The Glass House that Aid Built

Since the mid-1980s, global television viewers have been inundated with the image of the rock-throwing Palestinian youth, his head-wrapped in a black and white checkered scarf, sparring with heavily armed Israeli soldiers on streets littered with the rubble of broken sidewalks. In recent weeks, these images have once again flashed across television screens as Palestinians took to the streets in the thousands, burning tires and blocking roads, amid a deteriorating financial situation in the West Bank.

This time, however, Israeli soldiers were nowhere to be seen. The wave of demonstrations were a response to ever increasing price hikes and the attempt of the Palestinian Authority to raise taxes in order to stave off its own economic collapse—a policy which evoked a strong response given the PA’s inability to pay its own employees’ salaries. The mass protests also coincided with the nineteenth anniversary of the Oslo Accords—a peace agreement with Israel that was intended to culminate with an independent Palestinian state within five years—and protesters heralded the occasion by burning symbolic copies of the historic document along with effigies of their prime minister, Salam Fayyad. Although the retreat of the government on the tax increases and promises for the future were able to defuse the latest round of demonstrations, it is clear that the vibrations are getting stronger. Understanding this moment—which offers the closest resemblance so far to the Arab Spring in Palestine—could deliver insight into the tangible end of a peace process that has stagnated for years.

One crucial component tying the political to the economic over the entire length of the Oslo process has been the proliferation of donor aid, which has flowed in primarily from Europe, the United States, the Arab Gulf and Japan, as well as the United Nations. This aid, which was intended to get the nascent Palestinian state off its feet during the transitional period from total occupation to independent statehood, crystallized into a permanent fixture that has become indispensable to maintaining the status quo in the absence of a final peace agreement. It is not surprising then that each time donor aid has slowed or come to a halt, Palestinian society experienced periods of deep turbulence. One notable occasion was after the 2006 election of Hamas, the Islamist resistance movement in Palestine, which is branded a terrorist organization by much of the West. In the wake of the Hamas victory, aid from the United States was immediately cutoff, eventually spurring a short, bloody civil war that has left the Palestinian political system divided ever since.

Today, virtually the entire Palestinian Authority budget is garnered from donor aid and customs revenues on goods coming into the country, which is collected by Israel on behalf of the Palestinian Authority (sometimes Israel withholds this money to put pressure on the PA). This has had the dual effect of insulating the government from its people and diverting PA decision making to the interests of its aid benefactors, including Israel. Furthermore, as parliamentary and presidential elections are more than two years overdue, Palestinians are feeling increasingly disconnected from the policies of their government. Under these circumstances, pushing through a tax increase is an incredibly tall order.

“This isn’t just about rising prices and it certainly isn’t just about salaries,” says Diana Buttu, a Palestinian lawyer and analyst who formerly served as an adviser to the president and the Palestinian negotiations team. “It’s about the fact there is no political vision any longer and there is no political movement. It is an uncertain future because it depends on where the politics intersect with economics.”

Indeed, the economic problems today boil down to the underlying structure on which peace was supposed to be built and donor aid has been the crucial ingredient keeping this edifice afloat. Over the years it has permeated every sector of society so that people have become indirectly dependent on aid, and thus, dependent on keeping the current Oslo regime in tact. This was enhanced further over the past few years as extraordinary reforms were made to the banking system so that normally risk-averse local banks began lending more freely. Government employees were able to take out large loans for homes, cars, and businesses for the very first time, trapping them in a system of debt incompatible with the chronically unstable economic environment.

Despite the appearance of an economic boom in the West Bank over the last few years—which reached a nine percent growth rate in 2010 according to the IMF and World Bank—actual economic growth was artificial given that it stemmed from donor aid. As soon as the aid slowed down the whole enterprise began to fall apart. With the prices of basic goods like food and gasoline rising outside of the control of the Palestinian Authority, economic pressures are becoming more acute on the average citizen. The combination of a bleak political future mixed with increasing economic hardship has finally boiled over.

“This is why people are now at a crossroads,” explains Buttu. “Yes, people need donor aid in order to survive but at the same time people are saying ‘we cant survive off of donor aid at the expense of our freedom.’ This is exactly the problem. Which way do you go? Do you turn right or turn left? Which way do you continue to move forward?”

In 2009, Prime Minister Salam Fayyad introduced his plan to revamp the institutions and economy of Palestine within two years. The concept of institution building struck a cord with governments in the West who endorsed Fayyad—a former official at the IMF and World Bank—wholeheartedly, and supplied him with the capital to do so. Fayyad was betting that the state building effort would create enough momentum to roll back the Israeli occupation when Palestinians could prove to the world that they could run a properly functioning state and economy. Yet, despite some noticeable reforms and the appearance of an economic boom, the Israeli occupation did not budge and its settlement enterprise continued unabated—further increasing popular discontent at the plan’s failure to produce results.

From the perspective of many Palestinians the attention of the PA has been focused on state and economics building and working with Israel, as opposed to resisting the occupation. Without real change in the political situation that Fayyad had anticipated, this has come to look like the PA is cooperating with Israel in making the occupation more sustainable and tolerable by raising the quality of life under occupation while doing nothing to end it. In short, it resembles the so-called “economic peace” that Israel’s Prime Minister Benyamin Netanyahu and his cohorts have been pushing for years.

As long as the occupation continues and Palestinians face severe limitations on their ability to move about their land freely and conduct business, however, the economy will never be able to stand on its own feet without aid. As long as that money continued to pour in, Palestinians seemed uninterested in challenging their government over its poor economic and political performance. People remain interested in keeping the PA afloat because it keeps their families and businesses afloat. However, as the ability of the Palestinian Authority to prop up the economy continues to wane, the government is increasingly facing a crisis of legitimacy. And with a political solution to the conflict nowhere on the horizon, it is likely that the ability of the economy to recover will be the driving force keeping the people on or off the streets. That does not bode well for a government—and a peace plan—that has deep structural flaws and is inescapably tied to money from abroad.


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