A bankrupt peace process will lead to a bankrupt Palestinian Authority

If you have a politically bankrupt Middle East peace process, economic bankruptcy will surely follow in its wake

Chris Doyle

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If you have a politically bankrupt Middle East peace process, economic bankruptcy will surely follow in its wake. One of the last of Oslo creations the Palestinian Authority (PA) may now be deprived of its economic as well as its political capital, caught between the demands of Israeli electoral politics and an acute bout of donor fatigue.

Meeting both Israeli and Palestinian officials last week in the West Bank, it was clear that whilst the levels of violence had somewhat calmed, a legal and economic war has been escalated. Only two months from an Israeli election, more than one observer wondered whether the Netanyahu coalition would opt to bankrupt the PA. This would be the ultimate punishment for Palestinian temerity in signing up for further international treaties, most notably the Rome Statute that has allowed it to accede to the International Criminal Court.

Since the second Intifada Israel has frozen the transfer of tax revenues it collects on behalf of the PA on numerous occasions including when Hamas was elected, when Palestine applied for statehood at the United Nations, when Abbas agreed to a national consensus government in 2014 and now in January 2015 over the ICC.

Knee-jerk reaction

This collective punishment, this time the freezing of $127 million, has become the knee-jerk reaction to the Palestinians doing anything that irritates Tel Aviv. In the past, it was hard to find anybody even Israelis who ever believed that the funds would not be handed over eventually because the assumption is that Israel cannot afford to allow the Palestinian Authority to fail.

The Israeli President, Reuben Rivlin, admittedly a bitter rival of Netanyahu, was critical: “Freezing the transfer of Palestinian tax funds does not benefit us and does not benefit them. Using these funds, the Palestinians sustain themselves and [keep] the Palestinian Authority functioning. Israel’s interest is a functioning PA.”

Similarly in December, Israeli National Security Adviser, Yossi Cohen warned members of the Knesset that “The day we try to withhold the money and the PA won’t have sanitation and health services and the sewage will start overflowing, there will be an international outcry.”

Sub-contracted policing

Revlon and Cohen’s argument is that Israel needs Palestinian security cooperation. Many Palestinians have accused the PA for some time of having allowed Israel to sub-contract the policing of the occupation to the Palestinian Security Forces. There are well over 60,000 Palestinians employed in the security sector, including 34,000 in Gaza who get paid but cannot work whilst Hamas remains in charge.

One Palestinian Minister pointed out to me that not one bullet was fired by Palestinians in the West Bank during the Gaza War in July and August. Yet the PA can only pay around 60 percent of December’s salaries to its 160,000 strong public sector workforce. Aside from anything else it is these salaries that just about allow Gaza to survive.

So as many Palestinians and others asked, how long can these policemen and security forces, many of whom are armed, remain loyal to Abbas? All this points to Netanyahu at some point resuming the transfers of tax and customs revenues as Israel is bound to do as under the Oslo Accords. (Ironically Israel argues that the PLO violated the Oslo agreement by taking unilateral measures such as seeking recognition for statehood and going to the ICC, so one violation is met with another.)

Is Netanyahu prepared to bankrupt the PA?

ICC application

But Netanyahu has a political conundrum to resolve. Palestine will not be withdrawing its application to the ICC and when it is formally a party to it from 1 April this year, civil society organizations including human rights groups can also present evidence to the ICC prosecutor so the PLO will lose control of the process.

So if Israel resumes tax transfers, it would be seen as a sign of weakness, caving in to Palestinian and international pressure, an unthinkable proposition so few weeks in front of the elections. Netanyahu will want to appear tough so far from resuming payments to the PA, he may even instruct the tax revenues to be used to pay for massive electricity and water bills that the Palestinians owe Israeli utility firms.

Israel has been engaging economic warfare against Palestinians ever since the start of the 1967 occupation. This takes many forms including theft of resources, denial of access to land and control of borders. Currently its most significant element is the devastating blockade of Gaza, exacerbated by the 51-day war on Gaza last summer.

Cost of export

Palestinian cities and towns in the West Bank are also under a form of blockade unable to trade and travel freely. One Palestinian businessman explained to me that it was still more expensive to get his goods to Ashdod port than from there to Japan because of Israeli obstacles.

Donors to the PA may also not pay up, a serious issue given that around a quarter of the Palestinian Authority’s budget comes from overseas aid. The U.S. Congress is threatening to cut its $440 million package, the second largest contributor after the EU.

The economic warfare hits harder because traditional donors to both the Palestinian Authority and the United Nations Agencies also have other priorities. The Syria crisis in particular has drained resources.

The head of UNRWA operations in Gaza, Robert Turner wanted that “To date, almost $80 million in payments have been made by UNRWA to families with damaged or destroyed homes. However, by the end of January, UNRWA will run out of money for repair and rental subsidies. The impact on families will be disastrous. Over 96,000 Palestine refugee homes were damaged or destroyed, which is more than double what we estimated.”

Many donors see no benefit in hurling endless treasure into a bottomless pit to rescue a two-state solution that is truly sunk.

Acute financial distress

Is Netanyahu prepared to bankrupt the PA? Several Israel commentators warned not to rule this option out as crazy as it might seem. Certainly Netanyahu, Avigdor Lieberman and Naftali Bennett will be competing to out-tough the others in how much they are prepared to punish the Palestinians.

Palestinians have long-learnt that Israeli elections and democracy means they must suffer. Is it feasible? The short answer is yes.

In five months the tax losses will be over half a billion dollars for an authority that already has a deficit of around $2 billion. Hamas too is in acute financial distress not least with the loss of revenue from the tunnels to Egypt that made up about 40 percent its income. It too may lose control over its fighters and other groups.

If so, Netanyahu will once again be guilty of pushing for short-term electoral gain over a long-term strategy for his country. The answer is probably not, as not even the most hardline of Israeli politicians want to return Israeli forces to patrol the streets of Palestinian cities.

Yet looking ahead, if the settlements continue to flourish and expand, if Gaza remains blockaded, if Israel refuses to end the occupation, the PA will eventually fall to the combination of Palestinian fury and donor fatigue. It is just a case of when.

Chris Doyle is the director of CAABU (the London-based Council for Arab-British Understanding). He has worked with the Council since 1993 after graduating with a first class honors degree in Arabic and Islamic Studies at Exeter University. As the lead spokesperson for Caabu and as an acknowledged expert on the region, Chris is a frequent commentator on TV and Radio, having given over 148 interviews on the Arab world in in 2012 alone. He gives numerous talks around the country on issues such as the Arab Spring, Libya, Syria, Palestine, Iraq, Islamophobia and the Arabs in Britain. He has had numerous articles and letters published in the British and international media. He has travelled to nearly every country in the Middle East. He has organized and accompanied numerous British Parliamentary delegations to Arab countries. Most recently he took Parliamentary delegations to the West Bank in April, November, December 2013 and January 2014 including with former British Foreign Secretary Jack Straw.

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