Australia/Israel & Jewish Affairs Council

Can the PA (or Europe) Afford Palestinian Independence?

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The Palestinian Authority (PA) "is broke", and according to a recent New York Times article, "the immediate cause of the crisis is the failure of foreign - especially Arab - donors to fulfill promises of aid." According to AP, Arab donations have decreased dramatically over the past couple years, as "in 2009, the Arab countries gave $462 million, a contribution that dropped to $287 million in 2010 and $78.5 million this year."

The predicament has led even the usually optimistic PA Prime Minister Salam Fayyad to declare that "this is, without doubt, the worst financial crisis the Palestinian Authority has ever faced", noting that there could not be a worse time for this, with the PA's planned unilateral declaration of independence (UDI) coming up at the United Nations in September. The Times story reports the extent of the crisis:

More than 150,000 state employees, whose salaries support a million people, had their wages cut in half this month. Palestinian banks have lent the government more than $1 billion and do not want to lend more. Some ministries have temporarily lost electricity because they have not paid their bills. Last week, the government ordered a reduction in the price of bread, leading to bakery strikes. Garbage is piling up.

Meanwhile, the Washington Institute's Michael Singh noted the disconnect between Arab words and actions, as the states most vocal about supporting the PA's UDI are also the ones failing to live up to their monetary pledges:

PA Prime Minister Salam Fayyad reported that of the $971 million in pledges made by donors so far this year, only $330 million had actually been paid. Those arguing most strongly for Palestinian unilateralism, the PA's Arab neighbors, are among the stingiest with aid -- among them, only the UAE, Oman, and Algeria have fulfilled their aid pledges. As a result, the PA is saddled with a deficit that stands at $500 million and rising; steep indeed, but equivalent to only about half a day's oil revenues for Saudi Arabia.

Singh goes on to point out that this may get far worse if the planned UDI leads to a rupture of Israeli-Palestinian cooperation on which Palestinian economic success depends:

The last IMF report on the Palestinian economy, issued last April, heaped praise on the PA's economic efforts, which were in part responsible for a remarkable eight percent increase in the West Bank's GDP in 2010. But it noted that continued economic recovery for the Palestinians depended on three things in particular: further reductions by Israel in restrictions on movement and access within the West Bank and Gaza; better coordination between the PA and Israel on the collection of "clearance revenue" (essentially taxes and fees collected by Israeli authorities and transferred to the PA); and more reliable disbursement of donor aid.
The first two boil down to Israeli-Palestinian cooperation, which is threatened by the specter of Palestinian unilateralism in September. Indeed, shortly after the IMF report was issued, Israel temporarily suspended the transfer of clearance revenue to the PA in protest of the Hamas-Fatah unity agreement. If indeed the Palestinians seek to circumvent negotiations and seek recognition by the acclamation of the UN General Assembly, the painstaking gains made in Israeli-Palestinian economic cooperation will almost certainly be lost, to the detriment of both parties.

Indeed, rather than it being the embattled North African nations that have forsaken the PA the most, it is the Arab world's richest state that has been the greatest disappointment. Former US Deputy National Security Adviser Elliott Abrams says that Saudi Arabia clearly can afford to give the PA more aid, citing Saudi support for Jordan:


In June, Saudi Arabia granted Jordan $400 million in aid.

This week, the Saudis added a billion dollars more, and this $1.4 billion is cash-not loans, not investments, but budget support.

This amount almost entirely covers Jordan's projected budget deficit for 2011 of $1.5 billion, and of course the country will receive additional aid from other governments. By contrast, the Saudis have given $30 million to the Palestinian Authority in 2011.

The increased aid to Jordan can be seen as part of Saudi Arabia's "stable neighbor" policy, which led it to lend support to the nearby Bahraini regime during the height of the Arab Spring uprising there, as well as offer refuge to a number of Arab leaders on their way out. Saudi Arabia's goal is to do whatever it takes to end or prevent protests, and aiding the Jordanian government, which thus far has keep its limited protest movement contained, is in line with this policy aimed to keep protests from crossing its borders. But as Pinhas Inbari wrote in an insightful analysis of the topic, Saudi Arabia "has not delivered a single penny to the PA this year" even though millions had been promised.

Besides showing their indifference to the conditions of the Palestinians, the Saudi move also indicates that the monarchy believes that the West will ultimately fill the financial gap they have created. As Lawrence Solomon notes, the Palestinian economy depends upon four things - donations from Arab states, donations from the United States, donations from Europe, and Israeli goodwill, as Israel collects two-third of Palestinian taxes and buys 87% of Palestinians exports. Recent Saudi actions put into jeopardy three of those four - the UDI they support may lead the US to cuts its $550 million in aid and force Israel to stop economic cooperation with the PA, while the Saudi's own donation reduction is a problem on its own. Thus success at the UN in September could lead the Palestinians to depend on the Europeans more than even, leading Solomon to warn that, "If Palestine declares statehood this September, as many of its EU underwriters are encouraging it to do, the EU would be implicitly assuming an open-ended financial burden for a country of over four million, or almost the size of Ireland."

If the Arab UDI supporters do not start "putting their money where their mouth is" when it comes to Palestinian independence, the West Bank will have an economic crisis as well as a political crisis on its hands comes September. As European states debate whether to vote to recognise the PA at the UN vote, they should keep in mind that if they label Palestine as a state, it may just be one more state they will have to bail out continuously for a long time to come. 


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