The Financial Crisis and the UN-Bid: Forcing New Political Realities

“A new increase in prices” is the phrase most heard in Palestine this year. Already burdened with an Israeli occupation, the Palestinian Authority adds further economic strain with continued price and tax rises. The latest is the one percent increase in the value-added tax (VAT) that was announced this month. As of September 1, the VAT in the West Bank will be 15.5 percent. The worsening economic crisis is not only being faced by ordinary Palestinians; the PA in the West Bank is also struggling financially, desperately seeking international help to stay afloat.

All fingers for the current economic woes point to Prime Minister Salam Fayyad. PA President Mahmoud Abbas appointed Fayyad as the head of the emergency government in the West Bank on 17 June 2007. He remains until this day an interim Prime Minister, becoming the longest serving emergency PM. Fayyad also served as the Finance Minister from 2002 to 2005 and then again from 2007 to 2012. For the past 10 years, Fayyad was the mastermind behind converting the Palestinian economy into a neo-liberal capitalist economy. Fayyad initially received the praises of donors for setting up a transparent financial system, but his policies have proven disastrous for the Palestinian people.

Prior to Fayyad, the Palestinian economy resembled a socialist economic structure while under Israeli occupation. This type of structure was necessary for the society to carry its resistance without suffering ties to the occupation’s economy. After the PA was established post-Oslo, the plan was to slowly strengthen the dependence of the Palestinian economy to the Israeli occupation, calling it economic peace. The economic relationship between the PA and Israel was defined in the Paris Agreement signed in 29 April 1994. Israel, however, still avoided transferring tax revenue to the PA as stated in the agreement. The Israeli government continues to use this card to politically extort the PA.

The situation has only worsened in the past 10 years. Fayyad has created a Palestinian economy dependent on foreign aid, while driving a wedge between the various classes in Palestinian society. His policies effectively destroyed the middle class that held the Palestinians together for so long. In 2005, while he was finance minister, Fayyad loosened restrictions on bank loans, which resulted in making the people tied up in loans and debit.

Fayyad bound his economic strategy to a two-year state building plan in 2009, which was intent on making the PA ready to turn into an independent state by September 2011. The strategy failed terribly. The prime minister naively thought it would be the “Fayyadism” era. But by September 2011, as Abbas was heading to the UN, he realized his failure by expressing scepticism about Abbas’ approach to the UN for a vote on statehood. Furthermore, last month, Fatah lawmaker Najat Abu Baker publicly accused the Ministry of Finance of corruption and administrative abuse. MP Abu Baker told the media that this corruption contributed significantly to wasting millions of dollars which were supposed to enter the treasury. Also last year, Bassam Zakarneh, chairman of the Palestinian Authority Workers’ Union, accused Fayyad of squandering public funds and refusing to take action against corrupt ministers. Fayyad was relieved to finally be replaced as the finance minister in May 16 2012 by Nabil Qassis, former President of Birzeit University.

Fayyad brought the government in the West Bank under a huge debt, strengthening its dependency on foreign donors and the occupation. The deficit in the PA’s 2012 budget has reached more than $1 billion according to Finance Minister Nabil Qassis. Thus, the Palestinian political decision-making process became more than ever a slave to the US interests. Following the Gaza take-over by Hamas, in December 2007, international donors pledged $7.7 billion to support the PA in the Paris Donor Conference. A report by the World Bank in July 25 said that the PA’s economy is unsustainable due its dependency on foreign aid. Fayyad created an economy highly dependant on the foreign aid. Fayyad’s policies did not channel that aid to support a sustainable economy. Mainly, the agricultural sector was marginalised. International community has no interest in making the Palestinian economy self-sufficient. For example, in alJalameh near Jenin, agricultural lands were destroyed to build a road funded by the USAID. This road had no benefit to the Palestinians according to Donor Opium, a documentary shedding a light on the foreign aid in the West Bank.

Politicised foreign aid made the Palestinian political decision-making process a slave to the international interests, mainly the US who donated more than $2 billion from 2009-2011. The US threatened to cut the funds to the PA if Fateh reconciled with Hamas. And now as Abbas is heading back to the UN to achieve a non-member state seat, the US government is once again extorting Abbas using the economic card. The US, as well as the Israeli occupation, knows very well that this card is a double-edged sword. Arab countries like Saudi Arabia also practice extortion on the PA using the economy card. The Arab governments extortion is orchestrated by the US. The PA is under the threat of an imminent collapse if they fail to pay the salaries of over 200,000 government employees in the West Bank. Thus, the US is leaving the PA uncomfortably capable of paying those salaries. But this game cannot be carried on for much longer. Abbas needs an achievement before he leaves political life. The US and Israel need new facts to launch a new era of negotiations that will be disastrous for Palestinians.

Fayyad’s economic policy was just a piece in the puzzle. It was much needed to break the last defenses of the Palestinian people and force the political changes wanted by the US. Since negotiations launched in the early 1990’s, Israel has been negotiating with the PLO as the representative of the Palestinian people. In that process, the US managed to alter the PLO’s principles to meet their standards. In 1998, for example, US president Bill Clinton amended the Palestinian National Council Covenant and the PNC members met in Gaza and voted for these amendments. Of the 30 articles in the Convenant, 12 articles were removed and 16 were amended. Thus, the PLO publicly gave up its principles without the consent of the Palestinian people. This is not enough. the US wanted to completely abolish the PLO from the picture. The PLO has been the major controller of the Palestinians’ economy. Even with the creation of the PA, the interrelation between both bodies kept the PLO as the main Palestinian economical power. A complete division is needed. The plan is to replace the PLO on the negotiations table with another Palestinian entity that represents only Palestinians in the West Bank and Gaza.

It is wrong to believe that the UN-bid plan was totally challenging the US government. Let us remember that Fayyad was the first politician to officially speak about the Palestinian state in 2009. In fact, the US generously funded his government based on this plan. It is true that in 2011 the official US position was against the UN-bid for Palestinian statehood. But anyone who is in contact with American politicians and think-tanks would easily sense the support for the UN-bid. Nonetheless, a full membership state was not the demand. It could loosen up the US grip on the Palestinian decision-making process and present many unneeded challenges in the future. On the other hand, the non-member state is the answer. In the past years, the international fund was meant to create a PA independent from the PLO rather than controlled by it. But at the same time the PA had to be dependent on the international fund. In the past decade, the economic split between the PA and the PLO was completed. The last step now is the final political split.

If the PA heads to the UN in September, this fall Abbas will succeed in replacing the PLO seat with a seat for the State of Palestine. This will greatly damage Palestinian rights in the political arena. First, the Palestinian people as a whole will no longer be represented in the UN. Palestinian communities will be diverted under the jurisdiction of the host countries. Abbas will then leave the political stage after convincing Palestinians that he has achieved the greatest victory in the history of the Palestinian struggle. His successor remains unknown. Will it be Salam Fayyad? Or another independent figure? Will it be Mohammed Dahlan? Or another figure from the opposition stream inside Fateh? Or maybe it is the Muslim Brotherhood era anyway. Whoever it will be, the sure thing, if the plan succeeds, is that the PLO will not be the political decision-maker anymore. At best, the PLO will remain as an honorary representative of the Palestinian people until a final agreement is signed.

The government in the West Bank is facing the worst financial crisis in years. The government in Gaza is less dependent on foreign donors or the Israeli occupation. And with the new Muslim Brotherhood era in Egypt, Hamas is looking forward to strengthening its economical position. Nonetheless, it is less likely that the US or Israel will permit Gaza to benefit from this situation. The government in Gaza has to come under economic pressure to be ready to make concessions.

This financial crisis will not last past this year. If the UN-bid succeeds and Obama wins another term in office, the political division between the West Bank and Gaza will end. The US will flood both Gaza and the West Bank with money. This plan will be empowered by two factors, the return of Kadima to power and the stabilizing of Syria and bringing to power a pro-Western government typical to that of Iraq. By the 2013, we will either witness the collapse of the PA or a new era of humiliating negotiations. If it was the latter, the Palestinian people will have two options, either accept a new worse cycle of humiliation or finally launch their long-waited revolution. And I believe it will be the latter.


  1. Very informative. Thank you for the insight. Reposted on our site too at:

  2. M. Liddawi says:

    Agree with everything being said here, except for this one segment:

    “Palestinian communities will be diverted under the jurisdiction of the host countries”

    The reality is that Palestinians in “host” countries have been “hosted” for the past 64 years now, if not longer. It is also a reality that if (and this is a major if) Palestinians hosted in other countries were given the option between full integration in their host states as full citizens with full rights and obligations, or between ‘returning’ to the land their grandfathers (and in some cases, great grandfathers) have left, they will opt to select the former. The reason is simple: who will they return to? What will they return to? After forging ties abroad with people who came from many different villages in Palestine, it would not be logical to expect that Palestinians in the diaspora would ‘return’ to the same villages they left decades ago, especially since many of these villages are now gone or have changed dramatically. A return by the Palestinians would disrupt the existing societies and legal systems in the West Bank and Gaza more than anyone wishes to speak of.

    The reality is that no one lives as a “guest” for 64 years. In countries where Palestinians have been given full rights as citizens, such as in Chile or the US or Canada, and even in some Arab states like Jordan, Syria or the Gulf; these Palestinians are as related to Palestine as European Americans who emigrated from there 200 years ago are related to Europe.

    While I prefer the one-state solution, as it places the onus on Israel to take care of Palestinians, contrary to its constitution and “raison d’etre”, I understand why Palestinians in the West Bank and Gaza feel the need to have their own state. I say they should worry about their own fate first, and let Palestinians living abroad worry about theirs. If Lebanon removed the final obstacle of the integration of Palestinians in Lebanon, by allowing them the right to work and own homes outside of refugee camps, you can be sure that Palestinians in Lebanon will not ‘return’ to Palestine. Same thing with Palestinians in Jordan: if they are given the “National ID” and 5 year passports as opposed to the 2 year ones, they will remain in the same place they, their parents and (in some cases) their grand parents were born in: they will not return to Palestine. The examples are numerous; especially in places such as Saudi, Qatar and the UAE, where Palestinians do not live in refugee camps and have become accustomed to living in the cosmopolitan, comfortable lifestyles offered by these three states than they would be if they returned to Palestine.

    Therefore, I believe its time that the false ties that connect the PLO to refugee camps are finally severed. After 64 years, it is shameful that Jordan, Lebanon and other states continue to wait on UNRWA for funds to support Palestinians. It is shameful that the PLO continues to have a legal presence in such refugee camps. It is time they are removed, their inhabitants fully integrated into the society of their ‘host’ countries, and their contributions recognized. No one should think that being integrated as citizens of Jordan or Lebanon or Syria is going to make Palestinians forget where they come from and who they are. Palestinians who have become Naturalized citizens of Chile, USA, Australia and other states have not forgotten, neither have their descendants who proudly hold very senior political and business positions in their new homelands. No one forgets their roots unless they chose to, and if that is a choice they made, no one has the right to force them to change their minds or live a life of misery to continue reminding them of where their great grandparents came from.

  3. Reblogged this on .


  1. […] “A new increase in prices” is the phrase most heard in Palestine this year. Already burdened with an Israeli occupation, the Palestinian Authority adds further economic strain with continued price …  […]

  2. […] The Financial Crisis and the UN-Bid: Forcing New Political Realities… […]

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