The U.S. government has been providing economic assistance to Palestinians in the occupied West Bank and Gaza Strip for more than 20 years. This aid has always been controversial. American assistance has been viewed both as a much-needed asset for promoting Palestinian development and as an indirect form of collective punishment used against the Palestinian people. Both views have been shaped by the constraints of military occupation, the inability of Palestinians to challenge those constraints, and the degree to which U.S. assistance was able to mitigate and supersede them.
During the last two decades. the U.S. program has undergone some dramatic changes in scale, structure and significance. With the initiation of the Middle East peace process in September 1993, the program moved from being a low-key, virtually unknown and relatively unimportant initiative implemented by a handful of mostly American private voluntary organizations (PVOs) to one of the most highly visible and politically relevant of U.S. foreign-assistance programs, wholly managed by the U.S. Department of State through the U.S. Agency for International Development (USAID) mission in Israel. Over the last two decades. annual funding increased 75-fold, from $1 million in 1975 to $75 million in 1995.
The contribution of foreign economic aid to self-sustaining development, one stated goal of the U.S. assistance program, is fundamentally determined by the environment to which it is directed and the strategies used to address that environment, particularly with regard to the majority poor. The West Bank and Gaza Strip have always presented the assistance provider with daunting challenges. The defining feature of the local context has always been political: Israeli military occupation and the policies supporting it. Ideologically and practically, these policies sought to preclude the emergence of a Palestinian state and thwart the development of a supporting economic or institutional infrastructure. The resulting constraints not only prohibited needed structural change of the economy but further weakened its already underdeveloped economic base.1 Foreign-assistance programs were restricted to certain sectors and to certain kinds of change within them.
With the signing of the Israel-PLO Declaration of Principles on Interim Self Government Arrangements (DoP/Oslo I) in September 1993, the Protocol on Economic Arrangements (Paris Agreement) in April 1994, the Agreement on the Gaza Strip and Jericho Areas (Cairo Agreement) in May 1994, and the Israel Palestinian Interim Agreement on the West Bank and Gaza Strip (Taba Agreement/Oslo II) in September 1995, many believed a new political framework was being established that would strengthen the prospects for real economic development or structural reform (e.g., reducing Palestinian dependency on Israel) in the occupied territories.2 In October 1993, over 25 donor governments pledged $2.1 billion (now $2.4 billion) in economic assistance over five years to the West Bank and Gaza. This included a pledge of $500 million from the United States alone.3
Yet, in the nearly three years since the first Oslo agreement was signed, economic, social and political conditions have deteriorated and development prospects have dimmed. One reason for this is that the new political context created by the Oslo and Cairo agreements remains fundamentally unchanged from the old. The structures of occupation (e.g., total Israeli control over Palestinian economic activity and physical movement, as seen in Israel’s closures of the occupied territories) are still in place and intact despite the removal of certain economic restrictions (particularly with regard to the implementation of foreign assistance) and the creation of new but limited economic opportunities for Palestinians. The election in May 1996 of Israel's right-wing Likud party makes any meaningful departure from the past even more unlikely.
Hence, it is within the combined context of continued occupation and new economic possibilities that the USAID program must be evaluated and its role assessed. Has the U.S. program, now one of the largest in the West Bank and Gaza Strip, adopted a new conceptual and practical approach to economic aid that reflects new possibilities? How have changes in the program affected development prospects in the occupied territories? To what, if anything, is assistance linked-economic reform, social change, conflict resolution, poverty alleviation or relief? By what framework – political, economic, local, regional – is aid informed? Is the program now better able to overcome existing political, economic, and social constraints and pursue more rational policies of economic development? What impact can substantially heighten levels of U.S. aid have on internal stability and the prospects for peace?
The following discussion of these questions is divided into three parts: (1) a review of the USAID program prior to the Oslo agreement, (2) an analysis of the program since the beginning of the Middle East peace process and the impact of programmatic changes on USAID's ability to respond to a rapidly eroding economy and long-term development needs, and (3) recommendations for change.
FOREIGN AID UNDER MILITARY OCCUPATION (1975-93)4
As one of the most politically significant U.S. foreign-assistance efforts, USAID's current program in the West Bank and Gaza cannot be understood outside the historical context that shaped its purpose and function and determined the boundaries of permissible action. This context has been shaped by many factors. Perhaps the two most significant are the political imperatives of U.S. foreign policy, of which foreign economic assistance is a policy-making tool, and the historical specificities of U.S. aid to the Middle East, particularly to Israel, the West Bank and Gaza.
U.S. Foreign-Assistance Priorities5
The history of U.S. foreign aid began with the Bretton Woods conference of 1944, which established the World Bank to facilitate private investment in postwar Western (as opposed to Eastern) Europe and the developing world. During the 1950s and 1960s, legislation was passed that tied U.S. foreign economic assistance more directly to security issues (e.g., the 1951 Mutual Security Act and the 1961 Foreign Assistance Act). Development aid was used to build economic structures and political alliances in friendly (i.e., noncommunist) countries.
In 1956, a Senate-commissioned study on U.S. foreign aid headed by Max Milliken and Walt Rostow argued that economic aid, if delivered through a comprehensive assistance program, would promote economic growth in the Third World and thus constitute a useful and needed weapon against the Soviet Union.6 Their approach to development was “trickle down,” emphasizing improvements at the country level only, and couched in the erroneous belief that the modernization of the industrial sector would spur economic growth in the developing world exactly as it had in the developed world.7
Not only has this approach, which favored investment in large-scale infrastructure, failed to promote equitable and self-sustaining development over the last four decades, it has increased the dependency of Third World countries and generated greater inequities in the control of economic resources. Trickle-down aid also linked U.S. economic interests to the promotion of modernization strategies overseas since it required the purchase of U.S. goods by Third World recipients, a practice that still obtains. In 1961, President Kennedy authorized the establishment of USAID within the Department of State, further tying the structure and operation of economic aid to the making of foreign policy.8
Although these early legislative acts were subsequently amended and, in some cases, superseded by new legislation implemented in the 1970s and 1980s,9 the underlying structure, purpose and function of U.S. foreign assistance has remained fundamentally unaltered. In 1983, the chairman of the administration's Development Coordination Committee wrote:
U.S. interests in a particular region or country, due to the country being a source of important raw materials, the location of substantial U.S. private investment, or the scene of actual or potential destabilizing conflict, have been given greater importance as criteria for the allocation to countries of all forms of U.S. assistance, including development assistance.10
In fact, one critical feature of U.S. foreign assistance is the continued use of the Economic Support Fund (ESF) as a source of financing. Named by Congress in 1978, the ESF was originally known as Security Supporting Assistance and was part of the International Security Assistance Act. The ESF provides assistance “on the basis of U.S. security interests, in an effort to maintain or achieve the political and economic stability of governments favorable to (or at least not hostile to) the United States…”11
The majority of ESF monies are provided as balance-of-payments support and for commodity-import purchases, while remaining funds are used for development projects12 including those in the West Bank and Gaza Strip. In 1980, Congress enacted the International Security and Development Cooperation Act, which legislatively combined ESF, military assistance and development assistance into a single foreign-aid bill.13 This not only set the political tone for U.S. foreign assistance but underlined the increasingly important and micro-managerial role of the U.S. Congress in aid administration.14
The integrative link between security related issues and development assistance has reinforced the top-down approach articulated over three decades ago15 and the use of aid to promote short-term U.S. economic and foreign-policy priorities rather than the recipient country. Hence, the use of ESF funds for development purposes has always been constrained. In this way, USAID, as an agency of the State Department, has only limited control over policy making and continues to be structured primarily to address U.S. political and security interests as well as certain economic and bureaucratic interests of its own. In addressing a closed meeting of U.S. PVOs on USAID’s current priorities in the West Bank and Gaza, Margaret Carpenter, USAID’s assistant administrator for the Asia/Near East Bureau, explained that since “USAID’s budget is not part of U.S. development assistance accounts but channeled through the Administration’s Economic Support Fund…program decisions are guided by political considerations rather than mainstream developmental approaches.”16
Some Historical Specificities
U.S. economic assistance in the Middle East began in the nineteenth century, when Palatine, in particular, was host to many American private voluntary organization engaged in educational, medical and welfare relief work. After World War II, U.S. economic assistance to the region increased, fueled by the Cold War rivalry in which the United States and the Soviet Union sought regional spheres of influence. The main recipients of U.S. support during this period were Israel, Egypt and Jordan. The Palestinian community in the West Bank and Gaza received U.S. assistance in a more indirect way, through American PVOs operating under Public Law 480, which provided food relief for the refugee population dislocated as a result of the 1948 war.
When Israel gained control of the West Bank and Gaza Strip in 1967, American PVOs working in the area were allowed to remain and new ones to join them, providing humanitarian assistance and a range of social services. Their relationship with the Israeli government was relatively benign. It was not until the October 1973 war, however, that American aid policy underwent some critical changes. After the war, the desire of the U.S. government to forge an Arab-Israeli rapprochement was clear: bilateral understandings were reached between Israel and two Arab countries, Egypt and Syria, whose land Israel had occupied in the 1967 War. Economic assistance was needed to sustain these understandings.
Increasing aid to Israel and Egypt was acceptable to Congress, but providing aid to Syria was not. In order to circumvent this problem, the Nixon administration requested the creation of a $100 million Middle East Special Requirements Fund (MESRF), whose objective was to identify “targets of opportunity” that would encourage a resolution to the Middle East conflict. In 1974, Congress authorized the fund to be used for economic aid to Syria and project work in the West Bank and Gaza Strip. One year later, $1 million was allocated to the West Bank/Gaza program.17
In 1975, as in 1993, American aid to the occupied territories was political rather than economic in purpose and was conceived as part of a peace-making process.18 Yet, unlike earlier U.S. efforts, aid to the West Bank and Gaza was designed to provide much more than welfare relief and was meant to be independent of assistance for Israel or any Arab state. In fact, an important and seemingly unprecedented feature of the 1975 program and the Congressional legislation that mandated it was its “bilateral American-Arab character.”19 It was a form of direct aid, outside Israeli government control, from the U.S. government to the Palestinian people in the West Bank and Gaza. American PVOs already operating in the occupied territories were officially assigned responsibility for designing and implementing project work. The Department of State oversaw the program, and USAID administered it.
Critical Events Prior to Oslo I
Four events strongly influenced the shape of the U.S. assistance program in the West Bank and Gaza Strip during the pre-Oslo period: 1) the Likud victory in the 1977 Israeli elections, 2) the official shift in 1978 in USAID policy and PVO objectives from welfare assistance to economic development, 3) the 1983 quality-of-life initiative enunciated by Secretary of State George Schultz, and 4) the government of Jordan's 1986 five-year development plan for the occupied territories.
With the coming to power of the right-wing Likud party, the American aid program found itself m an increasingly hostile environment. The Likud government deliberately sought to restrict Palestinian economic development, which it saw as a threat to its larger goal of Jewish expansionism in the occupied territories. Fueling Israeli political fears was the official shift in AID-PVO policy from welfare-related activities to those emphasizing the longer-term development needs of the West Bank and Gaza Strip. This shift, influenced by President Carter's more activist Middle East policy, led to repeated accusations by the Likud government that the American government and PVOs were building the economic and social infrastructure for an independent Palestinian state. This generated not only growing hostility between Israeli officials and the PVO community but greater Israeli intervention in the U.S. program, to which the American government largely acquiesced.
By 1983, the peace process was moribund. Israel's 1982 invasion of Lebanon and the failure of the Reagan peace initiative that same year brought the process to the verge of collapse. Moreover, unabated tensions between the Israeli government and the American PVO community clearly threatened the U.S. assistance program. In response, Secretary of State Schultz introduced the “quality of life” initiative in an attempt to resurrect the peace process and clarify American policy in the region. Shultz's initiative made it clear that U.S. aid to the West Bank and Gaza was still considered an important component of the Middle East peace process.
American officials were serious about the quality-of-life initiative, and meetings ensued with Israeli, Palestinian and Jordanian representatives. These meetings, which were held over a period of two to three years, centered on removing some of the restrictions imposed on economic development in the occupied territories. In the end, however, Israeli policy remained largely unchanged.20 Realizing this, U.S. officials decided to turn their attention to the project level and focus on keeping the West Bank/Gaza program alive. This was done by trying to persuade Israeli authorities to approve more PVO projects and move expeditiously on those that were pending. In addition, the administration sought increased budget allocations for the program that Congress subsequently granted.
In 1986, King Hussein of Jordan put forth a five-year development plan for the West Bank and Gaza Strip that was designed to strengthen Jordanian political control over the territories by creating an alternative leadership loyal to Jordan rather than the PLO, a strategy that had the support of Israel and the United States out was rejected by the Palestinians. The Jordanian plan, which aimed to provide a broad range of economic and social services through projects that required official Israeli approval, gave the U.S. State Department a more politically tenable channel through which to administer economic assistance to the Palestinians. This was important given the regional foreign-policy imperatives of the Reagan administration, which clearly rejected the establishment of a Palestinian state in favor of an autonomous arrangement under Israeli control. In fact, the first strategy statement to emerge from USAID on the program appeared at this time. However, the Jordanian development plan was later nullified by Jordan's July 1988 disengagement from the occupied territories, and with it the new U.S. strategy.
Between 1988 and 1993. three events greatly influenced conditions in the occupied territories: the December 1987 Palestinian uprising or intifada, the 1991 Gulf War, and the March 1993 Israeli imposed closure of the West Bank and Gaza Strip. During this period, economic conditions in the West Bank and Gaza markedly deteriorated, due in large to the erosion of employment in Israel, the termination of remittances and other financial transfers from the Gulf, and Israel’s closure of the occupied territories, now in its fourth year, which exacerbated an already diminished economic capacity.21 The U.S. assistance program continued to operate, at times under heightened scrutiny from the Israeli security apparatus and with greater intervention by Israeli military officials in Gaza and the West Bank who were given more power over the project-approval process. However, the program gamed in significance as a result of the 1991 Madrid peace talks. Because of this and declining economic conditions in the territories, allocations to the West Bank/Gaza program averaged $15.5 million between 1988 and 1991, a significant increase over the previous decade.
Program Structure and Goals
Prior to the establishment of the USAID mission in 1994, the U.S. economic assistance program in the West Bank and Gaza was a structural anomaly. Since the U.S. government had never officially recognized Israel's sovereignty over these areas, and since there had never been an independent Palestinian government that could host a USAID mission, standard procedures for administering official aid programs did not apply. At first, the State Department considered three possible options: to supervise the program through the USAID missions in Amman and Cairo, which would have created bureaucratic and political difficulties; to assign programmatic responsibility to the Israeli government, which would have placed Palestinian development in the hands of an occupation authority; or to supervise the program through the U.S. embassy in Tel Aviv, which would have given Israel's occupation of the territories de facto political recognition.
Since none of these options were acceptable, the State Department arranged to nave the program administered through USAID/Washington directly to American PVOs working in the West Bank and Gaza. Each participating PVO (six American and one Palestinian22) had to be registered with USAID and be approved by the Israeli government. In the absence of a USAID mission to supervise and support project activities, the State Department maintained control of the program through the U.S. consulate in Jerusalem and the U.S. embassy in Tel Aviv, which acted as points of contact for PVOs in the West Bank and Gaza Strip respectively.23 In 1992, after the start of the Madrid peace process and expectations of increased program assistance, a senior AID officer was assigned to the U.S. consulate in Jerusalem with the mandate to bolster oversight and monitoring procedures.
Both the consulate and the embassy would often mediate disputes between the PVO community and the Israeli government, an important and much-needed function. However, neither the consulate nor the embassy had much real input into project design or implementation. Even USAID in Washington had limited input since the program was very much a PVO-led initiative. Typically, PVOs would consult with local Palestinian groups and agree on a specific project. Local participants were expected to cover a relatively large percentage of project cost. Projects would then be submitted to USAID/Washington and to the Israeli government for approval. PVO programs varied across sectors and emphasized education and training, special education, primary health, rural infrastructure and development, small-scale agriculture, cooperatives, water and women. PVOs tended to work in areas in which they had technical expertise, and there was little coordination among them.
The U.S. assistance program was distinctive in another respect. Not only did the United States allow the Israeli government to play a defining role in the project-approval process, it was the only donor to do so. Despite the fact that there was no legal basis for Israel's participation in the U.S. assistance program, PVOs had to submit all project proposals to the Israeli Ministry of Labor and Social Affairs, which then channeled them to the Ministry of Defense, the ultimate authority, without whose explicit approval no project could be implemented.
The structure of the U.S. aid program has been shaped, in large part, by the goals of its key participants: Israel and the United States. Israeli policy in the West Bank and Gaza has always been motivated by three interconnected concerns: security, politics and economics. Security was paramount, seldom defined but often invoked to disapprove or delay projects. Political goals, however, were more explicit: to prevent the formation of an independent Palestinian state and to prevent the formation or strengthening of forces hostile to Israel. In the former case, the government of Israel imposed restrictions on a range of project activities perceived to decrease Palestinian dependence on the social and economic infrastructure established by Israel in the West Bank and Gaza. In the latter case, projects were often approved as a reward for groups considered friendly to the Israeli authorities (e.g., Israeli-appointed municipal and village councils) and disapproved as punishment for those considered hostile or uncooperative (e.g., Palestinian NGOs).
Israel’s economic goals in the West Bank and Gaza Strip always aimed to preserve the structural integration of the Palestinian economy with that of Israel, thereby insuring its continued dependence and removing all possibility of economic competition. Official measures (e.g., Israeli control over the issuance or denial of business licenses, building permits, export certificates, etc.) aimed not only to suppress economic development in the Palestinian sector but to frustrate any effort, indigenous or foreign, designed to promote it. Rather than define a comprehensive development strategy for the territories, which the government was always reluctant to do (and never did), Israeli officials preferred instead to focus on improving the level of public services in the occupied territories.
The primary goal of the U.S. government was to demonstrate “American concern for the humanitarian and development needs of the Palestinian [people]” but to do so in a manner that was politically tenable for Israel. Official American goals have consistently been general, reflecting the political nature of the program and the limited role historically played by the State Department and USAID in its day-to-day operation.24
However, George Schultz’s intervention and U.S. support for the 1986 Jordanian plan, in particular, created a larger role for the State Department and USAID and generated tensions over program control between these two arms of the government that continue today.
In 1987, twelve years after the program’s inception, the Department of State and USAID issued their first strategy statement. Its policy goals included (1) promoting economic growth by facilitating market entry and production in the agricultural and manufacturing sectors, and stimulating financial-market development; (2) encouraging the development of a policy environment supportive of Palestinian agriculture and manufacturing in order to stimulate and expand export markets and promote efficient financial-market development; (3) increasing the capacity of public and non-public institutions to support Palestinian economic activity; and (4) improving social service.25 This strategy also reflected an emphasis on private-enterprise development and free-market economics in the occupied territories, an espoused goal of the Reagan administration but one rejected by the Israeli government. This strategy remained in effect until 1992.
The interplay of official Israeli and American policies and Israel’s critical role in the U.S. assistance initiative meant, in actual practice, that Israel’s policy imperatives strictly defined the parameters of the U.S. program. Within those parameters, PVOs would seek niches of need in which they could work with Israeli support, often engaging in a process of self-censorship, proposing only those projects they knew would win Israeli approval. Indeed, PVO officials at the time acknowledged that give the myriad constraints imposed, real economic development or structural change was simply impossible to achieve. Instead, PVOs focused on helping Palestinians remain on their land by implementing as many projects as possible in sectors where needs could be identified and addressed.
Key Program Outcomes
That tensions existed between the PVO community and the Israeli government over the allocation of U.S.-funded projects was clear. In part, these tensions increased as funding levels for the program increased.26 The battle focused not on the number but the kinds of projects implemented. Because of Israeli intervention, approved projects were concentrated in domestic water and electricity, roads and health. Comparatively few were approved in agriculture and industry, sectors critical to economic development. Characteristically, implemented projects tended to be oriented to consumption rather than production and supported the status quo rather than changed it.
Despite this, the American program did succeed in providing a spectrum of services to the Palestinian community in a variety of sectors where needs were great, particularly health, education, rural development, water, roads and small-scale sewage. PVO work had a visible and marked impact on institutional development, especially in training the faculties and staff of universities, post-secondary schools, municipalities and cooperatives. There were many good examples of project achievements. However, insofar as long-term sustainable development was concerned, the most important consideration for the Palestinian economy was not the number of successes at the project level but their contribution at the larger policy level. That is, at what price were actual benefits accrued?
Three problems have always characterized the U.S. assistance program in the West Bank and Gaza: Israeli government intervention in program activities, the absence of a development plan for the occupied territories, and the Palestinian role in defining and "owning" aid priorities.
Official Israeli participation in the U.S. economic-assistance program was extremely problematic since it succeeded in reshaping individual PVO programs in a manner that served Israeli priorities over all others. Although this did not preclude many worthy projects, it did mean that local development priorities were subordinated to the priorities of maintaining Israel's military occupation. Hence, development defined as structural reform was precluded. Fueling this problem was the absence of a coherent framework of economic development for the West Bank and Gaza Strip. Development was never officially defined, nor were the criteria against which to measure it. The reason for this was political: The United States would have had to commit itself to a political resolution of the Palestinian-Israeli conflict.
The politicization of aid in the West Bank and Gaza Strip has consistently emphasized outcomes over process. Historically, this has limited the participation of Palestinians to fundraising with little if any financial risk or accountability. Palestinians were only partly responsible for defining local need and had limited input into the determination of program priorities.
The combination of program structure and participant goals limited the impact of U.S. aid to micro-level change. The U.S. program had to confine itself to those communities and sectors for which it could secure Israeli approval. Furthermore, projects typically remained isolated from each other. Since PVOs tended to support projects in areas in which they had expertise, they did not as a rule coordinate or integrate their activities. Also, such coordination might have been viewed suspiciously by the Israeli authorities. Rather than challenge existing constraints, the U.S. assistance program attempted to work within them in what one PVO director termed "Band-Aid development."
So, despite many project successes, American economic aid was unable to help Palestinians reduce their structural ties to Israel or increase their independence of action. Without the power to control their own resources and determine their use, which is the basis of development, Palestinians remained vulnerable to the deleterious effects of Israeli occupation policy. The choice that always confronted the U.S. assistance program in the West Bank and Gaza was: Will Palestinians be made more independent of their occupiers, or will the occupiers be made easier to live with? With the initiation of the Middle East peace process, it still remains unclear whether a choice has been made.
AFTER OSLO: A NEW ROLE FOR USAID?
Key Features of a Changed Political Context
Aid is not neutral. It is politically biased, developmental merits notwithstanding. In any foreign-policy context, the real question regarding aid is: How political is it? As the third anniversary of the Oslo agreement nears, it is clear that U.S. foreign assistance in the West Bank and Gaza has become acutely political, at perhaps unprecedented cost to local economic development.
The context for the increased politicization of U.S. aid did not begin with the signing of the Declaration of Principles but with a series of events that changed local and regional political dynamics irreversibly – the intifada, the Gulf War, the end of the Cold War and the fall of communism, and the Madrid peace talks. Yet, while the potential for positive political change among Israelis. and Palestinians has always existed, positive economic change was consistently absent. Instead, economic conditions in the West Bank and Gaza have been characterized by steady deterioration. With the implementation of the Middle East peace process, this decline has increased dramatically despite certain limited achievements, widening the chasm between a perceived new political order and the economic reality underlying it.
Arguably, for the United States, the Middle East peace process – a direct policy outgrowth of American intervention in the Gulf-has replaced the Cold War as a rationale for U.S. foreign policy. The peace process has become “a new mechanism for promoting and securing U.S. interests in the region with Israel at its core.”27 Hence, the continued viability of the peace process is of almost singular political importance to the United States.28 Lee Hamilton, a ranking member of the House of Representatives, underlined the political significance of the Middle East (i.e., Israel, Egypt and the peace process) to the United States:
We have cut the foreign aid budget dramatically. We have cut it by about 40 percent in the last four or five years. It has been cut as much as any other account of government....It has a 10 percent reduction this year. Even with all of those reductions, the Middle East accounts...have stayed...steady.29
The State Department has similarly indicated that 23 USAID missions in Africa and elsewhere will be closed due to budgetary cuts.30 Thus, the framework for U.S. aid to the Middle East and the West Bank and Gaza Strip specifically has become not only more political but more significant. Unlike in the past, aid to Palestinians is now officially sanctioned with the full weight of the White House behind it.
A key factor shaping American d policy to the West Bank and Gaza Strip is, of course, the U.S.-Israel relationship. The Oslo agreements augmented it, joining the United States, Israel and the Palestinian Authority (PA) in an openly agreed-upon political agenda that received broad international support. Thus, with the Oslo agreements, the political stake for the United States was not only large but visible, a critical departure from the past. One outcome of this change has been the virtual termination of any mediatory or advocacy role historically played by American officials and PVOs on behalf of Palestinians.
The political agenda articulated by the Oslo agreements aims to provide Palestinians with limited autonomy in the Gaza Strip and designated areas of the West Bank. This arrangement gives the Palestinian Authority control over certain sectors of activity. Yet, key qualifications about the agreements are important to highlight. First, and perhaps most critical, tis the fact that the Israeli military administration is given total authority in legislation, adjudication and policy execution. Israeli military law remains in effect during the transitional phase, placing the Gaza Strip and West Bank under the continued authority of the occupation regime, which retains all of its powers and prerogatives.31
A second point is that the Palestinian Authority has, in effect, no power to change the law. Israel retains a veto over all Palestinian legislation “which might jeopardize major Israeli interests whose overriding power is recognized by the [DoP] Agreement.”32 Consequently, not only is Palestinian legislation unable to deal with any security issue under Israeli responsibility33 it cannot “seriously threaten other significant Israeli interests protected by this Agreement and [to which] the entry into force of the legislation could not cause irreparable damage or harm.”34 In the final analysis, the sovereign powers of the Israeli military will not be limited to Israeli settlements in the West Bank and Gaza alone but will extend de facto over the whole of the autonomous areas with occupation law the legal basis of governance.35
Israel’s continued dominance of the Palestinians is revealed in the fact that the agreements do not provide a final, definitive settlement of the Palestinian problem. According to an internal report prepared by the International Finance Corporation and the World Bank, “[the agreements] set in motion a process with an unclear and undefined outcome (permanent status) about which the two protagonist (three if Jordan is included) have widely differing views and ideas. As a result, the present situation is one of transition towards an unknown destination.”36
The U.S. position also reflects this political lack of clarity over the final status of the West Bank and Gaza Strip. Not only does this ambiguity obviate the need to take a clear position on the resolution of the Israeli-Palestinian conflict, it makes any sort of economic framework within which to plan and strategize, almost any political position or economic program can be justified. Hence, although the political status quo had changed in one respect, it had stayed the same in another. What remained was for it to be preserved.
The preservation of the new political order was in large part based on the creation of a certain economic order that was frame in the Oslo agreement and detailed in the Economic Protocol signed in Paris in April 1994 (see below). The strength of the Paris agreement is its attempt to create a basic economic foundation for the newly autonomous territories in such areas as trade, finance, taxation, labor and agriculture. The weakness of the agreement is that it “guarantees Israel all possible controls over the autonomous economy,”37 and in the process legalizes Palestinian economic dependence on Israel. Furthermore, Israel has often invoked security concerns to justify a range of economic measures, most notable of which is closure of the West Bank and Gaza, that violate the terms of the agreements, particularly the Paris agreement. The United States and other international donors have refused to challenge these measures officially.38
While it is beyond the scope of this paper to detail the terms of the protocol and their ramifications for Palestinian economic development,39 the economic arrangements prescribed were clearly designed to perpetuate Palestinian economic integration with Israel and keep the territories physically linked to Israel.40 The protocol virtually restricts the Palestinian economy to its Israeli partner, weakening the possibility of achieving the interdependence required for balanced economic development. The protocol, however, does lessen certain existing restrictions and introduces some limited economic powers for the Palestinian Authority (in exchange for which Palestinians lost not only a secure labor41 and commercial market in Israel, but free market access internationally). At best, it allows for improved services and a better quality of life-but no economic development. According to one Israeli economist, "The Palestinians paid as much for [the] Oslo and Paris [agreements] as they did for 1948."42
The World Bank report also points out that the agreements “split up the West Bank and Gaza into a number of largely separate economic units with little economic interrelationship among them, breaking up an already small domestic market into even smaller ones.”43 This reality has been much aggravated by Israel’s frequent border closures and cumbersome security measures, which have had a deleterious impact on internal and external Palestinian trade relations. Hence, a defining feature of the new political and economic order between Israel, the West Bank and Gaza is the continuation of their structural relationship established over 27 years of occupation in which ultimate control over the Palestinian economy (foreign policy and security) resides entirely with Israel.
Indeed, not only does the protocol demonstrate that economic reform is not an objective of the peace process, the protocol's terms preclude such reform from ever taking place. The needed economic restructuring would require a reversal of the economic and political order established by the Oslo agreements. U.S. aid policy in the area, like U.S. foreign policy' is motivated by the need to support the status quo of ·peace," particularly in safeguarding Israeli interests (in support of which Yasser Arafat has been allowed to build an increasingly repressive and corrupt regime) and securing Israel's predominant position in the region.44
For example, when questioned about official U.S. silence on Israel's continuous and damaging closures of the West Bank and Gaza, a high-ranking State Department official deeply involved in the peace process, responded:
The Israelis [i.e., Peres and the Labor party] are our allies and we are here to support them. The Palestinians are the weaker party and they just will have to take it on the chin. They have to do what we tell them. It's not fair but that's the way it is.
From the outset, the new political and economic order in the occupied territories and the policies used to create it precluded the possibility for desperately needed structural reform of the economy (or democratic nation building). Instead, old structures remained intact, providing foundation for the new, and a revised status quo was established. It may be that now, as before, the fear remains that a viable Palestinian economy could provide for a viable Palestinian state.
The political imperatives described are clearly reflected in the structure and policies of the U.S. aid program and in its inability to respond to rapid economic decline in the West Bank and Gaza. The changes introduced by the Oslo agreements did not fundamentally alter the purpose or intent of the program or of Israel's influence within it. What did change was the program's size and structure and its policy parameters, which extended from die immediate priorities of Israeli military occupation to the priorities and terms of the Oslo agreements that assign Palestinians some increased authority but preserve Israeli control over key Palestinian resources (but now with official U.S., European and Arab-state backing). Within this policy framework, certain kinds of economic change are possible but long-term economic reform is not.
The parameters established by the Oslo agreements have greatly shaped the policy framework within which the U.S. aid program o rates. This highly politicized framework has rendered the aid program incapable of promoting meaningful and sustainable economic development despite some notable achievements.
For Palestinians, furthermore, "peace" has become a precondition of U.S. assistance. In February 1996, Representative Hamilton stated:
If the peace process is to continue, [the] provisions [of the Palestinian Covenant calling for Israel's destruction] will have to be nullified. That is a political imperative in Israel. And it is a political imperative in the United States Congress. Also, amending the covenant is critical for the president to be able to certify...that the Palestinians have met that key condition....[O]therwise, assistance will cease.45
The Politicization of U.S. Aid
Structure: Key Features
With a commitment of $500 million over five years to the West Bank and Gaza Strip, the U.S. government clearly demonstrated its support for the peace process. At $75 million per year beginning in 1994, the USAID program almost tripled in size from the year before. Such increases necessitated a restructuring of the program that had actually begun m 1991 and was largely in place by 1995.
The restructuring of die American assistance program needs to be understood at two interconnected levels: the technical and the political. By 1995, the program had grown in size dramatically, particularly with regard to the number of participants both in Washington and in Israel/West Bank/Gaza. In Washington, new actors emerged and old ones were assigned different roles. The most important new actor was the White House. President Clinton's official and personal involvement made possible the heightened allocations that gave the U.S. aid program a political weight it had never before had. Because of this, numerous governmental agencies such as the departments of Commerce and Agriculture, which had seldom expressed any interest in participating in the West Bank/Gaza assistance program, were now seeking a defined role.
The political stature of U.S. assistance to the West Bank and Gaza Strip also meant an increased role for the Department of State, which now fully controls and oversees the aid program. For many years prior to the Oslo agreements, USA.ID and the State Department were engaged in what amounted to a battle over direct control of the program.46 With the beginning of the peace process, there was no longer any question: control would reside with the Department of State, to which USAID is now subordinate. However, in the first year or more since the Oslo signing, tensions continued to be expressed in a cultural clash between the real politics of foreign ministry officials and the commitment of their aid counterparts to sustainable development."47
The other major participant in the aid initiative is the U.S. Congress, without whose approval program allocations cannot be made. Unlike the White House, State Department and USAID, Congress is extremely suspicious of the Palestine Liberation Organization (PLO) and has expressed extreme caution if not outright hostility toward the program, particularly toward financing the Palestinian Authority (PA). In June 1995, for example, legislation was introduced to further restrict aid to Palestinians.48 Not surprisingly, congressional approval of USAID budgets is often complicated. Each time USAID plans to send money, its officials must physically appear before Congress to notify it of such spending. Congress, in turn, has 15 days to approve or disapprove USAID spending. Similarly, State Department and USAID officials are often called to the offices of individual congressmen or asked to testify before congressional subcommittees about various aspects of the aid program.
Furthermore, as indicated above, existing legislation – the PLO Commitments Compliance Act of 1993 and the Middle East Peace Facilitation Act of 1994 requires periodic (every six months) certification by the State Department of PLO compliance with the terms of the Oslo agreements.49 At any point, Congress can temporarily withhold funding from the program in any amount.50
In the field, the PVO community, which had for so long led the program, was "replaced" with a full-time 13 member USAID mission initially headquartered in the U.S. embassy in Tel Aviv. The mission remains based in Tel Aviv (to avoid the controversy associated with Jerusalem) near the embassy and maintains offices in the U.S. consulate in West Jerusalem as well. Within USAID itself, the locus of activity and decision making resides in the field, not in Washington. This is atypical and derives from the need for rapid implementation. The U.S. PVOs maintain a presence in the program but are now only one of several recipients of USAID funds.
Officially, program and project design and implementation appear to be USAID's domain. The agency has its own strategy, which has been reshaped at least twice since 1993 (see below), and procedures for project selection and implementation. The mission, with input from local Palestinians and strategic guidance from USAID/Washington, defines a project agenda, which it is responsible for implementing. USAID officials residing in Tel Aviv and Jerusalem work in both the Gaza Strip and West Bank. In contrast, embassy and consulate officials with responsibility for the occupied territories deal only with Gaza and the West Bank respectively.
Similar divisions and tensions between the embassy and the consulate have emerged at another level and derive, in part, from the political context in which they now operate. This context makes it impossible for the U.S. ambassador, Martin Indyk, to deal directly with Yasser Arafat and the PA since his diplomatic posting is to Israel. Rather, the U.S. consul general, Edward Abington, is America’s official diplomatic contact with the PA. Yet, if necessary, embassy personnel may accompany Mr. Abington on official visits to the PA. However, for political reasons, Mr. Abington is unable to meet with any Palestinian official in Jerusalem and must travel to either Gaza or the West Bank to do so.51 Both the ambassador and the consul general report to Washington separately and seldom consult with each other.
Unofficially, however, it appears that the aid program operates quite differently. In a series of interview with 15 officials of the U.S. State Department, USAID, the United Nations and the World Bank in Washington and Israel who asked not to be identified, a consistent and reinforcing pattern of aid formulation emerged. While it is clear that the State Department controls and oversees the aid program, what is far less clear is the degree and quality of this control. Not only is the aid program centralized in the Department of State, which defines its magnitude and direction, it appears to be under the direct supervision of Dennis Ross, the coordinator of the Middle East peace process.
Mr. Ross (and his staff), who is based in Washington, is primarily responsible for all policy decisions regarding American assistance to the West Bank and Gaza. He is responsible for choosing those sectors in which USAID can work and those in which it cannot. He has also had direct input into project selection and formulation and, according to one State Department official,
…often gets involved in a level of detail that is atypical if not unprecedented. For example, he – in consultation with the Israelis, of course – has decided how many wells should be built in Hebron and their location. He also is very interested in industrial estates. There is very little delegation of authority in this program.52
Mr. Ross’s policy framework is defined by the Oslo agreements, the sector-specific terms of which are given to USAID officials to use in formulating individual projects under State Department oversight. Another State official involved in the aid program described it as follows:
The political/policy decisions are made at a high level. Ross, after consulting with Peres and Arafat, will decide which sectors [will be supported]. Sometimes he gets involved in the key details of the projects, sometimes not. The lower-level development decisions, which are relatively unimportant, are left to AID.53
Thus, although USAID maintains control over project design and implementation, it does so only after policy and program parameters have been defined and imposed. This means, among other things, that USAID is told in which sectors it will work, circumscribing its operating domain.54
Furthermore, it is worth noting that Mr. Ross's interventions do not appear to be limited to the USAID program but extend to the World Bank’s as well. Senior-level World Bank officials with responsibility for the Palestinian territories described the pressure imposed by Mr. Ross and the State Department generally on the World Bank's West Bank/Gaza program as unprecedented, atypical, minutely detailed and unacceptable. One respondent noted strong interference on personnel issues. Nonetheless, these same officials also made clear that the World Bank is strongly influenced by the United States. In the words of one:
The World Bank is under siege. We've made many mistakes in the last decade. We are looking for successes, to show that we can perform well and deliver. Because of the importance of the Palestinian aid program to the United States and because of the importance of the United States to the Bank, our future success depends in large part on whether we can please the United States, especially in this part of the world.55
In the field, Mr. Ross's decisions are supported and implemented primarily by Ambassador Indyk and a host of State Department officials who, in effect, micro-manage most aspects of the assistance program. Christopher Crowley, the chief of the USAID mission in Tel Aviv, stated that in his many years of working for the agency, he has never experienced such detailed, intense and binding interference in so many different aspects of program and project formulation and implementation.
According to Mr. Crowley, USAID, for the most part, is unable to pursue any independent course of action and is increasingly forced to accept the non-developmental goals of the State Department. The agenda is informed largely if not entirely by political considerations. Mr. Crowley maintained that although both State and USAID have, in the short-term, managed to find a confluence of areas (e.g., job creation, water) that satisfy USAID's developmental agenda and the State Department's political agenda, over the long-term this confluence of interests will not last. With greater autonomy, USAID would make different choices given the developmental needs of the territories.
The belief among several USAID and State Department officials is that the Israeli government has direct input into the aid program at the policy level via Mr. Ross and Mr. Indyk and via the use of the Oslo agreements as the defining policy framework for American assistance. One USAID official in Tel Aviv remarked,
For political reasons, it is in our government's interest to coordinate all aid with Israel. The embassy sees to it that Israeli interests are secured and that Israeli officials are involved in decision-making. That's common knowledge here.
In this way, Israeli interests and influence have become formally and legally incorporated into American policy and the U.S. assistance program. This is a critical and significant departure from the past, when Israel had to forcibly insinuate itself into the aid program in order to influence and control it.
In certain sectors such as water, the Israeli government continues to approve all new project development, but now within the formal, legal framework established by the Oslo agreements. For example, USAID's project work in the water sector, which is a central focus of its overall program (see below), occurs within a clearly defined and highly specified framework based on water agreements reached between Israel and the Palestinians. These agreements describe indigenous water resources and where they can be developed – who can use them, for what, in what quantities, etc. The water agreements are administered by a joint committee of Israelis and Palestinians (in which Israel retains veto power) who approve all new projects, particularly those that involve the licensing of new wells, based on the agreements' policy parameters. Above the joint committee sits an executive steering committee composed of Dennis Ross, Uri Savir, then director general of Israel's Ministry of Foreign Affairs, and Abu Ala, the Palestinian minister of economics. USAID officials working in the water sector indicated that their projects are linked directly to the water agreements.
The politicized nature of the aid program has also made it bureaucratically cumbersome, a common complaint of Palestinian officials, NGOs and international recipients of USAID funds. While USAID programs generally are characterized by congressional micromanagement and excessive administration,56 USAID's program in the West Bank and Gaza has the added bureaucratic complexities associated with a hostile Congress and an omnipresent State Department.
Economic Policy and Strategy
The policy framework informing U.S. aid to the West Bank and Gaza and the strategy that emanates from it are part of a context of donor assistance that also is shaped by the imperatives of the Oslo agreements.57 This larger policy context involves several objective factors: (1) an Israeli-imposed closure of the occupied territories that restricts the movement of Palestinian labor and goods, the single most damaging measure affecting local economic conditions;58 (2) a deteriorating Palestinian economy characterized by excessive and permanent unemployment, growing impoverishment and, for some sectors of the population, a return to subsistence59 (3) the lack of a PA economic plan to which to adapt assistance programs and projects; (4) the corresponding absence of a development framework on the donor side within which to formulate assistance programs and projects; (5) the absence of economic reform as an objective of donor aid programs; (6) the absence of a regional component in donor strategies; and (7) donor unwillingness to articulate or contribute to macroeconomic policy in the area beyond the boundaries established by the Oslo agreements60 or to challenge politically the status quo, particularly with regard to the closure and Israeli and PA violations of the Oslo agreements.61
Under conditions of closure, the Palestinian economy could probably not survive without donor aid. Yet donor strategies (and monies) thus far have focused on sectors in need of improvement, not reform, “where you do not need far reaching policy decisions and long-term planning.”62 This strategy is motivated by the necessity to demonstrate political progress and the immediacy of economic need. It is also motivated by the political and economic constraints of the environment, which donors tacitly accept, and by the need to facilitate program and project implementation within those constraints.
Donors have focused on politically safe areas that fall well within the parameters of the Oslo agreements and Israeli control: sustaining the PA and financing its recurrent deficit, and generating employment through reconstruction and renovation in large-scale infrastructure and housing projects primarily. This focus on short-term rather than long-term sustainable solutions still prevails, given the severe economic conditions and constraints. More donors are having to support emergency, relief based measures, activities typically shunned.63
The overall approach to foreign aid in the West Bank and Gaza is one that is informed not by any economic vision or long-term planning to which assistance is adapted, but one in which niches of need are identified within a larger economic and political status quo that remains structurally unchanged.64 One senior State Department official involved with the West Bank/Gaza program said, "We go where we can and do what we can while we can."65 A USAID official similarly explained, "We recognize that the environment is bad and seek projects that can have some impact even in the absence of appropriate macroeconomic policy, projects that are not dependent on major change."66 Between 1987 and 1996, USAID strategy has undergone several revisions. The first strategy, articulated in 1987 (described above), placed emphasis on the development of the agricultural and manufacturing sectors and export promotion, developing the internal capacity of Palestinian institutions and improving social services. In 1992, this strategy was redesigned to include a health-care component focusing on primary care (especially maternal and child health and rehabilitation), family planning and community-based rehabilitation services. The new five-year (1993-1997) strategy had three long-term objectives that placed "heavy emphasis on self-sufficiency and institution-building":67  increased marketed production of agricultural and manufactured goods;  increased use of selected improved health-care services and improved capacity of development activities by selected Palestinian institutions...[and]  a short-term objective of employment generation to counter the recent economic downturn resulting from the intifada and the Gulf War.68
The goal of the 1993 strategy was to improve economic and social well-being, both of which depended upon "a strong productive sector exporting human skill intensive products [and] the quality and availability of social services including health care, education and basic infrastructure."69 A key theme running through the 1993 program strategy was the importance of developing Palestinian human and institutional resources. The thesis of the strategy was "that human capital and institutional strengthening is an essential requirement for progress in both the productive and social sectors."70 Although this study cannot engage in a discussion of program implementation, which was far more problematic and uneven for a variety of largely political reasons, it is essential to understand that the emphasis of the U.S. aid program was on advancing, over the long-term, the educational and health base of the Palestinian people, the primary if not the only viable indigenous resource, and on improving the planning and management of their institutions.
Ironically, with the initiation of the 1993 Middle East peace process, USAID's emphasis on human-resource and local institutional development (through training and technical assistance) began to shift, and by 1996 had been seriously weakened.71 After Oslo, USAID defined its development challenge as follows:
[D]eteriorating economic conditions threaten to undermine public support for the Israeli-PLO Accords. The peace process could falter and the internal social, economic and political situation could destabilize if standards of living continue to fall and democracy is not nurtured.72
While the goal of the program remained the economic and social well-being of Palestinians, the program now emphasized “building democracy and encouraging economic growth.”73
USAID’s revised 1994 strategy, which was “subject to revision as changes occur in the highly volatile political environment,”74 focused on six areas – the private sector, housing, health, democracy and governance, water and municipalities – and consisted of six strategic objectives:
 small and medium producers increase the sustainable and marketable production of goods and services;  Palestinian public and private sectors plan for and provide improved housing for low and moderate income groups;  Palestinians plan for and provide preventive and public-health services which promote appropriate roles for the public and private sectors and which can become sustainable;  Palestinians establish democratic and legal institutions to strengthen accountability;  [Palestinians pursue] improved [water] quality and more sustainable use of water resources; and  municipalities assume expanded responsibilities and perform their functions in an effective accountable, and responsive manner.75
These changes introduced some new sectors of activity – housing, which was designed to demonstrate the immediate and visible benefits of the peace process – and democracy and governance, which provided support for the establishment of the Palestinian Authority, USAID’s new definition of institutional development. The 1994 strategy also predicted a much reduced role for the PVO sector.76 Housing activities included among others, the construction of lower-income housing in the form of high-rise buildings and shelter rehabilitation in the refugee camps.77 Activities under the democracy sector primarily supported the start-up costs and salaries of the PA and the police force and building the public infrastructure. Between 1994 and 1996, support for the PA constituted the largest single component of American aid. These funds are disbursed indirectly through the World Bank’s Holst Fund since congressional legislation prohibits direct assistance to the Palestinian Authority.78 Between September 1993 and September 1995, USAID disbursed $44.9 million to the PA and Palestinian police79 (99.9 percent of obligated funds for that sector) compared to $1.63 million for small-scale community infrastructure (20.4 percent of obligated funds for that sector).80 Despite these changes, however, the strategy still contained a developmental component.
As economic conditions in the Gaza Strip and West Bank continued to deteriorate – in 1995, unemployment rose to 50 percent in Gaza and 30 percent in the West Bank due to Israeli closure – and foreign assistance was slow in arriving, the peace process was losing political momentum, particularly among Palestinians. In response, the White House and State Department began to press for more high visibility projects with a short implementation time in order to demonstrate the tangible benefits of the peace process to Palestinians.81
In late 1994 and early 1995, USAID reprogrammed approximately $40 million of FY 1995 funds ($75 million), which resulted in a clearly restructured program. First, the $23.5-million Health Systems Support Project was eliminated, which The Lancet, the leading British medical journal, referred to as "a true setback.”82 This project was designed to put into place "an efficient, sustainable healthcare system not only by developing end-user public-health information and distribution systems, but also by assisting in training, with software and hardware supplementation for administrative and financial management.”83
Second, education and training, two areas long advocated for support by Congress, were virtually expunged from the aid program.84 Third, significant cuts were made m housing-sector projects, and long-term technical assistance for housing was eliminated. Fourth, funding for American PVOs (and, by extension, for Palestinian NGOs and a grass-roots, participatory approach to development) was further reduced.85 Fifth, new emphasis was placed on immediate (emergency make-work) job creation in small-scale community infrastructure (e.g., $25 million over three years for school and shelter rehabilitation and construction, road paving, street cleaning, painting, tiling, playground construction, etc.) and municipal public works. Sixth, heightened importance was assigned to high visibility (often large-scale) infrastructure projects (e.g., a four-year $40-million “rapid response” storm water/wastewater project in Gaza86) that also have a strong employment component. Seventh, focus was also directed to expanded income opportunities, primarily through support for small business.87
This reconfiguration of the USAID program occurred without any real reduction in aid to the PA and public infrastructure development, in part because the public sector provided a quick and effective source of employment generation. Indeed, 67 percent of the FY 1995 budget was allocated to start-up costs of the PA and infrastructure projects.88
The 1995 restructuring of the USAID program was characterized by certain new features. First, despite emergent need in the West Bank and Gaza, allocations to the program were not increased but rearranged and apportioned differently according to heightened political priorities. Second, the program was strongly oriented toward the short term, de-emphasizing a more developmental perspective. Third, given the focus on high visibility and quick implementation, the program evinced a clear shift toward the creation of physical structures and away from the development of people89 and their community institutions.90 Fourth, the parameters of the aid program were firmly established: U.S. aid would not challenge the economic (and political) status quo created by the Oslo agreements but, to the extent possible, mitigate its damaging impact. In this regard, one senior State Department official referred to Israel's closure of the West Bank and Gaza as Palestine's "Berlin Wall," and U.S. aid as a way of "providing Palestinians with the resources needed to live with it."
In 1996, the USAID strategy shifted even further away from people-centered development and community participation. In a conference on aid to Palestinians held in January 1996, Secretary of State Warren Christopher called for increased support for “the private sector, job creation, and investment in critical infrastructure projects”91 (all of which are difficult and virtually impossible to promote and implement under conditions of closure). In an internal USAID document not meant for public distribution, the introductory, and concluding paragraphs are revealing:
USAID/West Bank and Gaza is developing a streamlined strategy. In November , the process was kicked off with Mission, Embassy and Consulate and ANE Bureau participation. Strategic teams were formed to look at areas of program emphasis...We believe that all our efforts should contribute to improving the plight of Palestinians in order to support the peace process. Our goal, then, is: Palestinians realize tangible benefits of the peace process.
[T]here are two Mission projects which are considered to be outside this strategic framework. The first is a Human Resources Training Project which ends in 1996; the second is a grant to the Society for the Care of the Handicapped. These activities do not meet the criteria of contributing directly to the attainment of the strategic objectives.92
In line with USAID's 1996 strategic objectives, the majority of funds were directed to “improved key democratic processes and practices” ($23.1 million or 31 percent of the total annual budget [TAB]) and “greater access to and more efficient use of limited water resources” ($29.1 million or 39 percent of the TAB). The strategy continued to address expanded income opportunities mainly through support for small-business (and proposed micro-enterprise) development ($13.3 million or 18 percent of the TAB), and selected short-term development needs such as immediate job creation, infrastructure upgrading and repair, limited housing construction via a neighborhood upgrading program, and a home-improvement loan program ($8.4 million or 11 percent of the TAB).93
Efforts directed to democratic processes and practices are designed to “strengthen and deepen democracy in the West Bank and Gaza”94 by providing, in large part,95 ongoing budget support for the Palestinian Authority (and its 70,000 public-sector jobs) despite donor distaste for funding recurrent costs.96 Improving access and use of scarce water resources focuses on domestic (e.g., upgrading and extending existing water systems, wastewater and storm water rehabilitation) rather than agricultural use.
Hence, in addition to the $40-million Gaza project, USAID announced a four year $50-million municipal-services project to improve the quality and quantity of basic municipal water services throughout the West Bank starting with a water initiative for Hebron designed to improve water access and use for 120,000 residents.97 While there is no doubt of the need to improve and better manage domestic water use in the West Bank and Gaza, there is also no doubt that this has been a priority of the Israeli government for at least 15 years. In fact, in its 1992 program strategy. USAID stated, “The CIVAD [Israel civil/military administration] looks with particular favor on water projects (especially in Gaza), major infrastructure development, and employment generation,”98 sectors that are the focus of current USAID activity. It should also be noted that although $90 million has been allocated for water-related projects, there is no known master plan for water in the West Bank and Gaza Strip.
Impact of Program Changes
The U.S. aid program can no longer be described as development oriented. In fact, one key feature of the program, large infrastructure, is an area USAID refused to work in before the Oslo agreement, due to problems of management and long-term sustainability.99 While one can certainly point to some successful and worthy projects and argue the importance of others,100 the question comes down to one of priorities – not only which, but whose. More accountable government, properly functioning electoral systems, improved domestic water networks, and better sewage lines are clearly needed in the Gaza Strip as is the temporary employment they generate. But are they most essential m an environment where 75 percent of the labor force is unemployed and de-skilled, where people are hungry and, to varying degrees, traumatized, and where health and education services are inadequate and deteriorating due, in part, to poorly trained professionals?
In its current form, the U.S. aid program also needs to be understood for what it does not support. The cancellation of the Health Services Support project was perhaps the first and most dramatic indication of changed priorities. Not surprisingly, health-related areas such as environmental health have also received little support although monies have been made available for the provision of supplies.101 Education, as noted above, has suffered as well. While funding for the construction of educational facilities is available, funding for the training of teachers (and health personnel) is not.
A common complaint voiced by various USAID recipients, particularly among the PVO community, was the growing difficulty of obtaining support for ongoing or new programs in areas once funded by USAID: community and family development, child and youth rehabilitation, informal education, mental health rehabilitation and early childhood education. One PVO director stated, “There is more interest in investing in buildings than in the people who use those buildings.”102 In fact, USAID no longer accepts unsolicited project proposals.
Similarly, USAID provides relatively little or no support for rural development, agriculture or agricultural water (farming). Agriculture has always been an essential component of the local Palestinian economy, accounting for 80 percent of total water use, 25 percent of GDP and benefiting 60 percent of the population. The reason for its diminishing importance within the USAID program, according to some PVO, USAID and World Bank officials is that agricultural activities would involve reclaiming and securing land for Palestinian use, extending advanced technology to Arab agriculture, and apportioning large amounts of water to the Palestinian sector for purposes of agricultural expansion, all of which the Israeli government has consistently refused to do.103 One PVO official commented, “It is strange that USAID is unwilling to support an income-earning activity as familiar and traditional as farming when they are so desperate to generate jobs and provide people with income.” (A point worth noting in this regard is that the Gaza storm water project does not include the treatment of sewage water, which could be used for agricultural purposes).104
There is also very little support for the development of Palestinian industry, a sector long constrained by occupation policy, despite U.S. policy support for industrial estates. Industrial estates, which various development officials have characterized as “islands of rationality in a sea of regulatory chaos,” are designed as a short-term measure to attract foreign investment and strengthen the private sector in an underdeveloped investment environment. Such zones "establish a separate (often geographically) regime outside the regular legal and economic framework…[and operate] with policies and institutions that are insulated from, and more favorable to, investment particularly foreign investment, than those of the regular investment regime.”105
In the Palestinian context, industrial estates, which are planned as border estates, are similarly meant to encourage foreign (especially Israeli) investment in a highly constrained environment characterized by weak regulatory and legal systems and closure restrictions on the free movement of labor and goods.106 However, industrial estates are also meant to “generate employment, keep Palestinian workers in Gaza and the West Bank [and out of Israel], and keep [Palestinian] labor cheap for Israel.”107 According to one USAID official, the main force behind donor support for industrial estates is the possibility of creating as any as 100,000 jobs in the West Bank and Gaza Strip in a relatively short period of time.
According to the World Bank, there are several factors critical to the success of industrial zones: political and social stability, macroeconomic policies, infrastructure, legal/regulatory frameworks and institutions, and access to foreign markets.108 At present, these are lacking in the West Bank and Gaza Strip. Moreover, “no matter how attractive a country’s economic opportunities, it will always be difficult to stimulate investment in the face of unstable political and social conditions…Failures have occurred when non-economic criteria [are] used.”109
There can be a wide gap between industrial zones and industrial development.110 For Gaza and the West Bank, the possibility of generating 100,000 jobs is critically important to the short-term alleviation of poverty. However, industrial zones hold little promise for Palestinian economic development since they will largely comprise Israeli export firms engaging in product design, marketing and quality control employing cheap Arab labor. Although there will be certain backward linkages to the local economy (e.g., consumer spending), they will not provide local industry with the capital, free-market access, investment environment, or appropriately trained workers upon which its own internal development depends.111
Industrial estates could even prove harmful to local industry because they provide a competitive problem for those Palestinian businessmen who do not use them and remain subject to the constraints of closure, further precluding the possibility of reform. Moreover, by allowing a certain amount of unrestricted trade to occur, industrial zones will legitimize the border closure as an economic fact of life.
Projects for the refugee-camp population are also very limited. Despite the very successful but comparatively underfunded shelter and school rehabilitation and construction program implemented through UNRWA, the lack of attention paid to the camp population, among Gaza’s poorest, stems from the political sensitivities surrounding the refugee issue, particularly for Israel and the PA. Israel would like to see the refugee camps disbanded, for as long as the camps remain, the Palestinian problem remains. The PA wants to keep the camps intact for the same reason.
Another area receiving waning support is municipalities, the water projects described above notwithstanding. USAID officials revealed that they have been directed by Dennis Ross not to work with Palestinian municipalities in activities that would significantly strengthen the municipality as an autonomous organ of local government. The rationale, as it was explained to one of these officials, is “to preclude the emergence of competing centers of power and prevent any decentralization of control that would diminish the power of Mr. Arafat and the Palestinian Authority to carry out the political tasks of the day.”112 Historically, municipalities have stood almost alone as governmental institutions able to withstand the dislocating impact of Israeli occupation. To weaken them by centralizing authority in Yasser Arafat and the PA is to undermine an essential institutional and developmental resource. This is not only shortsighted but contradictory to the stated goals of the U.S. aid program.
It should be noted that the rationale used to hinder the development of “competing centers of power” may be one reason for subordinating U.S. and Palestinian NGOs in USAID funding patterns. By extension, this rationale could also be used (or the United States could tolerate its use by Israel or the PA) against other organs of Palestinian civil society considered centers of power: professional associations, labor unions, women's groups, religious (i.e., Islamic) groups, human-rights organizations and the press. Indeed, the last three institutions have already suffered considerable regression at the hands of the PA with little if any official protest by the United States.
Key Program Outcomes
Given the constraints within which the U.S. aid program operates, one way to assess its outcomes is to ask how the current program differs from the old (pre-Oslo) one. Beyond the obvious features of size and structure, the differences are not as great as they may initially appear. The key characteristic of the old USAID program was Israel's defining role in the project-approval process. Israel's role is still prominent, only now it is formalized in the Oslo agreements and actively mediated by and through the U.S. government. As far as the U.S. aid program is concerned, American and Israeli interests are officially synonymous. In practical effect, this means there is no longer any interest on the part of any U.S. government agency in challenging Israeli policy in the West Bank and Gaza. Official U.S. silence on the egregious economic impact of Israeli closure is a case in point.
Despite significant changes in program size, the character of project activity has, in certain ways, remained strikingly similar to that of the past. For example, although USAID places considerable emphasis on large-scale infrastructure, it provides little if any support for major road construction and electricity systems, two areas that were always the singular domain of the Israeli authorities. Furthermore, as indicated above, agriculture and industry, sectors critical to economic development, which historically received little support within the U.S. aid program because of Israeli intervention, now receive no more and arguably even less. Also, given the articulated need to preserve the peace process and the political status quo upon which it is based, projects tend to be oriented toward consumption rather than production. They are aimed to mitigate, not redress, the damaging effects of Israeli policy.
Throughout, the politicization of aid in the West Bank and Gaza Strip emphasized outcomes over process. Palestinian participation in program and project selection, design and implementation was always limited. Despite the existence of a Palestinian government. Palestinian participation in U.S. aid efforts remains limited. There are at least two reasons for this. First, USAID is not officially allowed to have direct contacts with the PA since USAID can only deal with the governments of sovereign states. (Many USAID and State Department officials maintain that this is a political decision). Hence, although the U.S. government provides financial support to the Palestinian Authority (and certain U.S. officials deal directly with Yasser Arafat), its aid agency cannot contract directly with that Authority or its ministries.113 Because of this and because of limited implementation capacity locally, USAID works through resident organizations such as the U.N. Development Programme (UNDP), UNRWA and PVOs, and directly with U.S. contractors.
Second, the comparative lack of direct Palestinian involvement in project decision making is also a function of the highly political nature of policy making (described above) and project selection. For example, the Gaza storm water/wastewater project, one of USAID's largest, was chosen only after Dennis Ross visited the site of an earlier USAID funded storm water project that failed disastrously and lay dormant for several years. Apparently outraged over what he saw, Ross ordered that the project be redone correctly and the Gaza project was funded for $40 million (despite the lack of local implementation capacity).114
The foreign-policy interests that shape the U.S. aid program now, as before, preclude a clear commitment to a political resolution of the Israeli-Palestinian conflict. As stated above, without such a commitment, it becomes impossible to engage in any form of economic planning, especially over the long term. The continued absence of an economic plan or development framework within which to prioritize needs, design strategies and choose projects strongly suggests that the U.S. aid program in the West Bank and Gaza Strip (like some U.S. aid programs elsewhere) continues to seek projects for available monies rather than monies for available projects. The Gaza storm water project illustrates this dynamic. This in tum underlines the rapidly growing imbalance between development resources and development capacity that has long characterized the occupied territories.
Just after the signing of the Oslo I agreement in September 1993, a State Department official commented with regard to the aid program,
If the peace process falters, things could get worse here. It will be harder to spend money rationally and productively. We are constantly compromising away from the optimal.115
American aid to the West Bank and Gaza Strip is clearly conceived as part of a peace-making process in which “Israel's security will always take precedence over the Palestinian economy.”116 As such, economic assistance is designed as a political tool used to secure a desired political end. Success and failure, therefore, are not measured as much (if at all) in developmental terms as in political-strategic terms. Yet, the two are intrinsically linked, for as economic conditions deteriorate, political stability deteriorates. In congressional hearings, Lee Hamilton has articulated the inverse relationship between “economic opportunity in the territories [and] the appeal of radicalism.”117 The questions, then, confronting foreign assistance are, what constitutes economic opportunity, and what are the best ways of creating it?
Economic conditions in the Gaza Strip and West Bank are far worse today than they were three, five or ten years ago. The Palestinian economy is characterized by a new and damaging geography: general closure, heightened closure, internal closure and total closure.118 Resulting unemployment and impoverishment have contributed to the growing informalization of the economy119 and the increased need for relief-based activities. This is reflected in emergency job creation programs and in the U.S. aid focus on microenterprise development. The need to generate visible results, like quick employment, in so highly constrained an environment distorts aid initiatives from a process of development into the provision of relief.
Furthermore, Israel's relationship with the territories, the defining feature of Palestinian economic life, has grown increasingly abnormal over the last three years. New and heightened security measures, the constant and changing closure, and added bureaucratic controls have done much to enhance the arbitrary character of daily life, which was a key factor precipitating the intifada.
There is in the West Bank and Gaza a great unused capacity resulting from the closure. Private investment, upon which long-term growth depends, is one of the greatest casualties because closure represents political instability and economic unpredictability.120 According to a senior U.N. official, “If the security regime changed, if Israel lifted the closure, there would be rapid economic growth in the territories for quite some time.”121 By refusing to challenge Israel on this issue, the donor community is helping to maintain and institutionalize the structural imbalances that have historically characterized Israel's economic relationship with the occupied territories. In this way, the United States, in particular, undermines the economic growth and development it is purportedly there to encourage. Instead of creating needed structural linkages, U.S. aid works around those that have been imposed.
Yet, even within existing constraints, the choices made by U.S. policy, their merits notwithstanding, have more to do with political expedience than rational development. In the absence of any planning or development framework, whole sectors of activity have been ruled out and with them, the kind of integrated approach to economic change upon which sustainable growth rests. What does it mean to pursue an aid program focused on democratic practice, infrastructural improvement and job creation without appropriate investments in people (i.e., education, training, health, the alleviation of poverty) and their communities (i.e., the strengthening of local institutions and local government)? The advantage lies in knowledge, not structures. According to the World Bank,
Perhaps the greatest feature of today's global economy is that no country is destined to be poor because of a bad endowment of natural resources [or] an isolated location.... Production, finance, and trade have changed to make human talent more important than natural endowment....The implication is that countries can choose, through their policies, to be rich-or to be poor.122
The point is really one of priority and of who defines and implements it.
Foreign aid does not have to end in progress. For the West Bank and Gaza Strip, progress will ultimately depend not on better government accountability, improved sewage systems and increased water use, although these are important, but on the freedom and ability of Palestinians to plan and implement their future. U.S. aid, like foreign aid generally, has a critical role to play. The question remains, a role toward what end?
1 For a detailed study of this print, see Sara Roy, The Gaza Strip: The Political Economy of De-Development (Washington, DC: Institute for Palestine Studies, 1995).
2 The Declaration of Principles provides the overall framework for the sharing of power and responsibility in the West Bank and Gaza Strip during the five-year transitional period (1994-99) before a permanent solution has been reached. The Paris Agreement describes the economic powers of the Palestinian Authority in the West Bank and Gaza. The Cairo Agreement delineates the administrative powers and responsibilities of the Palestinians in the Gaza Strip and Jericho only during the preparatory period. And the Taba Agreement describes the administrative powers and responsibilities of the Palestinians in the West Bank.
3 Of the U.S. pledge, $375 million is to be disbursed through USAID for project work and $125 million is allocated for private-sector guarantees administered by the Overseas Private Investment Corporation (OPIC).
4 See Sara Roy, “Development Under Occupation?: The Political Economy of U.S. Aid to the West Bank and Gaza Strip,” Arab Studies Quarterly 13, nos. 3 and 4 (Summer/Fall 1991): 65-89, from which the history section is drawn. Research for this study began in 1985 and was the subject of the author's doctoral dissertation. See Sara Roy, “Development Under Occupation: A Study of United States Government Economic Development Assistance to the Palestinian People in the West Bank and Gaza Strip, 1975-1985” (Doctoral diss., Harvard University, 1988). Much of the data is based on more than 150 formal interviews. Individual interviews will be cited when necessary.
5 Some particularly interesting works in the field include: Robert J. Berg and David F. Gordon (eds.), Cooperation for International Development: The United States and the Third World in 1990s (Boulder, CO: Lynne Rienner Publishers, 1989); Allan Bloom, The Closing of the American Mind (New York: Simon and Schuster, 1987); Development Issues: U.S. Actions Affecting Developing Countries (Washington, DC: Development Coordination Committee, 1983); Stephen Hellinger, Douglas Hellinger and Fred M. O’Regan, Aid for Just Development: Report on the Future of Foreign Assistance (Boulder, CO: Lynne Rienner Publishers, 1988); E.R. Morss and V.A. Morss, U.S. Foreign Aid: An Assessment of New and Traditional Development Strategies (Boulder, CO: Westview Press, 1982); John W. Sewell and John A. Mathieson, The Ties That Bind: U.S. Interests and Third World Development (Washington, DC: Overseas Development Council, 1982); and Judith Tendler, Inside Foreign Aid (Baltimore, MD: the Johns Hopkins University Press, 1975).
6 Hellinger et al., op. cit., p. 15.
7 This theory is detailed in W.W. Rostow, The Stages of Economic Growth: A Non-Communist Manifesto (Cambridge: Cambridge University Press, 1960).
8 Hellinger et al., op., cit., pp. 14-16.
9 Ibid., pp. 22-28. These legislative changes (e.g., Title IX , the New Directions legislation [mid 1970s] and the International Development Cooperation Act ) alternately focused the aid community on a more people-centered "growth with equity" approach to development that emphasized the basic needs of the poor, rural development and employment generation as well as expert-led growth, foreign investment, free trade, free enterprise and private-sector development. The impact of these changes on USAID's internal structure and its relationship with Congress and other government agencies can be found in Allen Hoben, "USAID: Organizational and Institutional Effectiveness," in Robert J. Berg and David F. Gordon (eds.), op. cit., pp. 253-278. For an interesting discussion, see E.R. Morss and V.A. Morss, op. cit., chapter 5.
10 Development Issues: U.S. Actions Affecting Developing Countries, p. 175.
11 Ibid., pp. 175-176.
12 Hellinger et al., op. cit., p. 54.
13 Ibid., p. 28.
14 Hoben, op. cit., p. 273, writes, "In 1985 alone, USAID provided 849 congressional notifications totaling 1,700 pages. The agency estimates that it devotes more than 200 person-years per year to its interaction with Congress."
15 Ibid., pp. 264-266.
16 American Council for Voluntary International Action, "West Bank/Gaza Meeting: Minutes of briefing with USAID on August 14, 1995," Washington, DC.
17 Some early articles dealing with the U.S. program include: Bishara A. Bahbah, "U.S. Aid to the Occupied Territories," American-Arab Affairs (Fall 1985): 75-80; Meron Benvenisti, U.S. "Government Funded Projects in the West Bank and Gaza (1977-1983) (Jerusalem: The West Bank Data Base Project, 1984); Leopold Yehuda Laufer, "U.S. Aid to the West Bank and Gaza: Policy Dilemmas," in Dynamics of Dependence: U.S.-Israeli Relations, ed. Gabriel Sheffer (Boulder, CO: Westview Press, 1987), pp. 165-200; Joe Lockard, "U.S. Aid: Subsidizing Collective Punishment," American-Arab Affairs (Summer 1989): pp. 65-74; John P. Richardson, "Tug-of-War: American Voluntary Organizations in the West Bank," Journal of Palestine Studies (Winter 1985): 137-148; and Joyce Starr, Development Diplomacy: U.S. Economic Assistance to the West Bank and Gaza (Washington, DC: The Washington Institute for Near East Policy, 1989).
18 Official USAID documents state, ''The West Bank and Gaza program was initiated in FY 1975 to demonstrate American concern for the humanitarian and economic development needs of Palestinians in the Occupied Territories, and to support U.S. efforts to peacefully resolve the Arab-Israeli conflict." Agency for International Development, Congressional Presentation, Fiscal Year 1992 (Washington, DC: AID, February 1991), p. 663.
19 House Committee on International Relations, International Security Assistance Act of 1977: Report of the Committee on International Relations, House Report No. 95-247, 1977, p. 21. Also see House Committee on Foreign Affairs, Foreign Assistance Act of 1974: Report of the Committee on Foreign Affairs, House Report No. 93-1471, 1974, p. 26; and House Committee on Appropriations, Foreign Assistance and Related Programs-Appropriation Bill: Report of the Committee on Appropriations, House Report No. 94-53, 1975, p. 32.
20 Palestinians articulated three priorities to American officials: the establishment of an Arab bank in both territories; the lifting of restrictions on the flow of funds from Arab sources; and Israeli government approval for large-scale industrial projects that had consistently been denied.
21 For a detailed discussion of the problem, see Sara Roy, "Separation or Integration: Closure and the Economic Future of the Gaza Strip Revisited," Middle East Journal 48, no. 1 (Winter 1994): 12-21.
22 The core community of PVOs included American Near East Relief Agency (ANERA), American Mideast Education and Training Services (AMIDEAST), Catholic Relief Services (CRS), Save the Children Federation (SCF), Cooperative Development Program (CDP), the YMCA and the Society for the Care of the Handicapped (SCH), the only Palestinian PYO. Throughout the life of the program, some PVOs left while others joined.
23 Both the consulate and embassy had a part-time foreign-service officer assigned to the PVO program.
24 See General Accounting Office, U.S. Economic Aid for the West Bank and Gaza Strip – A Positive Contribution (Washington, DC: GAO, 1978); USAID, U.S. Economic Assistance to the West Bank and Gaza: A Positive Contribution to the Palestinian People from the American People, March 1989; and Department of State, Bureau of Near Eastern and South Asian Affairs, Interim Report on Economic Assistance to the West Bank and Gaza, July 1976. The last of these documents contains the earliest statement on goals and objectives of the U.S. program. These goals were broad: development of a local leadership that can function independently when the political status of the West Bank and Gaza has been determined; establishment of constructive contacts with the Palestinian people; development of skills training, agriculture, rural development and income generating capabilities; development of health services including public health; and encouragement of self-help projects that can build up the physical and social infrastructure.
25 USAID, Strategy Statement: The Direct West Bank/Gaza Program and the Jordan West Bank/Gaza Development Program (Washington, DC: Department of State, October 27, 1987), pp. 11-16.
26 Funding levels (in $ millions) for the West Bank/Gaza program are: 1975-1.0; 1976-1.6; 1977-3.4; 1978-2.8; 1979-6.8; 1980-3.0; 1981-2.5; 1982-6.0; 1983-6.5; 1984-8.5; 1985-12.1; 1986-14.0; 1987-8.5; 1988-22.0 [which included 7.0 designated for the Jordanian plan]; 1989-12.0; 1990-12.0; 1991-14.3; 1992-10.1; 1993-26.6; 1994-1998-75.0 annually.
27 Interview with senior official in the U.S. State Department who asked not to be identified, Washington, DC, December 1995. [NOTE: Given, the political sensitivity surrounding the U.S. aid program, most respondents asked not to be identified. Names will only be cited when permission was given.]
28 Numerous interviews 1993-1996 with officials of the U.S. State Department, USAID and the World Bank support this.
29 Representative Lee Hamilton, “The Challenge of Appropriating Funds for Development Assistance in a Time of Scarcity,” Middle East. Policy Council panel on U.S. Development Assistance to the Middle East: Critical Perspectives, Capitol Hill Conference Series on U.S.-Middle East Policy, Rayburn House Office Building, Washington, DC, February 27, 1996 (see proceedings in this issue).
30 Thomas W. Lippman, “The Decline of U.S. Diplomacy: Budget Cuts Lead to a Shrinking American Presence Overseas,” The Washington Post National Weekly Edition, July 22-28, 1996, p. 6.
31 Agreement on the Gaza Strip and Jericho Area, Cairo, May 4, 1994, Annex I/Protocol Concerning Withdrawal of Israeli Military Forces and Security Arrangements, Article VII, Clause 9. This is also made clear in Joel Singer, “The Declaration of Principles on Interim Self-Government Arrangements: Some Legal Aspects,” Justice, no. 1 (February 1994): 4-13.
32 Meron Benvenisti, “An Agreement of Surrender,” Ha’aretz, May 12, 1994; and Article IX of the Declaration of Principles.
33 Agreement, Cairo, May 4, 1994, Article VIII, Clause 1; Annex I/Protocol Concerning withdrawal of Israeli Military Forces and Security Arrangements, Article VII, Clause 6; and singer, op. cit.
35 Sara Roy, “Development or Dependency? The Gaza Strip Economy Under Limited Self-Rule, The Beirut Review, no. 8 (Fall 1994): 72-73.
36 Foreign Investment Advisory Service, West Bank and Gaza: Creating a Framework for Foreign Direct Investment, Internal Document, International Finance Corporation and The World Bank, Washington, DC, June 1995, p. 3.
37 Benvenisti in Ha'aretz.
38 The general closure violates the Oslo II Agreement, which provides that, “in order to maintain the territorial integrity of the West Bank and Gaza Strip as a single territorial unit, and to promote their economic growth and the demographic and geographic links between them, both sides shall implement the provisions of [the Protocol Concerning Redeployment and Security Arrangements], while respecting and preserving without obstacles, normal and smooth movement of people, vehicles and goods within the West Bank and between the West Bank and Gaza Strip.” See Israeli-Palestinian Interim Agreement on the West Bank and Gaza Strip, Annex I, Article I, Paragraph 2. Also see, Human Rights Watch/Middle East, Israel: Israel's Closure of the West Bank and Gaza Strip, volume 8, no. 3, July 1996. Interviews with a number of officials in the U.S. State Department, USAID and the World Bank indicated that while donor protests are made to the government of Israel privately, they will not be made publicly.
39 See Sara Roy, The Beirut Review, op. cit., pp. 59-79.
40 This point was made in an interview with the Israeli economist, Ezra Sadan, Tel Aviv, January 1996, and is clearly demonstrated in Protocol on Economic Relations Between the Government of the State of Israel and the PLO Representing the Palestinian People, Paris, April 29, 1994. Also see, Singer, op. cit.; Foreign Investment Advisory Service, op. cit.; and Roy, The Beirut Review, op. cit. For a more positive interpretation of the economic agreements, see Ephraim Kleiman, “The Economic Provisions of the Agreement Between Israel and the PLO,” Israel Law Review 28, nos. 2-3 (Spring-Summer 1994): 347-373; and “West Bank and Gaza Strip Adopts Outward Oriented Economic Strategy,” IMF Survey, January 22, 1996, pp. 25-28.
41 IMF Survey, ibid., p. 27, notes that although normal labor movements will be maintained between the PA and Israel, “each side has the right to determine the extent and conditions of labor movements into its own areas.”
42 Interview, Tel Aviv, January 1996.
43 Foreign Investment Advisory Service, op. cit., p. 3.
44 See U.S. Government Printing Office, Foreign Assistance Legislation for Fiscal Year 1994 (Part 2), Hearings Before the Subcommittee on Europe and the Middle East of the Committee on Foreign Affairs House of Representatives 103rd Congress, Economic and Military Aid Programs in Europe and the Middle East, April 28 and May 11, 1993, Washington, DC, p. 76, for a statement by Edward P. Djerejian, assistant secretary of state, Bureau of Near Eastern Affairs, articulating this position.
45 Hamilton, op. cit.
46 This battle is clearly discussed in an internal AID document entitled, “USAID West Bank-Gaza Strip (WBG) Program: One PYO Employee Perspective,” June 1992, that reads, "USAID and the Department of State are in fundamental conflict over USG management requirements for the WBG assistance program. The continuing stalemate jeopardizes the ongoing program itself and specifically the ability of the implementing U.S. [PVOs] to plan, spend, and finance projects." Also see Elaine Sciolino, “State Department May Absorb 3 Independent Agencies,” The New York Times, January 11, 1995.
47 Rex Brynen, “Buying Peace? A Critical Assessment of International Aid to the West Bank and Gaza,” Journal of Palestine Studies XXV, no. 3 (Spring 1996): 80. One high-ranking State Department official in Washington characterized USAID as “theologically oriented to the long term.”
48 A.M. Rosenthal, “Aid, Congress and a Mother-In-Law,” The New York Times, June 12, 1995.
49 See U.S. Department of State, Report Pursuant to Title VIII of Public Law 101-246 Foreign Relations Authorization Act for Fiscal Year 1990-91, As Amended, Washington, DC, December 1, 1995.
50 In early 1996, Congress withheld $10 million that was earmarked to pay the salaries of teachers and healthcare workers employed by the Palestinian Authority. See Steven Erlanger, “Intelligence Experts Meet to Combat Mideast Terrorism,” The New York Times, March 30, 1996; and Matthew Dorf, “Intense congressional scrutiny expected on future aid for PLO,” Jewish Telegraphic Agency, The Metro West Jewish News, January 26, 1995.
51 The reason is that Jerusalem is Israel's capital. Hence, any official or diplomatic exchange between Palestinians and Americans should take place in the Palestinian autonomous areas.
52 Interviews with senior-level officials, U.S. Department of State, Washington, DC, December 1995, February and May 1996.
54 This point was reiterated by several different USAID officials.
55 Interview with senior level official, the World Bank, Washington, DC, December 1995.
56 See, United States General Accounting Office, Foreign Assistance: Reforming the Economic Aid Program, Testimony Before the Committee on Foreign Affairs, U.S. House of Representatives, Statement of Frank C. Conahan, July 26, 1993, Washington, DC.
57 For more on assistance to the West Bank and Gaza, see Joachim Zaucker et al., Toward Middle East Peace and Development: International Assistance to Palestinians and The Role of NGOs during the Transition to Civil Society, Interaction Occasional Paper, Washington, DC, December 1995; The United Nations and The World Bank, Putting Peace to Work: Organizational Structure of Donor Coordination Mechanisms in the West Bank and the Gaza Strip, and a Profile of the Sector Working Groups (SWG), Gaza City, October 1995; idem, Putting Peace to Work: Strategies and Priorities for the Second Phase of the Development Effort in the West Bank and Gaza Strip, Gaza City, September 1995; The Secretariat of the Ad Hoc Liaison Committee and The Office of Aid Coordination and Facilitation/PECDAR, Analysis: Matrix of Donors' Assistance to the West Bank and Gaza, Third Revision, July 1995; and idem, Attachment: Matrix of Donors' Assistance to the West Bank and Gaza, July 1995; The World Bank, Emergency Assistance to the Occupied Territories, Volumes 1-2, Washington, DC, March 1994; and The World Bank, Developing the Occupied Territories: An Investment in Peace, Volumes 1-6, Washington, DC, September 1993.
58 See U.S. Department of State, Cable # Tel Aviv 8955, Unclassified Document, June 1996; and idem, Cable # Tel Aviv 3859, Unclassified Document, May 1996; Palestine Center for Human Rights, Closure Update Nos. 4 & 5, Gaza, March and April 1996; and Sara Roy, "Economic Deterioration m the Gaza Strip," Middle East Report (MER), Summer 1996, pp. 36-39.
59 See Sara Roy, "A Critique of U.S. Development Assistance to the West Bank and Gaza," Middle East Policy Council panel on U.S. Development Assistance to the Middle East: Critical Perspectives, February 27, 1996 (proceedings in this issue).
60 For a good illustration of this point, see Tripartite Action Plan on Revenues, Expenditures and Donor Funding for the Palestinian Authority, Revised Text (late 1995?).
61 Interviews with a range of American and European officials in the donor/diplomatic community revealed that while many if not most privately oppose measures such as the closure and the status quo, the will not publicly challenge the government of Israel in any international or national forum. This position is reflected in Tripartite Action Plan op. cit., p. 5, which states, "The parties to the Tripartite Action Plan respect the obligation of the government of Israel to provide for the safety and security of its citizens and recognize that security measures remain necessary owing to the continued threat of violent attacks.”
62 Interview with Rick Hooper, chief of staff, Office of the Special Coordinator in the Occupied Territories, United Nations, Gaza, February 1996. According to the World Bank, donor assistance has three phases-emergency, short-term and longterm.
63 Despite this, donors currently claim to be shifting their programmatic focus to the longer term.
64 See citations in note 57 which underscore this point.
65 Interview, U.S. State Department, Washington, DC, December 1995.
66 Interview, USAID, Tel Aviv, February 1996.
67 U.S. GPO, Foreign Assistance Legislation For Fiscal Year 1994 (Part 2), op. cit., p. 269.
68 USAID, USAID Program Strategy for The West Bank and Gaza Strip 1993-1997, Near East Bureau, Washington, DC, November 1992, p. 1.
69 Ibid., p. 6. Also see, U.S. GPO, Foreign Assistance Legislation For Fiscal Year 1994 (Part 2), op. cit., pp. 267-275.
70 Ibid., p. 12.
71 See USAID, USAID Strategy Papers, Draft, October 5, 1993, for USAID's stated position on sustainable development, economic growth, environmental protection, health and democracy. It provides an interesting point of contrast with USAID activities in the West Bank and Gaza.
72 USAID, West Bank and Gaza, Internal Document(?), February 22, 1995.
75 Ibid.; USAID, Program Overview, West Bank and Gaza Mission, American Embassy, Tel Aviv, 1994; USAID, Draft USAID Strategy for the West Bank and Gaza, FY 1994-98, Washington, DC, May 19 1994; and AID Affairs Office for Gaza, West Bank/Gaza Strategy 1994-98, May 1994.
76 Ibid., Draft USAID Strategy, pp. 56-57.
77 Given the scope of this study, it is not possible to provide an analysis of USAID projects and their impact. The construction of lower-income housing known as the Al Karama Towers wound up being too costly for those to whom it was targeted It remains unopened, and there are squatters in the building. The shelter rehabilitation program, however, has been successful.
78 However, there was at least one instance when USAID made a direct contribution of $5 million to cover the operating costs of the Palestinian police. See AID, "Summary of Main Points Raised at the West Bank/Gaza Strategy Review, May 10, 1994, 12:30 to 4:30 P.M.," USAID mission, Internal Document, May 17, 1994, Tel Aviv. The document also stated, "At the same time, the [AID] administrator has advised West Bank staff to 'lock up the money’ as quickly as possible, so that funds are not available for poaching”
79 Funding for police salaries is often disbursed through UNRWA.
80 U.S. Department of State, Report Pursuant to Title VIII of Public Law 101-246, Foreign Relations Authorization Act, op. cit., Annex: USAID/West Bank and Gaza Assistance Which Directly or Indirectly Benefits the PLO, PA, or PA Programs (9/13/1993-9/30/1993), NEA/IAI.
81 Interview with high-ranking State Department official who asked not to be identified, Israel, January 1995. Also see, John M. Goshko, "Supporters of Arafat in U.S. Say Financial Aid Is Too Slow, Limited," The Washington Post, December 27, 1994.
82 "USAID cuts demolish Palestinian health project," The Lancet, volume 346, August 12, 1995, p. 433.
84 See U.S. GPO, Foreign Assistance Legislation for Fiscal Year 1994 (Part 2), op. cit., p. 26 and p. 210. Interviews with officials of Save the Children in Gaza and the West Bank revealed, for example, the difficulty of securing USAID funds for early-childhood education, environmental-health education, mental health and training programs of any kind.
85 Interview with Christopher Crowley, director, USAID Mission, Tel Aviv, January 1996. Also see USAID, U.S. Assistance to The Palestinians: Background, Unclassified Document, December 1995. For example USAID’s contribution ANERA's total budget declined from 80 percent to 33 percent from 1994 to 1996. Interview with Peter Gubser, President, ANERA, Washington, DC, December 1995.
86 This project was announced by Vice President Gore during his visit to Jericho on March 24, 1995. It is designed to remove sewage from the streets and reduce street flooding, clean and refurbish storm drains and sewers, repair or replace sewage pumping stations, clean and repair the heavily polluted Gaza City flood control basin, and provide sewage connections to Gaza City residents not hooked into the system. See USAID, Gaza City Stormwater/Wastewater System Rehabilitation: USAID West Bank/Gaza Mission Proposed Project Design; and USIS, Visit of The Vice President of The United Sates to Israel, Jericho, Press Release, Jerusalem, March 24, 1995.
87 See USAID, USAID's Small Business Support Project, List of Client Services, no date given.
88 USAID's summary budget for FY 1995 was $32.0 million for PA Start-up Activities, $25.3 million for High Priority Infrastructure, $17.7 million for Emergency Employment Programs, $7.2 million for Economic Reactivation or small business development, and $3.2 million for other activities. The $85.4 million total includes some reprogrammed FY 1994 funds. See USAID, Program Overview, September 1995. Also see, Palestinian Ministry of Planning, USAID/West Bank and Gaza Program Budget 1995, Gaza City, March 1994.
89 The impact of reducing funds to PVOs is perhaps best illustrated by the Society for the Care of the Handicapped (SCH) in Gaza, a longtime recipient of USAID funds and the only Palestinian NGO to receive any. As a result of USAID budget cuts, the SCH had to fire over 200 employees and terminate services to over 4,000 children. See Conference Proceedings in this issue of Middle East Policy. There are 850-1,500 Palestinian NGOs and over 200 active international PVOs working in the West Bank and Gaza that are coming under increasing pressure from the PA and the donor community. See Brynen, op. cit., p. 85; and Denis J. Sullivan, “NGOs in Palestine: Agents of Development and Foundation of Civil Society,” Journal of Palestine Studies XXV, no. 3 (Spring 1995): 93-100.
90 By 1995, the only formal USAID project supporting local/private institutional development in the West Bank and Gaza was one belonging to Save the Children Federation (SCF). However, the original budget for the institutional development project of $6 million over three years is now $2 million. SCF officials in Gaza and the West Bank further indicated that USAID rejected projects once funded for women's centers, kindergartens and parks. USAID also wanted to cancel the community-participation feature of SCF projects in which the recipient community contributes approximately 30 percent of the project cost. SCF refused to go below 25 percent. Interviews with SCF officials, Gaza Strip and West Bank, January-February 1996. Also see Ministry of Planning, USAID s Program Budget 1995, op. cit.; and Save the Children, Institutional Development Project Operations Manual, West Bank and Gaza, July 1995.
91 U.S. State Department, Secretary of State Warren Christopher’s Opening Statement to The Conference on Aid to the Palestinians, January 9, 1996.
92 USAID, USAID/West Bank and Gaza Strategy Development Process, Internal Draft, January 1996.
93 Ibid. The figures derive from USAID, Program Overview, January 1996, and also include an additional category, “other.”
94 USAID, Internal Draft, January 1996, op. cit.
95 Other program initiatives relate to elections and electoral administration, civil society and public decision-making processes and the strengthening of legislative processes. Several USAID officials maintain that there is highly limited absorptive capacity locally for projects in the democracy sector.
96 In the January 1996 Conference on Assistance to the Palestinian People, the donor community signed a revised Tripartite Action Plan in which they agreed to finance a recurrent budget deficit of $75 million in 1996 with the expectation that the PA would balance its budget by 1997, when donor financing would end. However, the tightened closure of the West Bank and Gaza imposed by Israel after the series of suicide bombings in February and March 1996 is expected to increase the PA s budget deficit to $182 million in 1996 according to the IMF.
97 In January 1996, one part of this larger project was announced: upgrading the water facilities within Hebron. See USIS, United States Aid Project to Improve Water Facilities in Hebron Begins Implementation Phase, Press Release, U.S. Consulate, Jerusalem, January 12, 1996.
98 USAID, Program Strategy, November 1992, op. cit., p. 2.
99 Ibid, p. 19. The document states: "The activities which cause AID the greatest management burdens, and therefore are unlikely to be funded...are...: Large infrastructure, especially dealing with complex technologies or high maintenance requirements, such as wastewater treatment... [and] [c]onstruction. Construction projects will only be allowed if they include realistic provision for maintenance of completed facilities." Also see, AID, Letter to Peter Gubser, president, ANERA, January 8, 1993, p. 3: "AID cannot finance capital expansion when insufficient funds are available to operate and maintain new facilities effectively. Typically, this can only be assured when the capital projects are small-scale in nature, so that community users are willing and able to take responsibility for financing ongoing operation."
100 Given acute economic conditions in Gaza and to a lesser degree, the West Bank, some of the most successful (as measured by popular support) USAID projects include: shelter and school rehabilitation and construction, after-school recreation programs, and small-scale lending (all through UNRWA).
101 By contrast, see “Protecting the Environment: USAID's Strategy,” USAID Strategy Papers, October 5, 1993, op. cit., pp. 19-27.
102 Interview with a PYO official, Gaza City, February 1996.
103 For an example of USAID-supported projects in agriculture, see ANERA, Quarterly Report for USAID Funded Activities for the Period October-December 1995, Jerusalem, January 1996. These projects are typically small-scale, circumscribed and support the establishment of a veterinary laboratory, mobile veterinary clinics for livestock cooperatives, a sheep farm for milk production, programs in brucellosis control, a pest management program with Hebron University, a seedless-grape production program in a cooperative. In addition, ANERA implemented a variety of water-conservation activities with local cooperatives. None of these involve land reclamation. Furthermore, USAID funding is expected to end in the next fiscal year. Interview with Tom Neu, ANERA program director, Jerusalem, May 1, 1996.
104 USAID, Gaza City Storm water/Wastewater System Rehabilitation, op. cit.
105 Foreign Investment Advisory Service, op. cit., p. 40. Also see, The World Bank, Overview and Strategy for Private Sector Development for West Bank and Gaza, Washington, DC, July 1995.
106 In order for USAID to support industrial estates, an executive waiver was required because of a legislative ban on USAID projects that compete with U.S. manufacturers.
107 Interview with senior State Department official, Washington, DC, December 1995.
108 Foreign Investment Advisory Service, op. cit., p. 41.
109 Ibid and p. 43.
110 Ibid., pp. 47-48.
111 However, the PA has proposed a series of local and municipal industrial estates located in the interior of the West Bank and Gaza Strip. See the World Bank, “Municipal Industrial Complexes and Support for Small-Scale Industries,” in Palestinian Investment Program 1995-1998-Project Proposals, Washington, DC, September 1995. Also see The World Bank, Industrial Estates and Enabling Environment Private Sector Development for West Bank and Gaza, Washington, DC, June 1995.
112 Interview with senior USAID official who asked not to be identified. Interviews with certain officials in the State Department confirmed this point. Furthermore, ANERA, which has a long history of working with Palestinian municipalities, reports increasing difficulty in securing USAID funds for municipal projects. Interview with Peter Gubser, president, ANERA, May 1996.
113 However, informal contacts do occur between USAID and certain Palestinian ministries, and USAID attempts to keep the relevant ministries informed. Certain projects of particular import such as industrial estates do involve coordination, but it tends to occur on a personal rather than a professional level. The deputy director of the Palestinian Ministry of Planning complained that USAID is the only donor government agency that does not deal directly with his ministry. Interview, Gaza Strip, February 1996. No doubt, a further disincentive for USAID is the internal disorganization, mismanagement and inefficiency that characterizes the PA bureaucracy.
114 Interview with USAID official, Tel Aviv, January 1996.
115 Interview with State Department official, Jerusalem, November 1993.
116 Interview with senior State Department official, Washington, DC, December 1995.
117 U.S. GPO, Foreign Assistance Legislation For Fiscal Year 1994 (Part 2), op. cit., p 82 and 93.
118 See Human Rights Watch/Middle East, op. cit.; Roy, MERIP, op. cit; and “Gaza: Meet you at the sauna,” The Economist, June 17, 1995, p. 38.
119 A key factor in economic informalization is the loss of Jobs in Israel and the lack of jobs in the occupied territories and the transfer of the Palestinian labor force from jobs requiring certain skills to those requiring different skills. Hence, there is not only a surplus of labor in the West Bank and Gaza, there is a surplus of inappropriately trained labor – people who once worked in Israel and gained skills inappropriate to local needs. In the absence of training programs, which donors do not want to fund, these laborers are increasingly forced into the informal sector, where they engage in street vending, street cleaning and barter trade. See Imad Abu-Dayah, Micro-Enterprise Credit Program, Income Generation Department, UNRWA, Gaza Field Office, December 1995.
120 In a closed meeting on business development in the Middle East jointly sponsored by the Harvard Business School and Kennedy School of Government in April 1994, a vice president of Lehman Brothers outlined some key conditions for attracting private investment: access to international capital markets, the ability to compete for capital, governmental capacity to control inflation, a rule of law upholding the validity of contracts, an acceptance of international accounting standards, a willingness to let the market dictate prices, and a receptivity to outsiders' ideas and participation. Virtually none of these conditions obtains in the West Bank and Gaza because of Israeli and PA policies.
121 Interview with Rick Hooper, chief of staff, Office of the Coordinator in the Occupied Territories, United Nations, Gaza City, May 1996.
122 The World Bank, Claiming the Future: Choosing Prosperity in the Middle East and North Africa (Washington, DC: The World Bank, 1995), p. 1.