Throughout various stages of the Israeli occupation of the West Bank and Gaza, and especially since the onset of the Oslo period in 1993, the Palestinians have relied heavily on development funding and humanitarian aid provided by the international community. While the international response to Palestinian aid needs has not always been as rapid or complete as the Palestinians have needed, and has not always taken the form the Palestinians have desired, the donor community has been relatively generous in its efforts to build up the capacities of the Palestinian Authority (PA) and to meet the basic humanitarian needs of the Palestinian people.
Foreign aid has proved crucial to the survival of the PA and the Palestinians, but it has fallen far short of meeting the development aspirations of both donors and recipients. The limitations of the provision of foreign aid as a development strategy have been obvious almost from the start of the Oslo period. With their emphasis on creating security for Israel, the Oslo agreements created 227 Palestinian enclaves separated by areas controlled by Israel, resulting in Israel’s ability to prevent the free movement of Palestinian goods and people.1 The consequent disruption of the Palestinian economy has had a crucial impact on the shape and effectiveness of foreign aid to the Palestinians during the Oslo period and beyond.
Problems in the provision of foreign aid became especially visible with Israel’s reoccupation of substantial portions of the West Bank and Gaza in March-April 2002, during which extensive portions of the Palestinian infrastructure and thousands of public and private buildings – in part paid for by foreign aid – were damaged or destroyed.2 Chronic malnutrition and a mounting humanitarian crisis in the West Bank and Gaza have been ameliorated, but not eliminated, by a massive outpouring of humanitarian assistance from the international community. As long as the occupation continues and the Israeli closure policy cripples the Palestinian economy, foreign aid can address primarily short-term humanitarian needs rather than longer-term development goals that remain the priority of the Palestinians and the international donor community.
This article addresses two sets of issues: First, it outlines the record of donor assistance to the Palestinian people over the last decade, and details a number of ways in which that record has differed from donor involvement in most other developing-country settings. Second, the article analyzes tensions and difficulties inherent in the donor-recipient relationship in general and the provision of foreign aid to the Palestinian people in particular.
THE FOREIGN AID RECORD
Levels of Aid
Given that the provision of foreign aid is, in most cases, a highly political act, it is not surprising that aid made available by the international community to the Palestinians increased substantially following the signing of the Declaration of Principles (DOP) on the White House lawn, September 13, 1993, by Israel and the Palestine Liberation Organization. The comparison of aid receipts shows aid disbursement levels at an estimated $174 million in 1992, with a substantial increase to $263 million by the end of 1993.3
Thereafter, aid levels soared even more dramatically as donors sought to support the Oslo process. All told, between 1994 and mid-2002, pledges of aid by foreign donors amounted to nearly $6.5 billion, with $4.4 billion actually disbursed.4 In the period between 1994 and 1998, donor disbursements averaged $464 million per year – translating into nearly $200 a year on a per capita basis, one of the highest levels of per capita foreign assistance in the world.5 With the onset of the second al-Aqsa intifada in September 2000, accompanied by rising foreign-aid disbursements in response to greater need, per capita donor assistance actually increased to $315 per person per year. This compared favorably to per capita aid disbursements of approximately $215 per person per year in Bosnia over a five-year period and $235 per person per year for two years in East Timor.6
In 2001, donor disbursements were nearly double those of the pre-intifada period, and totaled some $929 million. In 2002, donor disbursements increased to an all-time high of $1.051 billion. When PA monthly revenues fell from $91 million in late 2000 to $19 million by mid-2001 as a result of widespread unemployment and tax withholding by the Israeli government, the fiscal collapse of the PA was prevented by average monthly infusions of $40 million from the donor community, amounting through 2002 to approximately half of the PA’s monthly budget.7 As generous as the donor community has been, however, foreign aid continues to be substantially less than what Palestinians actually need. The World Bank projected a funding shortfall of more than $1 billion in 2002.8
Evidence of the seriousness with which donors made their pledges at the height of the Oslo period is found in the ratio between donor commitments and actual disbursements. That ratio averaged 67 percent between 1994 and 1999, which compares favorably to many other settings, such as Bosnia-Herzegovina, where the ratio averaged 53 percent in the period 1996-98.9
Targets of Foreign Aid
International donors typically prefer to invest in the building of infrastructure and in development projects designed to fuel medium and long-term economic, social and political development. That was certainly the case with respect to international aid for the Palestinians. Original plans outlined by the major donors indicated a strong preference to spend the bulk of aid funds on the development of Palestinian infrastructure and other development needs, as opposed to recurrent expenditures such as civil servants’ salaries.
Yet actual disbursements of funds show a very different picture. In comparison to other developing countries, historically unprecedented amounts of foreign aid have been spent on recurrent expenditures to cover burgeoning PA deficits. For example, in the first couple of years of foreign assistance following the signing of the DOP, investment in infrastructure constituted only about half of foreign aid spent, and payments for recurrent expenditures were more than double what originally had been anticipated by donors.10 Donor support for recurrent spending in particular increased in the three years after the intifada began. Illustrative of the diversion of donor funds to support recurrent costs and pressing humanitarian needs is the fact that, between October 2000 and July 2001, only 8 percent of international donor aid was spent on projects to build medium-term capacity or infrastructure. By year-end 2001, 70 percent of foreign aid disbursements went toward PA budgetary support and emergency funding for humanitarian aid.11
There were good reasons international donors were more willing than usual to support recurrent expenditures. First, it proved much harder than originally expected to create an effective tax system, given the fact that the Palestinian territories are not contiguous and are subject to closure by Israeli authorities. Second, Israel delayed the payment of Palestinian tax revenues it had collected. And, third, the cost of creating the Palestinian Authority governing structures, particularly the security forces, was underestimated by Palestinians and donors alike. Despite their misgivings about PA fiscal mismanagement and corruption, donors were committed to helping finance the creation of Palestinian governing structures that could assume the responsibilities of statehood at the conclusion of final-status negotiations and that would ensure Israel’s security.
Most important, however, donors found that support for recurrent expenditures – including funding of the PA budget, cash assistance, job-creation programs and food assistance – was one of the best means of putting essential resources in the hands of ordinary Palestinians, whose employment possibilities in the private sector were curtailed by the Israeli closure policy. During the first six years of the Oslo period, the cadre of government civil servants swelled from 23,000 in 1994 to over 100,000 in 2000 – about 4 percent of the population.12 By 2002, the number had grown to 125,000 – about 26 percent of those employed in that year in the West Bank and Gaza, excluding East Jerusalem – with the PA paying about 40 percent of all domestic wages.13 Especially after the onset of the al-Aqsa intifada, donors recognized that support for PA recurrent expenditures was necessary to stave off the imminent fiscal collapse of the PA and to address the growing humanitarian crisis as the impoverishment of Palestinians reached unprecedented levels.14
Sources of Foreign Aid and Donor Coordination
Another feature of international assistance to the Palestinians is highly unusual: the large number of donors providing aid. All told, there have been more than 50 major donors, ranging from states and international organizations to private foundations, church groups and other organizations addressing Palestinian needs. The number of U.N. agencies alone involved in Palestinian assistance increased from three to 29 following the signing of the DOP.15 This wide base of donor assistance for the Palestinians contrasts with many other settings, in which only a few donors are active. For example, in the immediate aftermath of World War II, the United States bore most of the reconstruction costs, amounting to $13 billion (some $70-80 billion in today’s terms).16 In a more recent example, the 1979 Egyptian-Israeli peace treaty was underwritten by a single donor, again the United States, which has continued to provide unprecedented levels of aid to both countries ever since.
Historically, the European Union – including its individual member states and the multilateral European Commission – has been the most generous donor to the Palestinians, with the U.S. government coming in second. With the onset of the al-Aqsa intifada, however, contributions from the Arab world have increased very substantially, Arab League disbursements initially exceeding even those of the EU. At the Arab League meetings in October 2000 and March 2001, 13 Arab governments pledged $672 million for the Palestinian people, to be channeled through the Islamic Development Bank (IDB). By the end of 2001, a total of $487 million was actually disbursed by the IDB, over 40 percent of the total aid available to the Palestinians during the first 15 months of the intifada. By comparison, EU disbursements amounted to 26 percent of the total for 2001.17
In 2002, however, Arab League donor support declined somewhat, as the following table illustrates. European Commission and European member-state aid disbursements together accounted for the largest combined total – 36 percent of 2002 foreign-aid disbursements to the Palestinians – compared to some 31 percent from the Arab League. The large number of donors providing aid to the Palestinians has imposed the necessity for greater consultation and coordination among donors than is usually the case. Indeed, the Palestinian case has set new precedents in the amount of effort and resources invested by donors to create and participate in a sophisticated, multilevel set of coordinating committees, working groups and consultative bodies operated by the World Bank and the United Nations to identify priority needs and coordinate aid flows. In 2002 and 2003, for example, the international Ad Hoc Liaison Committee (AHLC) that brings donors together to coordinate activities met six times in an effort to keep donors informed of priority needs and individual donor efforts. Coordinating structures such as the AHLC have been supplemented by more informal working groups set up in the field by NGOs and contracting firms involved in disbursing aid at the local level. The World Bank has also established special channels through which donors were invited to direct their aid, such as the Holst Peace Fund meant for start-up and recurrent costs.
Commitments and Disbursement by Donors, 2002 (US$ millions)18 |
||||
Country |
Commitments |
Percentage |
Disbursements |
Percentage |
League of Arab States |
630 |
41.3% |
316 |
30.8% |
European Commission |
269 |
17.6% |
217 |
21.1% |
United States (USAID) |
201 |
13.2% |
194 |
18.9% |
World Bank |
75 |
4.9% |
37 |
3.7% |
Italy |
60 |
3.9% |
32 |
3.1% |
Norway |
49 |
3.2% |
44 |
4.3% |
Germany |
45 |
2.9% |
21 |
2.1% |
Sweden |
31 |
2.0% |
16 |
1.5% |
Switzerland |
17 |
1.1% |
12 |
1.1% |
Denmark |
16 |
1.0% |
18 |
1.8% |
Canada |
14 |
0.9% |
14 |
1.3% |
France |
13 |
0.8% |
11 |
1.0% |
United Kingdom |
13 |
0.8% |
12 |
1.1% |
Japan |
13 |
0.8% |
12 |
1.1% |
Others |
82 |
5.6% |
71 |
7.0% |
Total |
1,528 |
100.0% |
1,027 |
99.9% |
For their part, the Palestinians’ capacity to articulate their priority needs and channel foreign aid effectively has also increased tremendously since 1994. Improved planning and coordination among PA ministries and structures, as well as better coordination among the strong set of Palestinian civil-society organizations involved in seeking and disbursing foreign aid, have meant more effective aid spending. Both donors and recipients could benefit, however, from considerable streamlining to reduce the duplication of effort and improve the delivery of services.
How have ordinary Palestinians viewed the provision of foreign aid? By the end of the 1990s, their response was mostly positive. A national survey of some 1,300 persons conducted in August 1999 in 120 locations in the West Bank and Gaza was commissioned by the World Bank and carried out by the Center for Palestine Research and Studies.19 It found that 60 percent of those polled had a positive view of donor performance, while only 17 percent had a strongly negative view. Even though most ordinary Palestinians, due largely to Israel’s closure policy, had experienced significant declines in their personal economic standing by the time the poll was taken, Palestinians reported substantial improvements in the transportation and education sectors since 1994.
They also had generally positive views about the functioning of the health, solid waste and sewage-control services financed substantially by foreign contributions. While views of Palestinians living in Gaza and the West Bank were not significantly different, people who gave donor performance the lowest ratings were those who lived in places where the most donor aid had been spent, namely Gaza City, Ramallah and Nablus. Palestinians living in more remote and poorer locations tended to rate donor performance more highly.
TENSIONS AND DILEMMAS
Since the beginning of the Oslo period, the provision of foreign aid has caused a number of tensions among the international donor community, the Palestinians and the Israeli government. Some of these tensions are inherent in the donor-recipient relationship, but others have stemmed from special circumstances in the West Bank and Gaza.
Recurrent Spending Versus Development Aid
Perhaps the greatest source of tension has derived from the desire of donors to invest in infrastructure and development projects as opposed to recurrent expenditures and humanitarian assistance. When donors significantly increased their disbursements of foreign aid to the Palestinians after the onset of the Oslo period, they did so with the intent of investing primarily in the medium and long-term development of a post-conflict society. Their investments were made in the expectation that foreign aid was helping build a future Palestinian state that would become politically independent and economically self-sufficient.
Yet by the time the al-Aqsa intifada broke out in September 2001, and despite Israel’s signature on interim Oslo agreements outlining so-called “further redeployments” of Israeli troops from an estimated 80-90 percent of the occupied territories, Palestinians were in full control of only 19 percent (Area A) of the West Bank. (In Area B, Palestinians shared control over an additional 22 percent, while in Area C Israel exercised total control of the remaining 59 percent of West Bank land.) The reality of the continuing occupation, the division of Palestinian territory into hundreds of discontinuous enclaves, the tightening of the closure policy once the Oslo period began, the inefficiency and corruption of the PA, and the widespread impoverishment of the Palestinian population during the three years of the intifada all have contributed to circumstances that have created enormous pressures on donors to commit a substantial proportion of foreign aid to recurrent expenditures, humanitarian assistance and the rebuilding of infrastructure destroyed during the Israeli re-invasion. Donors may now accept the importance of support for recurrent costs. But, if circumstances were different, all would much prefer to see their funds creating new engines of social and economic development for Palestinian society than paying staff salaries and buying food aid.
Donor and Recipient Coordination
A second source of tension has arisen from complications growing out of good, but imperfect, coordination among the numerous donors and recipients involved in foreign aid. While it is desirable that the burden of aid be shared among a large number of donors, and despite noteworthy efforts by donors and recipients to refine their coordination to maximize the use of foreign aid, some duplication of effort and miscommunication have been inevitable, given the numbers of donors and recipients involved.
For its part, the PA has engaged in a significant reform process in the last year that has resulted in, among other things, a reduction by one-third in the number of Palestinian ministers and significantly improved accounting procedures. Further reforms by the Palestinians could improve the situation even more through additional clarification of overlapping ministerial mandates in ways recommended by the PLC Budget Committee and Tripartite Action Plan of October 1999.20
Equalizing the Donor-Recipient Relationship
A third source of tension stems from the desire by donors to exercise tight control over how aid is spent and on what. Donors generally understand that the ultimate goals of development assistance are best served by allowing recipients to play a large role in determining aid priorities and implementing aid programs. After all, the end goal of foreign aid should be to create indigenous capacity to operate self-sufficiently. Yet, in the PA case, an early track record of financial mismanagement – revealed by an internal audit conducted in 1996 that found that some 40 percent of the PA’s budget had been wasted or misused21 – caused donors to exercise even more control than they might have done in other circumstances. Unquestionably, overlapping jurisdictions of Palestinian ministries and unclear mandates have caused some donors to delay or cancel aid projects or to exercise greater control over expenditures. Recent Palestinian reforms mentioned above have significantly improved donor confidence in giving aid directly to the PA. Indeed, these reforms, as well as the sidelining of PA President Yasser Arafat, led to the announcement by the White House in July 2003 of U.S. government plans, for the first time, to provide aid directly to the PA rather than channeling it through the United Nations or non-governmental organizations.22
This tension over control ultimately reflects the fact that the provision of foreign aid is a complicated business. Donors need to acknowledge that various power inequalities are at the heart of even the best donor-recipient relationships.23 The first inequality stems from the fact that one party – the donor – has excess resources to give to the other party – the recipient. An inequality also arises from the fact that the donor can choose whether or not to provide aid, while the recipient must accept aid in order to survive. A third source of inequality derives from the fact that the people involved in channeling aid to recipients always report first and foremost to the donor organizations and countries and, at best, only secondarily to the recipients. Such power inequalities can never be eliminated from donor-recipient relationships, but donors can reduce them somewhat by encouraging Palestinians to play a larger role in setting priorities and implementing projects. Palestinians find that they can also improve their leverage vis-à-vis donors if they press on with further reforms and minimize factionalism and political infighting within the Palestinian community over the control of foreign aid.
What do the recipients – the Palestinians – want from the donor-recipient relationship? First, they want donors to create more flexible and speedy processes for delivering urgently needed aid. In addition, they want more Palestinian workers and institutions to be directly involved in implementing aid programs rather than seeing contractors serving as middlemen, with the result that large amounts of aid dollars line the pockets of foreign nationals employed by donor countries or their contractors. Ultimately, Palestinians want more aid to be given without strings, allowing Palestinians to determine how it will be spent and by whom.
CONCLUSION
The underlying political reality is that control over the delivery and use of foreign aid by international donors and Palestinian recipients is mediated through the Israeli occupation. This reality leads to several conclusions. First, as the political stalemate continues and the occupation remains in force, it is clear that the norms of foreign aid that often apply to post-conflict societies do not pertain to the Palestinian case. Provisions for the basic security of Palestinian lives and property, and for the free movement of Palestinian people and goods within the occupied territories and across the borders of neighboring countries, must be in place before donors can wean Palestinians from their dependency on aid for recurrent expenditures, and before aid can be invested to maximum benefit in development-oriented projects. Meanwhile, donors should be willing to continue funding recurrent expenditures, food aid and job creation programs.
Second, it has become increasingly obvious that, given ongoing Israeli control over much of the Palestinian territories, foreign donors are essentially footing the bill for the continued Israeli occupation of most of the West Bank and Gaza. Since Israel’s reinvasion of large portions of Area A in March and April 2002 and the destruction of many of the projects funded by foreign donors, this perception among donors has grown stronger. Resentment toward Israel among some donors, and the onset of donor fatigue, are real concerns to those who wonder how long the international community will be willing to provide generous levels of aid to the Palestinians. Indeed, significant shortfalls in the 2003 UNRWA budget announced earlier this year suggest a brewing aid crisis. The international community has demonstrated a significant commitment to sustaining Palestinian society through a difficult decade, and that commitment must remain in place even as pressure mounts to find a just solution to the conflict.
Third, foreign aid cannot substitute for a viable Palestinian economy. If donor disbursements doubled between 2002 and 2003, the poverty rate in Palestine would fall only to 54 percent by the end of 2004, down from 60 percent at the end of 2002.24 Thus, aid is only a partial answer. If Palestinians are ever to be weaned from their dependency, there can be no substitute for Palestinian economic vitality and political independence.
*The author wishes to thank Ryan Sawak and Adam Bowman for their research assistance, and Peter Gubser for his insights. Judy Barsalou, and not the above-mentioned persons or the United States Institute of Peace, remains solely responsible for all the views expressed in this article.
1 Geoffrey Aronson, “Recapitulating the Redeployments: The Israel-PLO Interim Agreements,” Center for Policy Analysis on Palestine, Washington, DC, Information Brief No. 32, April 2000.
2 Salem Ajluni estimates that the total lost income-earning opportunities during the first 27 months of the intifada amounted to $4.8 billion, nearly equal to the Palestinian GDP in 1999. See his article, “The Palestinian Economy and the Second Intifada,” Journal of Palestine Studies, Vol. 32, No. 3, Spring 2003, p. 69.
Physical damage resulting from the conflict rose from $305 million at the end of 2001 to $728 million by the end of August 2002. “Two Years of Intifada, Closures and Palestinian Economic Crisis: An Assessment,” Washington DC: The World Bank, March 5, 2003, p. 1.
3 Rex Brynen, A Very Political Economy: Peacebuilding and Foreign Aid in the West Bank and Gaza (Washington, DC: United States Institute of Peace Press, 2000), pp. 45-47.
4 “West Bank and Gaza Strategic Outlook,” Washington, DC: The World Bank, April 2002, p. 1
5 “Aid Effectiveness in the West Bank and Gaza,” Washington DC: The World Bank, June 2000, p. 18. Also see “West Bank and Gaza Strategic Outlook,” op. cit., p. 1.
6 “Twenty-Seven Months–Intifada, Closures and Palestinian Economic Crisis, An Assessment,” The World Bank, May 2003, p. xiv.
7 “Two Years of Intifada, Closures and Palestinian Economic Crisis: An Assessment,” op. cit., pp. 1-2.
8 “Twenty-Seven Months – Intifada, Closures and Palestinian Economic Crisis, An Assessment,” op. cit., p. 54.
9 “Aid Effectiveness in the West Bank and Gaza,” op. cit., p, 18.
10 Barbara Balaj, Ishac Diwan and Bernard Philippe, “External Assistance to the Palestinian Economy: What Went Wrong,” Economic and Political Impediments to Middle East Peace: Critical Questions and Alternative Scenarios, J.W. Wright, Jr. and Laura Drake, eds. (New York: St. Martins Press, 2000), p. 175.
11 “Fifteen Months – Intifada. Closures and Palestinian Economic Crisis: An Assessment,” Washington, DC: The World Bank, March 18, 2002, pp. 60-61.
12 S. Schiavo-Campo, “Financing and Aid Arrangements in Post-Conflict Situations,” CPR Working Paper No. 6, The Conflict Prevention and Reconstruction Unit, Washington, DC: The World Bank, May 2003, p. 10.
13 “Twenty-Seven Months –I ntifada, Closures and Palestinian Economic Crisis, An Assessment,” op. cit.,
p. xiii.
14 The World Bank estimated that, by the end of 2002, 60 percent of West Bank residents lived at or below the poverty line, with an even higher percentage in Gaza. See their press release, “World Bank Expands Support for Emergency Social Services to Palestinians,” Washington, DC, December 17, 2002.
15 Stephen Lister and Raisa Venalainen, “Improvement of Aid Coordination for [the] West Bank and Gaza,” Draft Report, September 6, 1999, Oxford: Mokoro Ltd., p. 8.
16 “Aid Coordination and Post-Conflict Reconstruction: the West Bank and Gaza Experience,” Precis, No. 185, Spring 1999, Washington, DC: The World Bank, Operations Evaluation Department, p. 1.
17 “Fifteen Months – Intifada. Closures and Palestinian Economic Crisis: An Assessment,” op. cit., p. 60.
18 Figures do not include donor support to UNRWA’s regular budget. Table originally published in “TwentySeven Months – Intifada, Closures and Palestinian Economic Crisis, An Assessment,” op. cit., p. 53.
19 “Aid Effectiveness in the West Bank and Gaza,” op. cit., pp. xvi-xvii.
20 “The Palestinian Authority’s (PA) Reform Agenda,” West Bank and Gaza Update, Washington, DC: The World Bank, August 2002, pp. 3-4.
21 Ilene Prusher, “U.S. Doubts Its Role as Main Donor to Palestinians,” Christian Science Monitor, June 18, 1997.
22 Glenn Kessler, “U.S. Plans to Provide Direct Aid to Palestinians,” The Washington Post, July 9, 2003,
p. A1.
23 Mary B. Anderson, “Aid: A Mixed Blessing,” Development in Practice, Vol. 10, Nos. 3&4, August 2000, p. 496.
24 “Two Years of Intifada, Closure and Palestinian Economic Crisis: An Assessment,” op. cit., p. 3.
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