has edged toward $300 million. Arab states agreed to take up the slack for both offensive reasons (to gain influence) and defensive ones (to avoid retribution).