As the Middle East is consumed by anti-government protests in Turkey and a civil war in Syria that has consumed an estimated 93,000 lives, U.S. Secretary of State John Kerry met with Israeli and Palestinian leaders last month to discuss economic development in the region, pledging $4 billion to help bolster the Palestinian economy.
Unlike previous attempts to bring Israelis and Palestinians to the table, Kerry appears to have given up on dead-end peace talks, favoring an economic development approach as Israelis continue to expand illegal settlements on the West Bank, the territory claimed by Palestinians as the backbone of their future state. There have been indirect talks this year, but Israeli and Palestinian leaders have not sat in direct, bilateral negotiations since 2010.
“We are working closely with the Palestinians to help them build the governance structures and the economy of a future state,” writes Mara Rudman, who serves as assistant administrator for the Middle East for the U.S. Agency for International Development.
The economic development approach has become the focus of Western donors and Arab states for more than a decade after the Oslo Peace accords, which were supposed to set the table for final-status negotiations ending in a viable two-state solution along pre-June 1967 borders.
The problem is that economic growth has been stunted by conflict itself — namely the Israeli military’s blockade of Gaza and the ongoing occupation of the West Bank. The World Bank estimates that the occupation has reduced economic growth in the Palestinian territories to the tune of $1.3 billion per year. Making matters worse is an aid kleptocracy within the Palestinian Authority, the government tasked with overseeing development projects in the West Bank.
The occupation stunts economic growth
By some accounts, the Palestinian economy appears to be booming. The Jerusalem Post reported in January that Palestinian gross domestic product grew at a rate of 6.1 percent during the first three quarters of 2012, according to figures released by the Palestinian Central Bureau of Statistics.
This was boosted further by major donations from Sheik Hamad bin Khalifa al-Thani of Qatar, who pledged $400 million for development projects in Gaza in October 2012. He later announced the establishment of a $1 billion fund to help Palestinians in annexed east Jerusalem in March, offering to contribute $250 million toward the fund.
The reality is that much of the development has been spread unevenly across different groups within the Palestinian economy. Despite generous donations from the U.S., Qatar and other Arab states, Palestinian unemployment has skyrocketed in recent months. In the West Bank, unemployment jumped to 19.2 percent, up from 17.5 percent in 2011. In Gaza, the number grew to 30.6 percent, a 2.5 percent increase.
The problem begins with the occupation imposed upon the West Bank since 1967.
“We estimate that the direct fiscal costs of the occupation amount to USD 406 million per year while the indirect fiscal costs total USD 1.389 billion per year. This implies that without the occupation, the Palestinian Authority would run a healthy fiscal surplus without the need of donors’ aid, and would be able to substantially expand fiscal expenditures to spur further social and economic development,” said a 2011 report by the Palestinian Ministry of National Economy.
Israel’s security wall cuts off 90 Palestinian communities from their agricultural lands and isolates 500,000 citizens living in and around east Jerusalem, according to a report by the Global Policy Forum. This has led to a situation where Palestinians, lacking access to land and natural resources, are unable to develop a stable multi-sector economy capable of standing on its own without constant support from donor countries.
“The Palestinian economy cannot sustain statehood while it continues to rely heavily on donor funds and its private sector fails to thrive,” the World Bank said in a report published July 2012. “The situation is unsustainable, and aid levels have already begun to fall.”
The costs of a bloated aid bureaucracy
Making matters worse is a bloated aid bureaucracy — or “kleptocracy,” as the case may be, that exists within the Palestinian Authority. The authority, recognized as the sole legitimate representative of the Palestinian people, suffers from high levels of perceived corruption.
“The PA takes much of this aid and provides gifts to insiders and family members of officials, said Jonathan Schanzer, vice president of research at the Foundation for Defense of Democracies during Congressional testimony in July 2012. “Washington should acknowledge the problem, or Hamas will continue to exploit it. Finally, Palestinians need to know that Israel is not the only obstacle to peace.”
A large majority of the Palestinian public already believes that both Hamas and Fatah are complicit in corrupt dealings. According to an April 2013 poll by the Palestinian Center for Policy and Survey Research, 78 percent of Palestinians believe there is corruption within Palestinian Authority institutions in the West Bank, a 4 percent increase from three months earlier.
Hamas doesn’t fare much better, with 64 percent of Palestinians believing there is corruption within Hamas-run public institutions in Gaza, up from 53 percent three months earlier.
Roots of conflict
The U.S. has backed away from placing any serious demands on freezing and dismantling of the Israeli settlements, which are seen by Palestinians as the main barrier to a two-state solution. Since Israel captured the territory from Jordan in the 1967 war, settlers have populated the area even though Palestinians hope it will form the backbone of a future state with east Jerusalem as its capital.
The window for that solution may have already passed, as there are now 500,000 Jewish settlers living in settlement blocs among 2.3 million Palestinians.
Unlike the Golan Heights, which was formally annexed and brought under Israeli law in 1981, millions of of Palestinians still live under military occupation with a highly restricted movement, 98 fixed checkpoints and a separation wall, according to Israeli Human rights B’TSelem.
In virtually all aspects of public life, the system of rule is bifurcated, built upon laws that differentiate access to resources and services based upon ethnicity. Land confiscation and home demolition have become commonplace. The Israeli Committee Against Home Demolition reports that the Israel Defense Forces have destroyed 18,000 houses belonging to Palestinians in the West Bank, Gaza, and east Jerusalem since 1967.