Publication
Omar Shaban Ismail · Islamic University of Gaza · 2006
Omar Shaban examines how international financing should be used for Palestinian development after Israel’s unilateral 2005 withdrawal from Gaza, arguing that the pullout was incomplete and did not grant full Palestinian sovereignty over crossings, the airport, the seaport, or links with the West Bank. He argues that aid has helped improve living conditions and build Palestinian institutions, but its developmental impact was weakened by political conditions, weak administration and oversight, and a wartime shift from sustainable development toward relief and budget support during 2000–2004. He highlights key figures including more than $7 billion received over ten years, G8 pledges of $2–3 billion annually for three years, and the Palestinian Authority’s 2005–2007 medium-term plan focused on permanently addressing poverty, reducing unemployment, and building social capital by linking relief to development and strengthening aid management.
Omar Shaban, February 2006: Aid after Gaza withdrawal must be managed efficiently to link relief with sustainable development.
## Introduction
The partial Israeli withdrawal from the Gaza Strip and from four isolated settlements in Jenin Governorate in mid-August 2005 constituted a challenge of a special kind for the Palestinian National Authority and the Palestinian people in general. The particularity of this challenge stems from the fact that it was a unilateral, deficient, and incomplete withdrawal in terms of granting the Palestinian National Authority the right to exercise its full sovereignty over the people and the land. It was a one-sided withdrawal taking place outside the context of any negotiated peace process and without any guarantee for the continuation of negotiations over final-status issues. Within the framework of the withdrawal plan, Israel agreed to coordinate with the Palestinian National Authority only with regard to field issues, particularly security ones.
Despite this, Israel succeeded in marketing the withdrawal / evacuation / redeployment globally as full independence. It was also noted that Israel had accelerated the withdrawal ahead of the scheduled date so as not to be compelled to negotiate with the Palestinians over issues that were not included in the plan in its first version, namely sovereign issues with a strategic dimension. For example, the issue of the Rafah Crossing remained unresolved, as did the commercial crossing in the East Gaza area, “Karni.” Likewise, no decision was made regarding the rehabilitation / operation of Gaza Airport, and the same situation applied to the seaport, where Israel’s approval stopped at allowing the Authority to begin construction works, which require 3–4 years, without giving any guarantees for permitting operation. As for the road linking the governorates of Gaza with the governorates of the West Bank, discussion of it did not go beyond scientific and engineering proposals as to what the form of this road might be. It is worth mentioning that some of these issues were later agreed upon, such as the Rafah Crossing Agreement, which was signed with the assistance of the Arab Republic of Egypt and the European Union, and in the presence of international monitors to oversee the performance of the Palestinian National Authority. A tripartite agreement was also signed—Palestine, Turkey, and Israel—under which the Beit Hanoun Industrial Zone would be activated under Turkish management.
As happened in Oslo, when Israel gave the world the impression that Palestine had become independent and that the Palestinian issue had reached safe harbor, the official Israeli media succeeded in misleading the world into believing that the Israeli withdrawal from the governorates of Gaza and the northern Palestinian West Bank had resulted in full Palestinian independence and that the Palestinian National Authority had acquired full sovereignty over the land. Accordingly, Israel and the international community had the right to expect it to carry out the duties of any independent state in this world.
## The Philosophy of International Support for the Palestinian Authority on the Eve of the Israeli Withdrawal
In light of the withdrawal plan, the international community, as usual, hastened to declare its readiness to provide support and assistance. Thus, the Group of Eight industrialized countries, at their conference held in Scotland in July 2005, decided to allocate an amount of $2–3 billion annually to support the Palestinian National Authority for three consecutive years. This support decision was taken by the Group of Eight industrialized countries in order to encourage the Palestinians to engage with the withdrawal plan and to enable the Authority to carry out the duties incumbent upon it. It has become customary for the wealthy international community, represented by the United States, the European Union, and Japan, to provide massive financial assistance and political support to regions undergoing radical political transformations, as in Palestine, Sudan, Iraq, Afghanistan, Serbia, and Bosnia, or to regions experiencing a strategic transformation in the political system, as happened with the collapse of the socialist bloc and the accession of most of its countries to the capitalist West. Through this support and assistance, the wealthy international community aims to encourage the parties to enter the new phase, whether it consists of a political settlement to a military conflict, a transformation in the nature of the political system, or the emergence of a new political system that is loyal to the West or carries its ideas and does not conflict with its interests. This happened after the American occupation of Afghanistan and Iraq, and it happened after the end of the Balkan war. It also occurred in the cases of Sudan and East Timor. It certainly occurred with the beginning of the Palestinian-Israeli dialogue, which ended with the signing of the Oslo Agreement in September 1993, pursuant to which the Palestinian National Authority was established. Since then, the wealthy international community has held annual international conferences aimed at providing technical and financial support to the peace process, in order to enable the Palestinian Authority to carry out its duties in a way that would ultimately allow it to preserve the peace process. The first of these was in October 1993, held in Washington shortly after the signing of the Oslo Agreement, and attended by 42 donor countries and institutions. The conference allocated $2.5 billion to support the Palestinian National Authority for five consecutive years, at a rate of $500 million annually. Since then and to this day, the international community has remained committed, albeit to varying degrees, to enabling the Palestinian National Authority to carry out its role toward Palestinian society.
## A Review of International Funding in the Past Ten Years
The Palestinian National Authority received more than seven billion dollars during the past ten years with the aim of enabling it to carry out the role assigned to it, namely safeguarding peace by improving the standard of living of the Palestinians. The massive volume of aid received by the Palestinian Authority placed it second only to Israel since the Second World War in terms of the average per capita share of international assistance. It can be said that international aid has, to a large extent, fulfilled Palestinian aspirations and contributed in an undeniable way to improving the conditions of life in Palestinian society, and it played a significant role in helping the nascent Palestinian Authority address the effects of the prolonged occupation and in strengthening the Palestinian people’s support for peace. However, an objective assessment of the impact of this assistance cannot be complete without examining the details of international funding in terms of its sources, conditions, areas of expenditure, etc. Nor can international funding be considered homogeneous in form and substance. There is commercial financing, and there is financing in which the donor has the upper hand in determining the areas of expenditure, as well as the extent to which the impact of this funding is sustainable with regard to strengthening the administrative and technical capacities of the Palestinian Authority and empowering the Palestinian citizen. Given the state of instability that has become one of the hallmarks of the Palestinian situation, and given the relationship of mutual influence between the political reality and the international funding granted, international funding varied from one year to another across three different time periods:
## The First Phase: 1994–2000
This was the phase that witnessed the establishment of the Palestinian National Authority and the beginning of its exercise of its powers and sovereignty to the extent allowed by the Oslo Accords. The volume of international funding to Palestine during these years averaged around $500 million annually. In this phase, funding focused on the institutional building of the Palestinian Authority, the implementation of massive training programs, including the building of government institutions, strengthening the Palestinian security services, as well as programs to improve infrastructure and projects to improve drinking water services, electricity, and sanitation services. This phase also saw the issuance of several reports that spoke of rampant corruption in the Authority’s circles and manifestations of extreme extravagance in spending funds, as well as the spread of economic monopolies and government-owned companies. One of these reports was the report of the General Control Authority, which confirmed the disappearance of huge sums of money amounting at the time to approximately $315 million. There was also the report of the “Rokar” Committee.
This phase also witnessed many notable manifestations and achievements, such as the rehabilitation of Gaza Airport and the start of construction work on the port project, the building and operation of the electricity generation company, the rehabilitation of dozens of kilometers of roads, and the construction of many housing projects that eased the severity of the housing crisis that had been suffocating Palestinian society, especially among young people. This phase was also distinguished by the construction of dozens of schools and educational institutions, etc. The funding priorities in this phase were as follows:
• Infrastructure projects
• Social service projects
• Institution-building projects
• Productive sectors projects
The first three sectors captured the lion’s share of this assistance, with each sector receiving a share ranging between 25–30% of total assistance.
## The Second Phase: 2000–2004
This was the phase that witnessed the outbreak of the second intifada in late September 2000, which had a very major impact on many aspects and features of Palestinian society. The armed conflict erupted once again between the Palestinians and the Israeli occupation. It differed from the conflict reflected in the first intifada, which broke out in 1987 and ended with the arrival of the Palestinian National Authority. This time, the Palestinian National Authority itself was a deliberate target of Israeli repressive measures, as some official Authority agencies participated in resistance activities against the occupation. This phase witnessed a fierce Israeli campaign to destroy what had been accomplished during the previous years, encompassing all sectors: industrial, agricultural, tourism, public institutions, road closures, the imposition of prolonged closures on the Palestinian territories, and the destruction of the administrative and security capacity of the Palestinian National Authority. It also severed the cooperative relations that the Palestinian economy had been able to build with the world. This phase was also characterized by Israel’s persistence in building the apartheid separation wall at a very accelerated pace, which altered the topographical character of the West Bank and resulted in separating tens of thousands of Palestinians from their lands and workplaces. Palestinian losses during these years were estimated at more than $16 billion, several times greater than the volume of international assistance. All these Israeli measures had negative effects on Palestinian society as a whole, manifested in:
• The destruction of productive industrial, agricultural, and tourism institutions, etc.
• The spread of unemployment, poverty, and social problems as a result of these conditions
• The deterioration of internal relations and the emergence of manifestations of security chaos and armed conflicts.
• The increasing inability of the Palestinian Authority to take control of affairs and organize the internal front.
• The transformation of Palestinian society as a whole into a society dependent on international aid.
• A fundamental transformation in the structure of the Palestinian economy, such that sustainable human development programs receded and were replaced by relief programs, rapid intervention, and emergency programs that leave no effects in the medium and long term.
• Work stopped on strategic infrastructure programs such as the Gaza Port project; Gaza Airport ceased operations as a result of Israeli destruction and political prevention; likewise, work stopped on building electricity generation stations in the governorates of the West Bank.
• The volume of government revenues from taxes and fees deteriorated, which contributed to increasing the incapacity of the Palestinian National Authority to carry out its duties. Israel also withheld the taxes it collected on behalf of the Authority, “clearance revenues.”
• On the other hand, the volume of international funding doubled during these years. Whereas the average international funding during the years 1995–2000 ranged between $400–600 million annually, the average international funding doubled to reach $1 billion annually during the intifada years 2000–2004.
• A radical change occurred in the areas of funding expenditure. After most of it had been directed to supporting development programs with a sustainable impact, what came to be termed “budget support” came to account for more than 50% of international support. Budget support means enabling the Authority to pay the salaries of its employees, whose number exceeded 130,000 employees. There was also a change in the sectoral distribution of assistance compared with the first phase. For example, though not limited to this, the social sectors accounted for 68% of total assistance after having been 27% in the phase referred to above. There was also a major decline in the proportion of support directed to the infrastructure sector: after its share had exceeded 27%, it fell to only about 10% of total assistance. This is due to the inflation of the social problems that arose during the intifada and the paralysis that afflicted the productive sectors as a result of the occupation policies referred to.
## The Third Phase: Financing After the Disengagement Plan: 2005–2007
In light of the disengagement plan, the international community, as usual, hurried to announce its readiness to provide support and assistance. Thus, the Group of Eight, at its conference held in Scotland in July 2005, decided to allocate an amount of $2–3 billion annually to support the Palestinian Authority for three consecutive years. This support decision was taken by the Group of Eight in order to encourage the Palestinians to engage with the disengagement plan and to enable the Authority to carry out the duties resulting from it. Shortly after the Group of Eight adopted this decision, many views emerged casting doubt on the ability of the Palestinian National Authority, in its current condition, to manage this massive funding efficiently. Hence, concerns were raised, some of which had already been proven valid, and which can be summarized as the administrative and technical weakness of the Authority and its lack of the required popular support. Likewise, the weakness of, and failure by, oversight institutions such as the Legislative Council, the judicial apparatus, and civil watchdog organizations to play the role assigned to them would inevitably lead to further corruption, the emergence of new monopolies, distortion in the priorities of funded development, the aggravation of social problems and the spread of manifestations of security chaos, increased manifestations of violations of the rule of law, and spending on items, programs, and activities that are not priorities. This would necessarily result in weakness in political stability. The Palestinian National Authority prepared a package of projects totaling 38 projects and submitted them to the Quartet Committee. The Quartet Committee consists of: 1) the European Union, 2) the Russian Federation, 3) the United States of America, and 4) the United Nations. Mr. James Wolfensohn was chosen as coordinator of the Quartet Committee, and he was selected because of his extensive knowledge of the conditions in the region, having served for a period as the World Bank’s representative in Palestine.
## Assessing the Impact of International Funding on Development in Palestine
The number of donor countries to the Palestinian Authority reached about 42 countries (“Ministry of Planning”). They vary in the extent of their contribution to the Palestinian Authority in terms of size and the form these aids take. The European Union is considered the largest donor to the Palestinian Authority. It is worth noting the chronic statistical problem in Palestine, where it is not possible to verify the accuracy of figures and statistics, even those issued by specialized statistical centers. This is because funding sources do not follow clear and registered channels; moreover, some funding channels end up with individuals, associations, and institutions without documentation, especially those forms of aid coming from the Arab and Islamic world. It is also possible to classify assistance coming from Arab, Islamic, and international parties under the concept of zakat, building mosques, building health centers, and relief assistance for the disabled and for farmers. Some researchers believe that the international aid that is documented does not exceed two-thirds of the aid reaching Palestine. Table No. (1) shows the volume of funding and its sources during the past ten years.
Table No. (1): Sources and Volume of Funding (value in million dollars)
Donor: 1994–1997 | 1998–2000 | 2001–2003 | Total
European Union: 219 | 235 | 787 | 1,241
Arab states: 193 | 105 | 903 | 1,201
United States of America: 285 | 260 | 482 | 1,027
Japan: 308 | 132 | 41 | 481
International institutions: 139 | 140 | 154 | 433
Source: Human Development Report 2004, Development Studies Programme, Birzeit University.
It is nothing new to say that international funding has played an important role in achieving development goals in Palestine and in improving living conditions in Palestinian society, especially during the years of the Intifada, which were lean years for Palestinian society because of the occupation’s policies and measures against all aspects of Palestinian society, especially productive economic resources. However, one must not stop at mentioning the volume of aid; rather, one must delve into the conditions of this funding, its types, aspects of its expenditure, and the local and international political context through which the funding comes. For example:
• The social sectors—health, education, youth and childhood sectors, and humanitarian assistance—accounted for 31% of total aid.
• The infrastructure sector, including energy, housing, sewage, telecommunications, and transport, came in second place in terms of funding volume, accounting for 30% of it.
• The institution-building sector and administrative and technical support accounted for 27%.
• The productive sector came at the bottom of the list, with only 9% allocated to it.
The matter becomes clearer when we look more deeply into how this aid was distributed among activities within each sector. For example, consultancy and technical assistance accounted for 28% of total aid, while 14% of this aid was in the form of loans, some of which were provided as loans at commercial interest rates that in some cases reached 15%. These are among the highest commercial rates in the world. Table No. (2) shows the sectoral distribution of international aid.
Table No. (2): Sectoral Distribution of Aid (value in million dollars)
Sector: 1994–1997 | 1998–2000 | 2001–2003 | Total
Infrastructure: 606 | 550 | 307 | 1464
Productive sectors: 137 | 192 | 98 | 428
Social services: 599 | 427 | 2094 | 3121
Institution-building: 604 | 241 | 346 | 1193
Other: 82 | 53 | 210 | 346
Total: 2029 | 1465 | 6708 | 6553
Source: Human Development Report 2004, Development Studies Programme, Birzeit University.
Although the conditions attached to some international funding are at times unfair, the availability of self-capacity and high efficiency on the part of the receiving body reduces the extent of this unfairness. Despite the positive impact these aids have had on Palestinian society, a study of the reality in which we live indicates a major decline in human development indicators, without in any way minimizing the impact of the occupation’s systematic policies against the Palestinian economy. Unemployment and poverty have reached unprecedented levels, with two-thirds of Palestinian society now living below the relative poverty line, and 20% living in extreme poverty, making it impossible to provide the necessary food in both quantity and quality. Not to mention the deteriorating condition of roads and infrastructure, and the poor level of water, electricity, and telecommunications services. Thus, Palestinian society has become in urgent and constant need of relief and assistance after having once been a productive society that assisted others, as happened with Algeria in the Chlef earthquake in the mid-1990s, with Ethiopia during its famine in the 1980s, and with Armenia in its devastating earthquake in the 1990s. It is true that the situation is far better compared to what it was before the arrival of the Palestinian National Authority. However, many studies and reports, whether local or international, have concluded that international funding, including Arab and Islamic funding, could have produced more sustainable effects had it been utilized more efficiently.
## Medium-Term Development Plan 2005–2007
As has been the custom since the establishment of the Palestinian National Authority in 1994, the Authority, represented by the Ministry of Planning, prepared a Medium-Term Plan for the three years 2005–2007. The plan was prepared by a central team in the Ministry in coordination with the ministries of the Palestinian National Authority. According to the plan’s stated text, it aimed to address development needs in the Palestinian territories, as the Authority is responsible for securing the interests of the Palestinian people, and this was the spirit on the basis of which the Medium-Term Development Plan was formulated. The plan affirms that the objectives the National Authority seeks to achieve through this plan are three:
1. Addressing poverty on a permanent basis.
2. Reducing unemployment.
3. Building social capital.
This is to be achieved through central strategies, namely:
1. Linking short-term relief to longer-term development needs.
2. Strengthening the leadership of the Palestinian National Authority in managing, coordinating, and supervising aid.
3. Directing donor interventions toward mobilizing and allocating national resources.
4. Building the capacities of the public sector in order to strengthen the ability to plan for development.
The Medium-Term Development Plan contains economic components aimed at promoting job creation and sustainable growth in the private sector. The plan includes sections on social protection and social, human, and physical development through a coordinated public sector investment program. The plan contains a substantive program for reform and institutional capacity-building for the ministries, agencies, the judiciary, and democratic institutions. The plan also affirms that without internal reform and development and the integration of women into the development process, the institutional capacities of the Palestinian National Authority and its ability to apply good governance will remain insufficient to undertake the development process effectively and efficiently.
## A New Work Philosophy
Taking into consideration the state of institutional, administrative, and financial weakness, the international support for the Authority, and the state of anticipation and doubt regarding its capabilities on the part of the international community and Israel, and in order to succeed in the historical te…
Topic: Palestinian Economy — international financing · development · Israeli withdrawal · Palestinian Politics — Text © Islamic University of Gaza — archived here with attribution to the source.