International financing and development alienation: the case of Palestine

A recent study made by Bisan Center for Research and Development showed foreign aid for Palestinian Authorities (PA) has doubled in the period 1998-2008. This led to an increase in the share of international financial assistance per capita exceeding the share of other countries including Egypt, Jordan, Yemen, Lebanon, Nepal and Haiti. Of great concern is increase in debts despite the increase in foreign aid vis a vis the financial deficit caused by the salary increases of public servants. The government has resorted to loans from private banks operating in the occupied territories and called on Arab and other donors to provide more financial aid. The doubling of the financial aid percentage has also caused the increase of unemployment, reaching 26%, of which more than a third is in the Gaza Strip. This increases extreme poverty percentage, in the sense that financial aid has not been reflected positively on people’s living conditions and in the development process in general. Three factors contribute to this: 1. Occupation: The implementation of settlement buildings is ongoing, as well as the apartheid wall and the dismantling the Palestinian homeland into scattered areas isolated from each other based on racial discrimination. The existence of more than 600 military checkpoints has inevitably weakened internal trade. Bureaucratic procedures imposed by the occupation also hinder trade, especially with the existence of exports with the intention of keeping the occupied territories a dependent consumer market for Israeli products, causing damage to the development of Palestinian productive sectors. The occupation, managed by division measures and the isolation of Gaza from the West Bank, has hindered the unity of the Palestinian market and has rendered all donor conferences as failures. Some of these donor pledges are the Paris Economic Conference in 2008 that promised $7.4 billion, and the conference Sharm el-Sheikh, which allocated $ 4.5 billion for the reconstruction of the Gaza Strip in 2009, as well as several conferences held in the cities of Bethlehem and Nablus, which were designed to attract Palestinian and foreign investments to Palestine. Nonetheless, the environment created by the occupation pushed away those investors. 2. Division: The division has caused the weakening of the infrastructure and institutional framework necessary for the integration between the West Bank and Gaza Strip; it has also damaged the legislation and control mechanisms, and limited the public and popular accountability, especially with the politicization of the judiciary and its dependence from the executive branch. Impeding the work of the Legislative Council has buried the possibility of drafting any legislation or regulations that would encourage investment from the private sector and financial development institutions (FDI). In addition, the absence of a unified ministerial institution has hindered the elaboration of development policies and weakened social security. This situation led both ruling political movements (Fatah and Hamas) to separately control the power in the West Bank and Gaza strip respectively. This exceptional situation allowed the authoritarian systems to accumulate private profits at the expense of the vast majority of the poor. The absence of tools for accountability is due to the limited public space and the restrictions on Civil Society Organizations (CSOs) through measures imposed and laws restricting public freedoms The division has led the elite, mainly some economic circles associated with the ruling party in Gaza and in the West Bank, to control and exploit public resources, including state territories, trade and investments. 3. Weak Governance: The division and the lack of unity have weakened the mechanisms of good governance and transparency, and resulted into the absence of policies for development and the marginalization of CSOs. This apparent lack of initiative in the part of the authorities has led them to depend on financial assistance mostly used for the salaries of its 150, 000 public employees in both the West Bank and Gaza Strip. The mechanism developed by the European Union to ensure the sustainability of funding failed because it was mainly to provide a political support to the Government instead of building partnership with the donor community and the local partners aiming to develop productive strategies. The mechanism was designed to ensure that the funds reach the authorities and public sector employees to cover current expenditures. Few of those would be allocated on some development projects with limited impact, and the aid was not reflected on the public budget, which remained tributary of the above criteria, with more than 35% allocated to security, while the sectors of education, health and social services combined ratios do not exceed 20%. Aid for agriculture does not exceed 1%, although it is an important sector for development, poverty eradication and job creation. Palestine is a case study and a clear example of the weak impact of the international funding on the development process, especially if adequate development environment is lacking. Not only has funding worsened Palestine’s dependency, it has also inhibited its economic growth. It is worth mentioning that external funds are commonly used as a means of political blackmail - bullying the political leadership who wish to remain in power or maintain status quo. For instance, no opposition was made when the USAID instructed a financial institution to only support small enterprises who sign Anti-terrorism Act and who agree to pay high interests for loans. The condition of poverty, growing unemployment and the weakness of the local capital, have led to the accumulation of debt by the borrowers. Sanctions imposed on the Gaza Strip also resulted to lack of raw materials thus prohibiting productive sectors to flourish. The situation is compounded by the general absence of a grace period for loans causing many factories to become bankrupt and shut down. Nonetheless, dire economic conditions, especially in the Gaza Strip, have not deterred financial institutions in pursuing borrowers. This is due to their commitment to the terms and conditions set by donors and their unwillingness to incur losses. Consequently borrowers have been obliged to sell some of their properties to repay these loans. The financial institutions’ focus on their financial and administrative sustainability cause them to ignore the sustainability of the small enterprises. Palestine is a striking example of the unachieved commitments by the international community to the principles of aid effectiveness. At times, aid may in fact be used as a tool for political pressure. The political character of aid has left the Palestinian territories vulnerable to threats and at the mercy of donors, particularly after the Oslo agreement. This manifested when the former President Arafat rejected the Camp David proposal for peace in 2000 and the declaration of the national unity agreement after the Mecca conference in 2006. Most recently, donors have threatened Palestine from demanding recognition as an independent State in the UN general assembly in September 2011. In an effort to abide with the principles of the Paris Declaration, the Aid Coordination Structure (ACS) was redesigned in 2005 by the Ad Hoc Liaison Committee (AHLC). At the local level, the coordination structure now includes a Local Development Forum (LDF) that acts as a link between the AHLC and aid coordination at the local level. The LDF is co-chaired by the Ministry of Planning, Norway, the World Bank, and UN Special Coordinator Office (UNSCO). The Local Aid Coordination Secretariat (LACS) depends on the LDF, and acts as the secretariat for the aid coordination structure. The structure include as well four Strategy Groups (SGs-economic, governance, infrastructure, and social development), which are the main instrument for PA and donor coordination on the strategic and planning level. The aim of the ACS is to coordinate the donor community’s actions with the Palestinian Reform and Development Plan 2008-2010 (PRDP). In 2009, the Palestinian Non Governmental Organizations Network (PNGO) made public the following position on the Paris Declaration principles concerning Palestine, the aid coordination structure and the PRDP, to wit:
  • PNGO appreciate and value the role of LDF, though believe that some redevelopment of this one should be undertaken in order to comply with the aid effectiveness principles.
  • Firstly, we believe that the civil society should be an integral part of LDF in order to ensure Palestinian ownership of their development. Consequently, we see that access to the documents and reports of LACS should be open, available and free without any restrictions to all stakeholders.
  • Secondly, we see that it is important to include professional Palestinian institutions as technical advisers to the sector working groups of LACS. As the actors of the Palestinian civil society have a long and successful experience in all aspects of development, we believe that their contribution would significantly enrich the decision-making process of LACS. Furthermore, such an approach will build bridges of cooperation between governmental and non governmental institutions as well as strengthen the capacities of Palestinians in state building.
  • While we realize that the current structure of LDF was to deal with the emerging needs during the past decade, we believe that it is the right time now for restructuring LDF in a way that ensures the participation of all Palestinian development stakeholders. Considering consequently, we propose that a one day workshop be held for all stakeholders including LACS, NGOs, private sector and the governmental bodies involved to come up with a well defined strategy for a comprehensive development structure in Palestine that includes all parties.[1]
Some years after the PRDP, on the imposition of achieving success and building the institutions of state to be recognized by the United Nations according to calls from some International official, we still find that financial assistance has failed to contribute to the Plan which asserted the principle of self-reliance within the scalable policy, and that assumes dispensing relative and progressive donor funds against building capacity through activation of production and trade. This is supposed to increase by collection and local tax instead of the continuous reliance in full proportion to foreign aid. The authority budget deficit, the process of borrowing from banks operating in the occupied territories, the occupation procedures, particularly the barricades policy (which amount to more than 600 barricades in the West Bank), the bureaucratic procedures and the imposed changes on export and import processes, and the unceasing siege of the Gaza Strip and separating it from the West Bank, all caused the failure of the plan of building self-capacity and relatively dispensing reliance on foreign aid. This was seen in the financial crisis experienced by the Palestinian Authority when the Congress decided to freeze 200 million intended for the Authority and international institutions. Both, the United States and Israel have decided to punish the Palestinian Authority if it decides to go to the United Nations instead of continuing the useless negotiations, and if the national reconciliation takes place which indicates that financial assistance is only a political blackmail paper "bribe" to the Authority in order not to breach the frame and specific decisions by the U.S. and Israelis, because if attempted to break the frame will certainly take the punishment of financial procedures. The engagement of CSOs with Aid Effectiveness process is a responsibility of them but at the same time is a joint effort from development actors and institutions to hold this complex process. In Palestine multiple changes and decisions must be joined for the aid effectiveness.
[1]PNGO Network, Palestinian Non Governmental Organization (PNGO) reference document regarding Aid Effectiveness in the Palestinian Territories, August 26th, 2009.