The Palestinian Authority's financial collapse has been temporarily deferred again after it managed, cap in one hand and apocalyptic warnings of the rise of Hamas in the other, to wring last-minute transfers from France, Saudi Arabia and a multilateral fund administered by the World Bank—though not before it announced that it would be unable to pay its security forces' July salaries on time.
The crisis highlights that, confrontational posturing on both sides notwithstanding, both Israel and the U.S. attach great importance to the PA's survival, which in turn depends on the former's support. In an unusual move earlier this month, the Israeli government requested $100m from the IMF on behalf of the PA, to help finance its budget commitments. The IMF refused on the grounds that it lends only to states—the PA, thanks not least to Israel, some distance from being one of those. This week, in an even more unusual move, Israel advanced the PA NIS 180 million of the tax revenues it collects, per the Oslo agreements, on the PA's behalf. This reflects the useful services the PA performs for Israel as administrator, enforcer and diplomatic dance partner, and also follows U.S. pressure for 'goodwill gestures' to strengthen the PA. In April the Obama administration itself took extreme measures to keep the PA going, overriding a Congressional block on financial assistance. U.S. aid to the Palestinians has been the subject of heated controversy in Congress over the past year as Republicans have sought to make Israel a wedge issue ahead of the election. It is unlikely to work: in assisting the PA the Obama administration is simply continuing the occupation-enabling policies of its predecessors, which is why it was able to enlist, in its battle with Congress, the support of such noted anti-Zionist radicals as Benjamin Netanyahu. Still, the theatrics will continue, as the recent hearing on PA corruption—which offered up the spectacle of Elliott Abrams lecturing, in Congress, on the need for democratic transparency—attests.
The PA's budgetary crisis also gives lie to the more optimistic claims made in recent years about the Palestinian Authority's success in 'state building'. Palestinian Prime Minister Salam Fayyad has focused on developing the Palestinian economy and building the institutions of a future Palestinian state, without waiting for a negotiated settlement with Israel. This strategy—dubbed 'Fayyadism' by an enthusiastic Thomas Friedman—proposed to achieve statehood by developing efficient and legally accountable institutions; securing economic growth and reducing economic dependence on donor aid; and consolidating PA security forces into an effective and legally accountable security apparatus. Fayyad has defended this approach as the 'bottom-up' counterpart to the 'top-down' negotiations process, arguing that developing Palestinian institutions increases pressure on Israel to permit, and on the international community to press for, the establishment of Palestinian state: 'the reality of [a Palestinian] state will impose itself on the world'.
The U.S. and EU have trumpeted their support for Palestinian economic development under the leadership of Fayyad and President Mahmoud Abbas. Indeed, the Fayyad government oversaw a period of relative economic success since 2007, achieving high rates of real economic growth (albeit relative to an extremely low base). This predictably led to fawning articles in Western media praising his economic wisdom. But as the World Bank [.pdf] reported last year, in a study timed to mark the deadline Fayyad had set for the establishment of an independent Palestinian state, the growth achieved under Fayyad was 'unsustainable, driven primarily by donor aid rather than a rebounding private sector'. Unemployment remained extremely high, as did poverty rates. Indeed the extent to which economic growth has been dependent, as one reporter put it, 'on foreign-aid money and the whims of Tel Aviv', became clear last year, when reduced aid flows in the first half of 2011 'had an immediate impact on the Palestinian economy', sharply reducing economic growth and productivity, and contributing to the fiscal crisis the PA is still struggling with.
International aid like that secured by desperate Palestinian officials this week has staved off the PA's collapse. But as the European Council noted in 2000, just before the start of the second intifada, 'not collapsing is a far cry from real sustainable development... This is what international aid has failed to achieve.' Ultimately, the World Bank concluded last year, sustainable economic growth can take place only when Israeli restrictions on natural resources, markets and movement in the occupied territories are removed. And yet, with the deadline for Fayyad's state-building plan long passed, the Palestinians are no closer politically to statehood than they were two decades ago.
The PA's financial insolvency is therefore one element of a deeper crisis of legitimacy. PA officials have to service two broad constituencies if they are to sustain their own positions of privilege: Israel and U.S.-led external donors, and Palestinians in the occupied territories. Legitimacy in the eyes of the latter requires plausible evidence of progress towards ending the occupation, while cooperation with the former—whose demands are typically given primacy, such is the PA's dependence on them (the PA's dependence on external aid functions a bit like a 'resource curse', liberating it to some degree from financial dependence on, and hence accountability to, its population)—is conditioned precisely on the PA's successful administration of the occupied territories in the absence of political progress.
The peace process has historically functioned to provide both Israel and the PA with plausible evidence of political progress to display to international (in the former's case) or domestic (in the latter's) constituencies, rendering management of the status quo in the absence of genuine progress less costly. An Israeli official, describing how maintaining stability under conditions of occupation has required the perpetual illusion of political progress, likened the peace process to riding a bicycle: 'when you stop pedalling, you fall off'. But Palestinians are now so cynical about the peace process that PA officials can no longer afford to participate in it, even at the risk of frustrating their usually dominant, external constituency. 'Fayyadism' was, for a while, the answer to this dilemma, offering an alternative basis on which PA officials could claim to be working towards ending the occupation, while also enabling Israel and donor states, through economic aid, to boost the PA at the expense of Hamas without having to make substantial political concessions. In the absence of real economic development, however, 'Fayyadism' is perpetually at risk of becoming as ineffective at legitimating PA rule as the peace process already is. As a government spokesman recently put it, "[w]e will remain in need of external funding. Whenever it is affected, then we will be in crisis".
However, while political as well as financial bankruptcy looms over the PA, there seems little prospect—despite officials' regular threats—of imminent default. Recent protests in Ramallah, violently repressed by the PA, prompted speculation about a resurgent Palestinian protest movement against PA authoritarianism and the peace process. There is little sign of one yet: the demonstrations were small, short-lived and reportedly comprised only a narrow sector of society. This is due, I suspect, to a combination of exhaustion after decades of occupation; despair as hope for a two-state settlement fades without a plausible alternative goal to replace it; the factional conflict between Hamas and Fatah; and Israel's success in dissecting [.pdf] the occupied territories into 'a fragmented set of social and economic islands... cut off from one another'. Sam Bahour, an American-Palestinian businessman based in Ramallah, also links political apathy there to the build-up of private debt.
If the PA's international backers continue, whether for domestic political reasons or out of donor fatigue, to permit the PA to skirt perpetually on the brink of collapse, perhaps this will change. I suspect, however, that aid will continue at levels just sufficient to avert collapse and to sustain the PA's bloated regime protection apparatus. Relentless Israeli settlement expansion aside, my impression from afar is that the political situation in the West Bank is stagnant, the main force holding things together being inertia, there and here.
Cross-posted from New Left Project