What does the headline "Palestinian Authority in danger of economic collapse" remind you of? It reminds me of hundreds of similar headlines that appeared in the media since the PA was established back in 1994. When the Declaration of Principles was signed between Israel and the PLO a "conference of countries who donate to the Palestinian Authority" convened in Washington.
The conference met under the inspiration of the Israeli government and the orchestration of Shimon Peres, at the time foreign minister in the Rabin government. It was attended by the industrial superpowers and rich Arab countries. The conference decided on a huge aid program for the Palestinians to the tune of 5 billion dollars.
Since then the Palestinian Authority has been receiving foreign aid at levels unprecedented in history, relative to the product and income generated by the Palestinians. The aid provided so far reaches 10 billion dollars and dwarfs the Marshall Plan of U.S. aid to Europe after World War Two, and the Serbia economic rescue plan after the civil war.
In retrospect the aid was a colossal mistake. It relieved the Palestinian leadership of its responsibility for the economic wellbeing of the residents. Responsibility was placed on the shoulders of the international community, including Israel. The generous aid turned the PA into a sort of crippled creature, unmotivated to become a sovereign state, and used to solving its problems by begging others for handouts.
The Palestinian administration learned to ignore economic considerations. The Palestinian bureaucracy grew to monstrous proportions, the clerkship was corrupted, 5-6 competing security agencies were established and finally the PA found itself in heavy and incessant deficits.
The money that came easily was also spent easily. Dozens of unnecessary projects were started in the PA areas that were not completed. Senior PLO officials opened private funds into which international aid money was channeled, escaping international scrutiny. To this date the PA has not introduced a system of tenders nor have its offices installed software for the close surveillance of budgetary performances. And really, why bother? The PA became hooked on foreign aid as if it were an addictive substance.
Yasser Arafat, before being jailed in the Muqata'a, wasted his days on whining missions to international aid parties, always singing the same tune: "the Palestinian Authority is on the brink of economic collapse," "there will not be enough money to pay the security agencies and terror will run riot," and other such threats.
In 1996 – three years after Oslo (!) – Peres and Arafat ran to the heads of the donor nations and asked to establish emergency aid foundations for the Palestinians, because the regular aid "was not enough," and the Palestinian Authority "ran out of money for salaries." The position of a beggar became Arafat's permanent presentation, and now Abbas' too.
Israel erred and continues to err by declaring economic war on the Palestinians and not giving them the tax money it collects on Palestinian goods. That money is not aid and is not ours. But Israel also erred just as much when it assumed the role of the guardian of international aid to the Palestinian economy.
Figures were corrected retroactively
To back up the eternal requests for external aid, the basic figures of the Palestinian economy were forged. When the intifada broke out we were told one of its motives was "the fact that the Palestinians did not enjoy the fruits of the Oslo accords." Official Palestinian administration figures, and those of international economic institutions that based them on the Palestinians, indicated at the time zero per capita growth from 1995 to 2000. Those who claimed, as I did, the figures were suspect of being manipulations, were suspected themselves of whitewashing reality.
And lo and behold: when the intifada was already at its peak and the PA was interested in emphasizing the destruction, the figures were corrected retroactively. Instead of zero growth it turned out that during the terrible Oslo years the Palestinian economy grew by 8% a year and reached the peak of prosperity at the very brink of the intifada.
The story repeated itself in 2005. The Palestinians, followed by the World Bank, published scary figures about a sharp decline in Palestinian per capita income even in the intifada's waning years, that is, 2003 and 2004. But this time the World Bank suspected those figures, took the initiative and changed the calculations. Its economists announced that in 2003 and 2004 the per capita income in the Palestinian territories grew by an average 8.5%.
What generated the growth? Not international aid, that shrunk considerably during those two years, but the end of the intifada, the drop in the level of terror and as a result the reopening of the Israeli labor market to Palestinians, the increase in exports from the PA to Israel and Europe and the first signs of foreign investments.
But there was a retreat already in 2005. The Palestinian government raised its workers' salaries by tens of percentage points as part of a classic elections economy. It could afford the move because the donor nations opened all the funds. After all, they wanted the Gaza disengagement to succeed. And so by last fall 1.3 billion dollars were channeled to the Palestinians – an all time record in Palestinian economic history.
Terrible humane disaster averted
The World Bank, that coordinates the aid, believes the help of the donor countries prevented a terrible human catastrophe in the PA, when tens of thousands of Palestinian workers lost their jobs in Israel overnight, and the Palestinian territories themselves were cut up by a tight net of IDF checkpoints. If it weren't for the donations, wrote the World Bank economists, life in the PA under Israeli occupation would be unbearable, inhumane.
That is a correct assessment for the day of its writing. It does not answer the critical question: did the unlimited international aid provide backing for mistaken, fatal and destructive Palestinian political decisions? Would the Palestinians have acted differently at critical junctures of decision could they not always rely on the donor countries? This can be assumed to be the case. It is reasonable to assume that under the protection of the donor nations' money extremist and "revolutionary" elements in the PA allowed themselves to lead an irresponsible national policy that brought a series of disasters down on them.
In the absence of responsibility for the Palestinian economy, Arafat's administration could forego fighting the terror organizations (in the name of "national unity"), and even encourage and incentivize the intifada, without considering its heavy economic price. After all, Arafat knew he could go to the international community and cry on its shoulders bitterly and receive the aid. After all, the responsibility was not his.
Because of the huge and readily available aid a strong middle class did not emerge in Palestine, but a rotten and corrupt class of nomenclature did: government officials appointed to their offices by the ruling party – Fatah in this case. Because of the foreign aid private investors avoided coming to Palestine even when times were calm. It is a known choice: either you have foreign aid or you have foreign investment. Foreign investors discovered India only when India stopped starring on the list of countries begging for economic aid.
Because of the aid, almost all of which was public, the Palestinian business sector was stifled and its voice was not heard. Only one industry functioned well since the PA was established: the financial-banking sector. Even during the years of terror and intifada Palestinian banking maintained business almost as usual. How did such a miracle occur? It's very simple: that is the sector where the Palestinian administration did not have access, a sector that did not receive one penny of foreign aid, and that was completely run by the private sector. Had the donor countries restrained themselves in the amount of aid they gave the Palestinians, Palestinian per capita income today would be twice what it is.
Demand a cut in aid
I remembered this whole sad story of the Palestinian economy this week when I read the comments of President James Wolfensohn, the former World Bank president who has served in the last year as the special economic envoy of the International Quartet (U.S., EU, Russia and the U.N.) for the disengagement and coordination with the Palestinians. At his appearance before the U.S. Senate's Committee on Foreign Relations Wolfensohn warned against the destructive results of stopping donations to the PA. According to the World Bank's darkest scenario, the Palestinian economy will shrink by 25% this year, unemployment will jump to 40% and poverty will spread to the extent of two thirds of the Palestinian population.
Looking at those numbers Wolfensohn assessed that international economic pressure on the Palestinian Authority would not weaken support for Hamas but would even strengthen the organization. He warned of a collapse of the vital services such as education and health. And who would bear the responsibility? Again: not the Palestinian administration, not the Hamas government and not those who voted for Hamas – but the donor countries. And Israel.
Therefore, Wolfensohn called for the aid not to be cut. He is wrong. Anyone who wants what is good for the Palestinians, a hard-working, educated and enterprising people, must demand not that the aid to the PA be increased but that it be sharply cut. The Hamas electoral victory only proved the futility of the aid. It is time for the Palestinians to take their fate in their hands. It is time for economic considerations to take their place in their national strategic picture.
As long as the Palestinian economy is an infant economy the world has to feed with a spoon, the Israeli occupation will also continue. Instead of asking for more aid, James Wolfensohn should have offered an opposite move: canceling the useless institution of "the countries that donate to the Palestinian Authority." Yes, it is time for the donor nations to donate to Africa's hungry and not to the Palestinian "security forces."