House of Commons - International Development

Select Committee on International Development Eleventh Report

2 The development situation

International re-engagement with the Palestinian Authority

33. In our last Report we commented that the economic situation in the OPTs had been deteriorating since 2000 and that poverty and hardship had increased in 2006 despite aid levels remaining about the same.[59] As a result of this deterioration the UN increased its humanitarian appeal for 2007 based on the assumption that the situation would not improve in the short term. We also commented that the occupation was preventing Palestinians from achieving their economic potential and making them amongst the largest per capita recipients of aid. These earlier comments remain valid.

34. At the time of our last Report Israel was withholding Palestinian tax revenues and donors had stopped direct funding to the Palestinian Authority. Upon the formation in June 2007 of the emergency Fatah Government with Salaam Fayyad as Prime Minister, Israel repaid the tax revenues, and donors began funding the Palestinian Authority once more.[60] Nevertheless the World Bank points out that the formation of the caretaker government and the resumption of aid has only partially reversed the impact of the aid boycott.[61]

THE PALESTINIAN REFORM AND DEVELOPMENT PLAN

35. The Palestinian Reform and Development Plan (PRDP) was presented at an international donors' conference in Paris in December 2007 which raised US$7.7 billion in pledges for the period 2008-10. The PRDP is a planning process which aims to consolidate all the Palestinian Authority's policy making, planning and resource allocation into a single procedure.[62]

36. As part of this process the Palestinian Authority has agreed to undertake a series of economic reforms. DFID says that Dr Fayyad is committed to these reforms which will ensure donor funds are properly spent:

"Dr Fayyad has shown strong commitment to bring the Palestinian Authority's recurrent budget deficit problem under control. He has reduced the public sector payroll and is aggressively implementing a PRDP commitment to reduce subsidies for unpaid utility bills, which absorb a third of the national budget. He is introducing measures to prevent corruption and improve the PA's budget management systems. Because the majority of the budget is dedicated to public servants' salaries, the government is introducing strong new management systems for the civil service. For example, independent controllers are being appointed to each ministry to scrutinise appointments and staff attendance. The government is also strengthening audit systems throughout the Palestinian Authority".[63]

37. The World Bank has said that to be effective the Palestinian Reform and Development Plan needed to be accompanied by measures on the part of donors in terms of funding and by Israeli efforts to loosen restrictions on the movement of people and goods in and out of the West Bank and Gaza (see the following section). The impact of donor aid was highest when accompanied by concrete and parallel Palestinian Authority and Israeli actions but donor assistance should not be predicated on these since aid was critical to ensure the survival of Palestinian institutions. The economy has altered from one driven by investment and private sector productivity to one driven by government and private consumption and donor assistance.[64]

38. Ahead of the 2 May Ad Hoc Liaison Committee Meeting in London the IMF estimated that real GDP growth in the OPTs in 2007 was 0%.[65] Although this was projected to increase to 3% in 2008, per capita incomes would be static or lower than the previous year because of population growth.[66] The World Bank's report for the 2 May donors' meeting commented that public investment in the economy had virtually stopped and that the private sector continued to report worsening conditions in their operations both in Gaza and the West Bank.[67] Unemployment rates continued to be high—33% in Gaza and 19% in the West Bank. GDP is now 40% less than in 1999. The percentage of Gazans living in deep poverty had increased steadily from 21.6% in 1998 to nearly 35% in 2006.[68] DFID's view is that even if the borders in Gaza were reopened tomorrow the Gaza economy would take years to recover from its near total collapse.[69]

39. According to DFID the creation of the Palestinian Reform and Development Plan enabled donors to feel confident about funding the Palestinian Authority at the Paris donors' conference.[70] At the conference DFID pledged to provide up to £243 million over a three-year period, including approximately £62 million which had previously been announced for the United Nations Relief and Works Agency (UNRWA). DFID has doubled its overall funding to the Territories from approximately £30 million per year to approximately £60 million per year.[71] A part of this will be budget support through a new EU mechanism, the PEGASE (see paragraphs 53-56) and through a newly created World Bank Trust Fund. The Government says that both provide the highest level of financial security. The exact breakdown of the pledge will be linked to progress in the Peace Process, including Palestinian Authority reform, and movement and access.[72]

40. Nevertheless the Palestinian Authority faced a serious shortfall in budget resources in February 2008 because much of the funding pledged is towards projects rather than the PA's recurrent budget.[73] DFID told us that Prime Minister Fayyad was projecting a fiscal shortfall of $650 million which will begin to have an impact by the end of June. DFID said it hoped that there would be some more pledges from Saudi Arabia and the Gulf states before then.[74]

41. The economic situation in the West Bank may have improved since our last Report, but only marginally. The economy in Gaza has collapsed since the June 2007 closures. In both places many people continue to live in conditions of deep poverty and the economy is heavily reliant on aid. We welcome the decision by donors to restore direct funding to the Palestinian Authority. We were highly critical of the UK Government's decision to stop this funding in 2006 and the severe fiscal pressure it placed on the Palestinian Authority. We are encouraged by the Palestinian Authority's efforts to reform, as outlined in the Palestinian Reform and Development Plan and in particular to reduce the public sector payroll. We encourage donors to contribute on a predictable basis to the Palestinian Authority's budget as part of the effort to strengthen the institutions of a future Palestinian state. We request that the Government updates us on the PA's estimated fiscal deficit for 2008 in its response to this Report.

The importance of improving movement and access

42. Neither the World Bank nor the IMF is optimistic about the prospects for economic development in the OPTs unless restrictions on movement and access are eased significantly. The Carnegie Endowment points out that while the international community has proclaimed its support for Palestinian reform and development, at the moment it does not have many places to spend its money other that by paying the salaries of those who work for a non-functioning government.[75]

43. In our last Report we commented that the first steps to improving the development prospects for the Palestinian Territories were to implement the Agreement on Movement and Access (AMA) signed in 2005.[76] We also commented that the primary cause of the poverty in the OPTs was the occupation, which was eroding the development prospects for the Territories. We stand by these comments.

44. We have already commented on the disastrous situation in Gaza but the necessary progress on easing restrictions on movement and access in the West Bank which would enable economic development has not happened either. In March 2008 the number of checkpoints and closures in the West Bank was 50% higher than it had been in August 2005, the baseline for the AMA. This does not include 'flying' checkpoints and age restrictions on Palestinian movements.[77]

45. The World Bank made an assessment of movement and access restrictions in the West Bank in May 2007. It found that while the Government of Israel had shown willingness to relax specific restrictions from time to time, including granting permits to several hundred Palestinian businessmen to travel, incremental steps were not likely to lead to any sustainable improvement. This was because such steps lack permanency and certainty and could easily be withdrawn or replaced by alternative measures. The World Bank concluded that unless there was a fundamental reassessment of closure and the restoration of the presumption of movement, the private sector would be unable to recover and fuel growth.[78]

46. Backing up this point, concerns have been raised with us that the Government of Israel has been disingenuous in its claims to have removed some checkpoints. Oxfam told us:

"The recent announcements by Defence Minister, Ehud Barak have proved false and again this should be known. Of the 61 restrictions that he announced as having been removed, UN OCHA say only five were significant and 11 never existed. Further research by the World Bank demonstrates that Palestinians could not even reach some of the ones that were said to have been removed. All these were insignificant. These announcements are not true and I think it is very important that this kind of information, if that is what you can call it, is vigorously challenged and action taken accordingly."[79]

When we asked DFID about this the response was that this account was probably correct but that it was important to recognise that Israel felt it had specific security concerns and that the Israeli public supported continued restrictions.[80] DFID considered that the approach of the Quartet Representative, to seek to remove a number of strategic roadblocks which were having a significant effect on movement and access, was a positive way forward. Nevertheless DFID also reported that, as yet, there had not been the progress which the Quartet Representative had expected.[81]

47. One of the major barriers to the development of a viable Palestinian economy is the continued restrictions on movement and access which Israel insists were put in place to enhance the security of its citizens. Increased donor assistance, while welcome, will not be sufficient to turn around the economic downturn which has pervaded the Palestinian economy since 2000 without significant and long-term removal of such restrictions. While efforts to remove some strategic checkpoints may be useful, such agreements lack permanence and can easily be replaced by other restrictions. It is also important from development and human rights perspectives that Palestinians are able to move around their own country for education, to receive healthcare, to visit their families, to work and to trade, irrespective of whether their journeys are regarded as strategically significant to international negotiations. Neither Israel nor the international community should lose sight of this. The Government of Israel signed up to the Agreement on Movement and Access in 2005. We believe it must respect such commitments.

EXPANDING SETTLEMENTS AND THE CONSTRUCTION OF THE BARRIER

48. There are approximately 121 settlements in the West Bank and more than 100 outposts.[82] The Secretary of State reiterated in his evidence to us that the UK Government's position is that the settlements are illegal.[83] According to the 2003 Roadmap commitments Israel must freeze all settlement activity and dismantle all outposts erected since 2001.[84] In direct contravention of this agreement the Government of Israel has continued to approve the building of new settlements.[85] Oxfam told us that 84% of the housing tenders submitted this year have been approved by the Government of Israel.[86] Many of these were announced shortly after the Annapolis conference.[87]

49. The settlements further restrict Palestinian access to areas of the West Bank. The continued construction of the Barrier on occupied land rather than along the Green Line, in contravention of the findings of the International Court of Justice (ICJ) has also involved the confiscation of Palestinian land and restricts Palestinian movement. Its route into the West Bank appears to protect the presence of major settlement blocs in the West Bank rather than the security of Israel.

50. In order to provide security for the settlements and to provide settlers with safe transport routes the Government of Israel has instituted a policy of restricting Palestinian access to major West Bank roads. We commented in some detail on the infrastructure of occupation in our last Report.[88] DFID continues to raise concerns on settlement expansion with the Israeli Government at all levels, but says that it is clear that international pressure has not stopped planned expansions.[89] Michael Anderson, the Head of DFID's Iraq and Middle East Group, told us that, while it was clear that Israel had very real security concerns, the expansion of settlements was also an attempt to alter the 'facts on the ground' so that Israel had an increased number of bargaining chips in any land-for-peace negotiations.[90] The Government did not anticipate that Israel would change its approach until there was a peace agreement which gave Israel the security guarantees it needed. The US has also expressed its concerns about settlement expansion and called on Israel to halt this.[91]

51. We do not believe there is any justification for the continued expansion of settlements. This creates new 'facts on the ground' which then have to become part of the negotiations for a final agreement. Such actions on the part of the Government of Israel undermine the prospects for a successful peace process. We believe that this continued flouting of international law should be condemned unreservedly by the international community. The international community should also identify how it can more effectively persuade Israel to abide by its obligations in practice.

THE EU-ISRAEL ASSOCIATION AGREEMENT

52. In our last Report we called on the UK Government to urge the EU to use its Association Agreement with Israel as a lever for change.[92] Instead, on 16 June it was announced that diplomatic cooperation and Israel's participation in European Union plans and agencies would be upgraded.[93] Palestinian Prime Minister Fayyad is reported to have written to all EU prime ministers urging them not to enhance the EU's relationship with Israel in this way while the latter continued to flout international obligations including those on settlement construction. The press reported that, in response to this letter, Israel withheld part of the monthly tax revenues it collects on behalf of the Palestinian Authority.[94] We are surprised that the EU has decided to upgrade its relationship with Israel while it continues to flout international law. In its reply to this Report, the Government should provide more details on the exact nature of this upgrading and the UK Government's position on it. We also request clarification on whether Israel has once again withheld funds which rightfully belong to the Palestinian people and what action the UK proposes to take as a result.

EU funding mechanisms

53. The EU's Temporary International Mechanism (TIM) was introduced in June 2006 as an attempt to meet needs normally met by the Palestinian Authority including the payment of salaries, the supply of fuel and hardship payments to the poorest after the EU had taken a decision not to engage with the Hamas-led government and to withhold direct funding to the PA. In our last Report we said that the TIM was a timely, but insufficient, response to a crisis which met some urgent needs, but that it should only be temporary lest it risk undermining the Palestinian Authority.[95] More recently an internal assessment of the TIM commented on the innovative nature of the mechanism, its transparency and accountability and concluded that it had achieved most of its expected objectives but with varying degrees of success. The evaluation also commented that because donors had been able to continue providing aid through the mechanism the outcome of withholding direct funding had not been as bad as originally predicted.[96]

54. In February 2008 the EU created a new mechanism to replace the TIM—the PEGASE.[97] The PEGASE will run for three years. It will be aligned with the Palestinian Reform and Development Plan and is intended to provide a secure mechanism to channel donor funds to the Palestinian Authority for governance, social development, economic and private sector development, and public infrastructure. Like the TIM the PEGASE includes both European Commission and member state contributions. PEGASE will also be open to other international donors who wish to contribute and provides them with an alternative and secure mechanism through which to give direct assistance to the Palestinian Authority.[98] DFID told us that the aim of the PEGASE was to work more closely with the Palestinian Authority and to avoid the creation of parallel structures.[99]

55. Evidence we received from the NGO Trocaire comments that the EU's suspension of direct assistance to the Palestinian Authority in 2006 had severe institutional consequences for the PA which the PEGASE does not seek to address. It also argues that PEGASE is largely donor driven and that, rather than trying to deal with the crisis in Gaza directly, it instead works around this by continuing payments for fuel while acknowledging that the delivery of fuel is subject to Israeli restrictions.[100] It is ironic that some PA employees in Gaza who went to work when they were not being paid, are now being paid and ordered not to go to work.[101]

56. We welcome the creation of the PEGASE in as much as it provides donors with a new mechanism through which to support the Palestinian Authority. We also welcome the EU's direct re-engagement with the Palestinian Authority. The PEGASE will, like the TIM, enable the payment of Palestinian Authority salaries in both the West Bank and Gaza. However the PEGASE has been created in the context of a humanitarian crisis in Gaza and political and institutional developments in the West Bank which largely exclude Gaza. As such the PEGASE can only be a limited response to a severe humanitarian and political crisis.

The work of the Quartet Representative

57. On 27 June 2007 Rt Hon Tony Blair was appointed as the Middle East Quartet Representative.[102] His mandate is to:

Mobilise international assistance to the Palestinians working closely with donors;
Help identify and secure support for the institutional needs of a future Palestinian state focusing on the rule of law;
Develop plans for Palestinian economic development including private sector partnerships building on previous agreements, especially on movement and access; and
Liaise with other countries in support of the Quartet's objectives.[103]

58. These terms of reference are largely focused on economic and institutional factors and do not include a role in the political negotiations or in promoting Palestinian reconciliation. When we asked Mr Blair about the limitations of trying to implement economic projects without a mandate to discuss political progress he assured us that everything came into his negotiations, "the politics, the economics, the security" despite his apparently limited mandate.[104]

59. The emphasis on economic projects and institution building follows the UK Government's report on the Economic Aspects of Peace in the Middle East published in September 2007. It calls for stabilisation of the Palestinian economy, support for private sector development and improvements to Palestinian security to allow for freer movement and access.[105] Mr Blair told us his job was to improve the situation on the ground in terms of lifting some of the weight of the occupation and encouraging the private sector to invest while guaranteeing greater security for Israel. His view was that without this guarantee nothing would happen.[106]

60. In May 2008 Mr Blair announced a number of projects for which he had been working on getting support prior to a Palestinian Investment Conference in Bethlehem. These projects included:

An industrial park in Jenin with free movement and access and Palestinian security and another—Tarqumiya—for which the location has yet to be determined;
The extension of Palestinian bandwidth for mobile telephony;
Improved access to Bethlehem for tourists;
An agro-industrial park in Jericho;
Greater access to Area C for Palestinians and the creation or improvement of villages there;
A number of waste-water treatment facilities and improvements to the Beit Lahia sewage treatment plant in Gaza;
Funding for housing projects; and
Improvements to or the removal of a number of strategic obstacles to movement and access.[107]

61. Many of these projects are not new, and many are simply proposals at this stage, but the Quartet Representative has used his office to gain approval for them from the Government of Israel. Mr Blair said that he hoped that the Jenin Industrial Park would be operating in a matter of months.[108] Apart from the Beit Lahia sewage treatment plant, none of the projects is in Gaza. The statement from the Quartet Representative made clear that until the security situation in Gaza is improved, proper Palestinian Authority control is re-established and the Quartet conditions are fully met, the prospects for Gaza "are bound to be limited."[109]

62. In pursuance of these objectives, Mr Blair helped to facilitate a Palestinian Investors Conference in Bethlehem in May 2008. 2000 people attended including many from the Gulf, and contracts were signed for a number of projects primarily in housing, infrastructure and telecommunications.[110] Mr Blair's assessment was that the conference was possible because it was approached in the right way,

"The most important thing about the Palestinian Investment Conference was that it happened, that people came to it and that the Israelis facilitated it. What I have been trying to say is how we worked, because we were intimately connected with that conference, in setting that up and implementing it is not a bad lesson in how the thing could work if people had the right attitude and goodwill. People came and it was a very well attended conference."[111]

63. Some of the written evidence we received expressed concerns that while such projects might in fact help Palestinian economic development, care should be taken to ensure these did not reinforce the occupation. Stephanie Koury from the School of African and Asian Studies explained the potential problems:

"Governments, in their good intention to support the peace process, at times fund proposals which promise short-term movement but which 'accommodate' the illegal acts by Israel (i.e. the settlements, wall and closure regime). Support for such projects can serve to 'normalise' Israel's closure policy and the illegal presence of its settlements within the occupied Palestinian territory rather than projects which would be designed and implemented to help compel the reversal of such illegal activities. Since Annapolis, restrictions on movement have increased and the tendency persists to fund projects which accommodate the 'illegal situation'. An example of such a violation could include donor support for proposed housing projects which would entail construction of separate roads or tunnels to ensure the separation of Palestinian traffic from Israeli settlers. Nor would it serve donor states' interests to support projects that facilitate fast movement (e.g. tourist entry into Bethlehem) while Palestinians remain consigned to using the illegal terminal built as part of the regime of the Wall."[112]

Oxfam expressed similar concerns,[113] while Stop the Wall Campaign identified specific projects which it believed should be re-evaluated to ensure they are legal under international law and do not pre-empt the outcome of final status talks.[114]

64. When we asked the Portland Trust about the compliance of its project proposals with international law its CEO, David Freud, told us that he tried to operate within a legal framework but that his was primarily an economic organisation:

"Clearly we do everything we can and we do operate in an entirely legal context. What we do, and this may be the difference between a private foundation and a government-controlled entity, is we operate from the bottom up. We will look at a particular project and say how does that work and we will assess it for what its impact is going to be, clearly its legality, who can we go in with and do it because we like to go in with partners."[115]

The Quartet Representative's view on this was:

"I think the single thing that people would ask me if I was in Palestine right now is: 'That package that you agreed with the Israelis sounds good. Is it going to be done?' That is the only question they would ask."[116]

He added, "I do not think there is really an issue about international law."[117]

65. Stephanie Koury recommended that an assessment of compliance should be undertaken for each project prior to securing the support of the Quartet Representative's office and the provision of funding. Mr Blair did not consider such a proposal to be helpful:

"I honestly think that the most sensible thing is not to introduce a new mechanism, but the reason I negotiated this in such detail with the Israelis over many weeks and really got down to the detail of it is that it is now there on the table as the test of whether things are going to happen or not."[118]

66. In our last Report we encouraged DFID to find ways to facilitate private sector development in situations of conflict. The efforts by the Quartet Representative to achieve this are welcome. We would like an update, as part of the Government's response to this Report, on the progress of these projects, including the removal of checkpoints, the creation of the Jenin Industrial Park and the improvements to the Beit Lahia sewage treatment facility in Gaza.

67. We recognise the problem that economic development in an occupied territory is bound to be constrained by the presence of the occupiers but this should not be allowed to deter the international community from pursuing economic initiatives to relieve the hardship faced by the people forced to live under occupation. A pragmatic response is needed. Economic development should go ahead where it is supported by the local Palestinian community.

68. However, care must be taken that the Quartet does not lose sight of the objective, set out in the Agreement on Movement and Access, of creating a contiguous Palestinian state. It needs to be satisfied that such economic projects do not risk creating a series of Palestinian economic enclaves which may be linked to each other and perhaps the outside world by a discrete series of roads and entry/exit points but which do not promote the creation of a contiguous Palestinian state and which still leave most Palestinians unable to travel freely around their own land. There is a danger that this in turn could lead to the creation of two parallel universes in the West Bank since Israeli settlements already have their own network of much less restricted roads and services linking them to Israel and the outside world. The international community must take care that it does not end up legitimising the occupation and allowing Israel permanently to extend its borders into the West Bank rather than creating an independent Palestinian state alongside its own territory.

69. We recommend that the Quartet regularly assess the projects involved before and during implementation to ensure that these issues are addressed. However we believe the Quartet Representative's efforts are important and should continue in cooperation with both the Israeli and Palestinian governments.

59 International Development Committee, Fourth Report of Session 2006-07, Development Assistance and the Occupied Palestinian Territories, HC 114, chapter 2. Back

60 Ev 45 Back

61 World Bank, Implementing the Palestinian Reform and Development Agenda, 2 May 2008. Back

62 Ev 50 Back

63 Ev 45 Back

64 Statement by World Bank Managing Director, Mr Juan-Jose Daboub, at Palestinian Donors Conference, Paris, 2007. Back

65 It is thought that this is due largely to the collapse of the economy in Gaza as a result of the closures. There are no separate figures for the West Bank and Gaza. Back

66 IMF, Macroeconomic and fiscal framework for the West Bank and Gaza: first review of progress, May 2008. Back

67 World Bank, Implementing the Palestinian Reform and Development Agenda, Economic Monitoring Report to the Ad Hoc Liaison Committee, 2 May 2008. Back

68 Deep poverty levels are based on actual consumption rather than income. Deep poverty is defined as the inability to meet basic consumption needs. Back

69 Ev 46 Back

70 Ev 44 Back