Memorandum submitted by the Discovery
Analytical Resourcing
OVERVIEW
0.1 Prevailing conditions in the occupied
Palestinian territories at the end of 2006 are such that the economic
outlook remains disproportionately distorted by political events.
A review of the development environment in the occupied Palestinian
territories would normally imply that the Palestinian Authority,
within these limits, has autonomy for policy evaluation and resource
allocation—or, as the World Bank has it,
...that a government faces options and trade-offs
in how it uses its financial resources—that it has the flexibility
to choose between competing priorities, and to structure its finances
in such a way as to free up resources for use elsewhere. It assumes
that a government has latitude to develop institutions and deploy
human and financial resources in ways that will maximize efficiency
while achieving their developmental objectives. On each of these
fronts, the PA faces severe constraints, fiscal or otherwise.
1
0.2 These constraints override in significance
the potential of most of the review topics listed under this present
enquiry to advance development, as indeed the previous enquiry
concluded:
There has to be a sense of realism about what
development assistance can achieve. The World Bank told us that
removing the "access controls" imposed by the Israelis
would have increased real GDP by 21%, whereas a doubling of development
assistance—without easing closure—would only reduce
the number of people living in poverty by 7% by the end of 2004.
The situation in the OPT, in other words, is not one which donor
assistance can resolve. 2
The need for development assistance to be diverted
for humanitarian relief rather than sustainable economic and social
development persists and has, in many fields, become more urgent
since 2003.
0.3 However, these constraints have significant
characteristics for evaluating aid effectiveness:
0.3.1 Demand for development aid and humanitarian
relief derives from security policy and is not the result of random
catastrophe nor negligent governance. Under these conditions,
projects that are designed to respond as if to the impact of fortuitous
adversity will always be vulnerable to man-made frustration.
0.3.2 The position has further deteriorated
since the Committee's last enquiry in that punitive suspension
of established disbursements by the Quartet has rendered the provision
of international aid an intensely political issue.
0.3.3 The impact of this stance has been:
— to subvert the achievements of past
and current development activity;
— to compromise the Quartet's diplomatic
impartiality in the broader context of ongoing peace dialogue;
— to result in a dysfunctional policy
stance both from a national perspective (where donor government
departments find themselves managing conflicting policy imperatives)
and in the context of the political reform clauses stipulated
by the Road Map for the PA.
A. What are the implications of the Hamas
election victory?
A 1.0 Hamas' victory at the polls presented
an opportunity to work with an administration commanding popular
support and one untainted by allegations of corruption. The organisation's
community-based education, healthcare and social welfare programmes
were often active in the most deprived areas of the occupied territories
not hitherto served by the PA.
A 1.1 The Quartet's refusal to recognise
Hamas' democratic mandate and to co-operate with the PA effectively
derails the party's election manifesto. Given the inherited structural
dependency of the PA budget on external transfers, the fact of
a Hamas election victory has been made irrelevant to evaluation
of subsequent effectiveness of international development aid.
A 1.2 In these circumstances, the significant
question defers to: how effectively have the UK, World Bank and
EC responded to the new reality?
D. How effectively have the UK, World Bank
and EC responded to the new reality?
D 1.0 It can be argued that Hamas already
complied with the Quartet's pre-conditions some time before they
were issued as an ultimatum following the January elections, namely:
— Hamas' renunciation of violence:
a truce had been maintained since January 2005; Hamas proposed
a long-term cessation of hostilities to Israel, which Israel rejected;
— recognition of Israel: this is a
rhetorical proposition, Israel having declined to declare its
borders:
"Everybody in Hamas says `Yes' to the two-state
solution | The problem comes from the fact that the Israelis so
far [have not said they] accept the 1967 borders… between
the two states." 3
[Hamas parliamentary speaker Aziz Duweik, (10/v/06)]
Since at least 2003, Hamas policy on a two-state
solution to the conflict had been in the public domain and based
on reciprocity:
"If Israel declares that it will give the
Palestinian people a state and give them back all their rights
then we are ready to recognize them." 4
[PA Prime Minister Ismail Haniyeh (26/ii/06)]
— Hamas' recognition of existing agreements:
the Oslo accords and their satellite agreements, having technically
expired in 1999, and having been publicly repudiated by Israeli
Prime Ministers Netanyahu and Sharon, remain for the most part
unimplemented (and did not establish Palestinian statehood). The
Road Map was never formally accepted by Israel, Sharon presenting
fourteen counts of rejection and adopting a strategy of unilateral
withdrawal, settlement and border construction. The Road Map had
expired at the end of 2005, and it is not clear what the demands
for de jure recognition were or are supposed to achieve where
these agreements de facto are non-operative.
D 2.0 In February 2006, the Israeli
government implemented a freeze in transfers of customs duties
to the PA collected from the transit of Palestinian international
trade. As had been seen on the previous occasion that these funds
were interrupted (2001 thru' 2002), the PA budget is deprived
at a stroke of between a half and two-thirds of regular monthly
revenues.
D 3.0 "The importance of EU donor
support, and in particular its assistance to the Palestinian Authority
was fully recognised by the international community, at the Ad
Hoc Liaison Committee meeting of international donors (including
the EU, US, Norway and the World Bank) in London, 18-19 February
2003.
"Donors and the PA noted the continued critical
importance of external budget support, which had prevented a collapse
of the PA and injected cash into the Palestinian economy. It has
also been instrumental in supporting the PA's implementation of
essential reform measures. In addition it was noted that salaries
of the PA and international organisations remained one of the
few stable sources of income for a broad segment of the Palestinian
population, and as such were an important stabilising factor in
the Palestinian economy." 5
D 4.0 Was there a "new reality"
that required a radical re-evaluation of provision of budget support?
Given the PA's successful implementation of institutional reform
under its Road Map obligations, the lifting of Hamas' blacklisting
could have rebuilt confidence in the potential for political negotiations
to move the peace process forward.
D 5.0 Because of the US Government's classification
of Hamas as a terrorist organisation, World Bank operations on
behalf of the Palestine Authority—including the Single Treasury
Account set up under the Road Map's financial reform programme—have
had to cease. The European Union suspended transactions with the
Palestinian Authority at the beginning of April 2006.
D 6.0 Under the Temporary International
Mechanism (TIM), the EU has undertaken to finance certain essential
social and utility services. A contribution of 60m€ had been
allocated to the TIM by the time it was fully operational at the
end of September 2006.
D 7.0 The reaction of the EU to punish the
Palestinian electorate for, as it were, "getting the wrong
answer"—especially given the EU's past essential role
in underwriting secure public finances— has sent the message
that delivery of aid is tied to political submission, rather than
support for the institution of democratically representative politics.
D 8.0 It has also undermined one of the
few achievements of the Road Map by compromising financial reforms
implemented by the PA:
— the Single Treasury Account, consolidating
revenue inflows, no longer functions;
— key donors are obliged to by-pass
the PA;
— unconventional channels are emerging
to ensure funds flow involving the Palestine Investment Fund,
the account of the President, and manual bulk cash movements.
Deductions from Palestinian customs clearance
revenues withheld by Israel are also made without formal reporting
to the PA.
B. What has been the impact on poverty/the
humanitarian situation?
B 1.0 Due to the pivotal role played by
state services in an economy under long-term siege, the annual
wage bill by the end of 2005 had exceeded 90% of government revenues.
The PA budget requires around £75 million per month. Although
alternative sources of finance remain available to the PA, international
banks have declined to become involved with lending or treasury
functions on the PA's behalf for fear of litigation under anti-terror
legislation. External funding has been used to settle debt repayments
while government has functioned on domestic fiscal receipts and
cash deposits brought to Gaza.
B 2.0 The impact of a shock reduction in
income on a closed, constricted economy is predictably severe.
From the second quarter of 2006, social transfers were being cancelled
and Palestinian Investment Fund assets were being used to cover
fuel supply bills. Monthly salary payments to government employees
were suspended from March 2006.
B 3.0 The World Bank estimates for the West
Bank and Gaza in 2006 indicate a -27% recession in real GDP (against
2.7% growth in 2005), an unemployment rate of 40% of the workforce
(23%) and a poverty rate of 67% (44%).6
C. How best can development be achieved in
this context?
C 1.0 The present financial constraints
under which the PA is operating are clearly unstable. The immediate
impact on specific development projects will depend on the extent
to which such projects are externally fully-funded.
C 2.0 While exacerbating an already difficult
development context, the international community's fiscal blockade
should not divert attention from the more durable barriers to
economic growth and integration that have proliferated under political
pretexts.
INQUIRY ISSUES
4. The impact on development in the Palestinian
Territories of Israel's disengagement from Gaza and the possibility
of further disengagement from parts of the West Bank
Military disengagement and the dismantling of
settlements alone, without enabling free access and open frontiers,
constitutes neither a legal termination of occupation nor a practical
proposition for economic development:
"Gaza Strip, for instance, is a landlocked
economy politically, but not geographically. Leaving aside the
contentious issue of opening its seaport and airport, a key priority
may be to enable the Rafah Crossing to be used for exports through
Egypt. This would require agreements with the Egyptian government
for a transit regime from Rafah to East Port-Said port or Al-Arish."
7
6. The impact of the separation barrier and
other controls on the movement of goods and people on employment,
poverty, economic development and on the delivery of humanitarian
assistance
6.01 The effect of the separation barrier
has been inter alia:
— to make the flow of indigenously-produced
goods impractical or uneconomic;
— to exacerbate poverty through inflationary
costs of trading logistics (due to both security compliance measures
and derived transport costs);
— to convert a self-sufficient agrarian
market economy into a (literally) captive unskilled labour force
dependent on external subsidy;
— to disguise the appropriation of
private land by non-commercial means.
Primary source material of the experiences
of the West Bank community of Jayyous may be found at:
http://www.eappi.org/eappi.nsf/index/rep-ic-04121002.html
http://www.jayyousonline.org/englishweb/englishindex.htm
6.02 Under the Oslo accords, the Paris Protocol
(1994) was intended to guarantee equal trade and economic access
within the unified customs regime operating in Israel/Palestine.
Israel's security measures have the effect of guaranteeing Israeli
businesses a competitive advantage in pitching for international
orders.
6.03 "The most binding constraints
on economic activity in the West Bank and Gaza (WBG) are the uncertainty
and extra cost of doing business because of the difficulty of
access—not only to external markets but also to local markets—resulting
from the Israeli security regime. The latter includes special
measures affecting imports into WBG: back-to-back system, the
system of fixed and mobile checkpoints in the West Bank, and closures
(including the separation wall). Closures impinge on all aspects
of the movement of goods and people, and disrupt economic links
between West Bank and Gaza, within the West Bank, and with Israel
and the rest of the world in an unpredictable manner. Back-to-back
system and special security screenings of outbound and inbound
shipments dramatically raise trading costs. Taken together, they
make the WBG a nonviable economy as fragmentation of economic
space, both in its internal and external dimensions, makes the
development of more advanced forms of division of labor and integration
into external markets impossible." 8
7. The control that the network of settlements
in the occupied territories have over the basic conditions for
the development of the Palestinian economy: agricultural land,
water, movement of persons and goods, environmental impacts
7.01 The instruments of control exercised
by settlements were outlined in detail in the submission from
Discovery Analytical Resourcing to the Committee for the 2004
enquiry. The essentially reciprocal relationship between army
and settlers persists, the settler presence creating the need
for the military presence in the occupied territories while settlers'
undercover antagonism of Palestinians is supervised by the army.
Dissolution of this partnership requires that military occupation
be put to an end.
— For development of control mechanisms
and the political objectives of settlement, see Ev 102-104. 9
The Yesha Council represented settlers in political negotiations
and direct action regarding the evacuation of the Gaza colonies
in 2005, although the US-activist Americans for Peace Now has
suggested that more militant groups no longer support the Council's
leadership [http://www.peacenow.org/policy.asp?rid=&cid=2777].
— For the intense impact of security
policies on enclosed Palestinian communities, see Ev110-112. 10
Al-Mawasi has subsequently been evacuated, but the communities'
experience is replicated in closed areas across the occupied territories.
7.02 In March 2005, the head of the criminal
department at the Israeli Attorney General's office, Talia Sasson,
published a report on unauthorised settlements citing "blatant
violation of the law by certain national authorities, public authorities,
regional councils | and settlers", revealing that:
— "the unauthorized outposts phenomenon
is a continuation of the settlement enterprise in the territories"11;
— the Israeli government was involved
in planning and financing illegal outposts;
— the Civil Administration was involved
in allocating private Palestinian land on which outposts were
unlawfully established;
— over many years officials at the
Ministries of Defence and Housing, the World Zionist Organisation
and the Israeli army were implicated in the establishment of over
100 outposts.
7.03 Settlement outposts have continued
to multiply. The Peace Now website maintains databases on settlements
and outposts under its Settlement Watch project [http://www.peacenow.org.il/site/en/peace.asp?pi=51].
Its most recent Ground Survey Report, conducted in August 2006,
confirms major construction is taking place in "settlement
blocs" and population creep into uninhabited outposts.
7.04 In spite of their growth and illegality,
the Israeli judiciary is reluctant to act. An appeal to evacuate
six outposts was turned down in June 2006 because, according to
the opinion of the justices, evacuation "is up to the government
based on its own security and operational considerations."
12
7.05 The military enforcement of security
regimes accompanying settlements constitutes the foundation for
the structural impediments to development in the occupied territories
mentioned elsewhere in this memorandum. Overcoming them entails
focussing on the political objective of bringing an end to military
occupation.
7.06 Some Palestinian communities that have
been subject to close attention for settlement activity since
the Committee's last report, and references to sources of further
information concerning them, are listed below:
— At-Tuwani [http://www.cpt.org/hebron/documents/Tuwani_media_packet.htm]
settler intimidation, violence and contamination of the agricultural
water supply, logged by the Christian Peacemakers' Team.
— Beit Ummar [http://www.palsolidarity.org/main/2006/06/01/beit-ummar-farmers-struggle-to-work-their-land/]
— Jordan Valley: Wadi al-Maleh [http://stopthewall.org/latestnews/1143.shtml]
confiscation, closure, social isolation
— East Jerusalem, Jabel Mukhaber [http://newstandardnews.net/content/index.cfm/items/2227]
security closure
— East Jerusalem, E1/Maaleh Adumim
[http://www.icahd.org/eng/news.asp?menu=5& submenu=1&item=285]
analysis of impact on Palestinian East Jerusalem of planned settlement
expansion by Israeli Committee against House Demolitions
— Bil'in [http://www.palsolidarity.org/main/category/bilin/]
Palestinians' attempt to reclaim illegally-appropriated land
— Tel Rumeida, Al-Khalil (Hebron) [http://www.telrumeidaproject.org/]
settler violence and intimidation
— Jayyous separation barrier used to
expand settlement; see 6.01 above.
9. The role of development assistance in
supporting political solutions to the conflict
9.01 The extent of ideologically-induced
poverty in the occupied Palestinian territories is such that much
development assistance now performs as humanitarian aid and should
not in any circumstances be turned on and off subject to tendentious
political criteria. Such action would be inconceivable in the
case of emergency redevelopment after natural disasters—the
same imperative must apply to conflict-driven poverty concerning
development projects from professional and governmental intermediaries.
9.02 In extreme cases where exogenous political
activity systematically distorts the function of development projects
(and especially where economic autonomy is a goal), lobbying to
rectify disruptive impacts can be an appropriate use of development
resources. The general benchmark to apply is where the cost of
corrective work is greater than the cost of diverting resources
for preventative or reparative action.
9.03 As a major trading partner for Israel/Palestine,
the UK and the EU have leverage to improve reciprocal economic
co-operation. Lack of progress in obtaining fundamental freedoms
in the occupied Palestinian territories should lead to the suspension
of trading concessions with Israel under relevant clauses of the
EU's Mediterranean partnership and Association Agreements (see
International Development Committee, Development Assistance and
the Occupied Palestinian Territories 2003-04, HC230-I, paragraph
88, p 43).
10. Future development needs of a Palestinian
state and the potential for its economic cooperation with Israel
10.1 From a development perspective, co-operation
rather than dependency should be the objective. Co-operation demands
that fundamental civil liberties are first established and protected—freedom
of movement, residence and association, the right to property
and security of the person, equality before the law, access to
education, social welfare and health services | These are political
requisites, without which open markets in labour, capital, trade
and services do not function in a manner which advances economic,
social and cultural development (especially in the case of state
formation).
10.2 Alternative options—"screwdriver"
industries or maquiladora-style liberal-tariff zones (such as
Turkish-owned Erez on the border of the Gaza Strip) may import
low-skilled economic activity of indeterminate duration to fiscally-protected
environments, but do not offer meaningful technology transfer
for future domestic growth and bring about dependency on temporary
exogenous investment.
10.3 A more stable option would be support
for business sectors with established small-to-medium-sized concerns
such as the Palestinian agro-economy, which, just five years ago,
was dominated by family-based farms, employed around a sixth of
the labour force and produced about a quarter of total Palestinian
exports [PALDIS 2001].
10.4 Israeli insistence on preventing independent
access to world markets for Palestinian goods and services is
a significant barrier to economic co-operation, as has been the
closure of Israeli labour markets to Palestinian workers. Maintenance
of import restrictions, export controls, border closures, shipping
regulations and internal travel embargoes frustrate policies designed
to promote Palestinian development:
"International evidence suggests that economic
welfare of small countries goes hand in hand with a country's
involvement in the global economy. Palestinian recovery and medium
term productivity growth critically depends on establishing stable
and reliable foreign trading relations." 13
REFERENCES1 The
World Bank's Country Economic Memorandum for the West Bank and
Gaza, September 2006.
2 International Development Committee—Development
Assistance and the Occupied Palestinian territories, Second Report
of Session 2003-04, HC230-I, Volume I, para 10, p 11.
3 "Hamas says ready to accept Palestinian
statehood in 1967 border," in China View, 10 May 2006.
4 "We do not wish to throw them into the
sea," Ismail Haniyeh, interviewed by Lally Weymouth, Washington
Post, Sunday 26 February 2006.
5 Paragraph citation from EU External Relations
website—http://ec.europa.eu/comm/external—relations/gaza/intro/index.htm
6 The World Bank's Country Economic Memorandum
for the West Bank and Gaza, September 2006.
7 The World Bank's Country Economic Memorandum
for the West Bank and Gaza, September 2006.
8 World Bank Report No 36320 WBG, West Bank and
Gaza Country Economic Memorandum, Growth in West Bank and Gaza:
Opportunities and Constraints, Volume 1: Chapter II—Israel's
Security Regime: Impact On The WBG Economy, paragraph 2.1.
9 International Development Committee, Development
Assistance and the Occupied Palestinian Territories 2003-04, HC230-II,
Volume II, Ev 102-104.
10 International Development Committee, Development
Assistance and the Occupied Palestinian Territories 2003-04, HC230-II,
Volume II, Ev 110-112.
11 Summary of the Opinion Concerning Unauthorized
Outposts Talia Sasson, Israeli Attorney General's office, March
2005
12 The outposts are: Givat Hadegel, Mitzpeh Asaf,
Maale Rechavam, Mitzpeh Lachish, Givat Hapirion, and Mitzpeh Yitzhar.
Israeli High Court rejects Peace Now petition on illegal outpost,
Saed Bannoura—IMEMC & Agencies—Tuesday 6 June
2006.
13 The World Bank's Country Economic Memorandum
for the West Bank and Gaza, September 2006.
October 2006
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