Revelations concerning the Palestinian financial crisis of recent weeks touch upon three issues. The most obvious one is the seeming inability of the Palestinian Authority under Prime Minister Salam Fayyad to accumulate sufficient reserves to withstand a few weeks’ shortfall in income. Put differently, it is the PA’s huge reliance on donor-nation funds and on taxes collected for it by Israel.
This is all the more striking when seen against Fayyad’s repeated pledges, most recently just last week, "to make 2012 the last year . . . in which this Palestinian Authority needs any external financing to help with recurrent expenditures." To an economic novice like myself, this dissonance would appear to indicate either that Fayyad is bluffing when he claims he cannot pay PA salaries due to a single month’s delay in Israeli transfer payments, or that he’s bluffing when he promises fiscal independence within a year. It would be helpful to receive clarifications.
The question of Israeli transfer payments brings us to the second issue: Israel’s repeated use of financial carrots and sticks–often in breach of bilateral agreements endorsed by the international community–to manipulate Palestinian political behavior. This Israeli tactic is inexcusable on three counts. For one, it violates a clear agreement with the Palestinians going back to 1994; violation of agreements is no way to build trust upon which to base future agreements. Then too, it punishes the very Palestinians, such as security forces who draw their salaries from the PA, whose allegiance to a viable two-state solution we should seek to cultivate. Finally, it relies on a bankrupt belief that manipulation of the Palestinian economy can actually moderate Palestinian political behavior.
This last aspect of the Israeli approach goes all the way back to Defense Minister Moshe Dayan’s attempt to ensure a docile West Bank and Gaza Strip after the 1967 Six-Day War by encouraging Palestinians to come to work in Israel. That experiment lasted 20 years, until it literally exploded into the first intifada. But its underlying logic can be found in Prime Minister Binyamin Netanyahu’s "economic peace" plan of recent years and in the failed attempt by the Olmert and Netanyahu governments to remove Hamas from power in Gaza by means of the collective economic punishment of 1.5 million Palestinians there. It is reflected yet again in the Netanyahu government’s current smug satisfaction in delaying tax transfers throughout the month of November as "punishment" for the Palestine Liberation Organization’s United Nations gambit.
This narrative of counterproductive economic manipulation, in turn, introduces a third issue, or rather a question: is the PA’s economic state of affairs really relevant to the Palestinian quest for immediate state independence, or for that matter to a two-state solution in general? It is deceptively easy for Israeli politicians to pronounce the PA incapable of sustaining independence due to its acute financial dependence on Israel and the donor nations. We tend to forget that when Israel declared independence in May 1948, it had almost no financial reserves at all and was under siege. British mandatory authorities at the time pronounced the fledgling Jewish state "non-viable".
Still, Israel survived, flourished and absorbed millions of Jewish refugees thanks to its people’s ingenuity and the generosity of world Jewry. Palestinians possess no less ingenuity. But I can’t help but wonder where the Palestinians’ Arab brothers are at times of acute financial pressure such as we witnessed last month. The record of the wealthy Arab countries in following through on their pledges of aid to the Palestinian Authority is abysmal. It behooves them to improve their performance, if only to take the economic issue off the agenda of those Israelis who seek excuses to delay Palestinian independence.