Palestinian money woes

Could the Palestinian Authority’s budget woes end up costing Israel?

Growing economic protests in the West Bank could lead to increased regional instability and perhaps even the end of the Palestinian Authority, experts are warning. At this point, however, they say the protests are unlikely to result in an eruption of violence against Israel.

The recent unrest began in response to the rising cost of living in Palestinian cities, as well as to a delay in paying PA employees. Thousands of protesters in Nablus and Hebron burned tires and threw stones on Sept. 10, injuring 50 people.

The PA Cabinet responded by paying employees half of their August salaries, cutting spending and lowering taxes. And on Sept. 11, Israeli Prime Minister Benjamin Netanyahu announced the transfer of an advance of about $65 million to the PA. 

“We are working on several fronts in order to help the Palestinian Authority cope with its economic problems,” Netanyahu said in a statement on Sept. 11. “We have made several changes in the taxation agreements. We are advancing certain transfers. We have also helped with Palestinian workers and with a series of other steps in order to make things easier for them.”

In 2009, in his policy address at Bar-Ilan University, Netanyahu had called “upon the leaders of the Arab countries to join together with the Palestinians and with us to promote economic peace. Economic peace is not a substitute for peace, but it is a very important component in achieving it.”

The PA crisis began in earnest in July, when an aid shortfall caused by regional instability and a bad global economy threatened to leave it without enough money to pay that month’s salaries. Even after a $100-million Saudi loan closed the PA budget gap, the authority received harsh criticism from the World Bank. In a July 25 report, the World Bank noted, “While the Palestinian Authority has had considerable success in building the institutions of a future state, it has made less progress in developing a sustainable economic base.”

With protests expected to flare up again next week, economics experts say that Israel and the international community must do more to keep the Palestinian Authority afloat. They are particularly concerned about the shortfall in the Palestinian Authority’s budget, which relies heavily on international aid.

“If the Palestinian Authority is not going to get support from donors, it will not be able to survive six months from now,” said Samir Abdullah, the director general of the Palestine Economic Policy Research Institute.

PA Prime Minister Salam Fayyad, seen as an architect of the Palestinian economy, has been a target of the protests, but PA President Mahmoud Abbas has stuck by his side. Abdullah says that if Fayyad were to resign, that would undermine the PA’s relationship with its donors. “He’s not going to resign,” Abdullah said. “He’s a good fighter, and he can’t leave this to others who have very little experience and very little knowledge of how to have relations with donors.”

Ibrahim Azizeh, the Palestinian project manager for the Joint Palestinian-Israeli-International Economic Working Group, says donations are not a long-term solution.

“They should invest instead of lending money and giving money away,” he said of the international community. “They should be the ones employing.”

Dan Goldenblatt, the co-CEO of the Israel-Palestine Center for Research and Information, said that responsibility for solving the crisis lies with Israel as well as the international community. He called for amending the 1994 Paris Protocol, which governs economic relations between Israel and the PA. Under the protocol, Israel collects taxes for the authority and then transfers the money. The PA’s tax rates also cannot deviate significantly from Israel’s.

“There is consensus that it was more beneficial to Israel than to the Palestinians,” he said of the Protocol. “Hope that it would be temporary put pressure on the sides to sign.” Goldenblatt also called for renewed negotiations between Israel and the PA The two sides have not negotiated directly since 2010.

An Israeli official who insisted on anonymity said that blaming Israel for the PA economic crisis was “ridiculous.” He noted Israel’s recent $65-million transfer to the PA and added that in July, the PA and Israel agreed on an arrangement to crack down on tax evasion and to facilitate movement of goods from Israel to the West Bank.

Abdullah and Goldenblatt fault Israel’s West Bank policies, but neither sees this round of Palestinian popular unrest leading to violence against Israel. Goldenblatt said that a third intifada, following the first two in the late 1980s and early 2000s, is not “something that a vast majority of the Palestinians are even considering.”

Nor, Azizeh says, should Israel worry that Hamas — the terrorist organization that governs the Gaza strip — will step in to solve the PA’s financial difficulties, because Hamas lacks the international recognition needed to facilitate economic development.

Moreover, reports have surfaced recently that Hamas is considering declaring the Gaza Strip independent and severing its ties with the PA-controlled West Bank. Senior Hamas officials have denied these reports.

But even if Israel need not worry now about a violent uprising, Abdullah said that it should not feel isolated from the unrest either.

“These protests will turn against the real cause of the plight of the Palestinians,” he said. “One day, maybe not tomorrow or next week, it will turn against the Israeli occupation.”