POMED Notes – The Political and Economic Implications of the Palestinian Authority’s Fiscal Crisis

The Middle East Institute hosted an event on Tuesday (10/23) entitled “The Political and Economic Implications of the Palestinian Authority’s Fiscal Crisis.” The panel included Oussama Kanaan, mission chief for the West Bank and Gaza at the International Monetary Fund; Khaled Elgindy, fellow at the Saban Center for Middle East Policy; Robert Danin, senior fellow for the Middle East and Africa studies at the Council on Foreign Relations; and was moderated by Hussein Ibish, senior fellow at the American Task Force on Palestine. The panel examined the economic and political fallout stemming from the impending PA financial crisis and explored the role of the international community in finding a way forward.

For full event notes, continue reading or click here for a PDF.

Oussama Kanaan began by addressing the inability for the PA to its pay wages and salaries. The PA is currently facing a funding gap of $400 million. In the past, Palestinian funding was contingent upon the continuation of the peace process and the building of governmental institutions. A recent meeting of international donors agreed that the PA has built the institutions necessary to implement economic policy; however, the main issue at hand is a lack of funding. Kanaan discussed the progress of the PA in meeting benchmarks since 2007. Meanwhile, the steady decline of donor aid leaves the PA in a tough place.

Khaled Elgindy opened by saying that “the peace process is dead.” The collapse of the peace process means that the two-state solution is dying as well. The “cost of living” protests in Palestine were actually about the failure of the peace process and the failure of the Palestinian leadership. Additionally, the PA is suffering from a crisis of legitimacy. These issues have become “mutually exclusive and it has become impossible for Palestinian leaders to engage in negotiations without undermining their own legitimacy.” The financial crisis is an extension of living under an occupation and also a decline in donor support, Elgindy said. He noted that the peace process has been unbalanced since day one. Further, the benchmarks set out for the PA have been reached, yet statehood has not been achieved. “The peace process has been eroding Palestinian institutions and is creating more dependence on the international community,” he said. Elgindy condemned the peace process as a framework that has been entirely constructed by outside actors with little thought for the Palestinian aspiration to have a state. The Palestinians are repeatedly punished for any attempt to enhance their negotiating position, such as the bid for statehood at the U.N. The PLO’s attempt to violently liberate the territories has failed, while its 20 years of negotiations have also failed. Further, the PLO no longer represents all Palestinians, as the West Bank and Gaza have effectively been split. Meanwhile, the PA is no longer able to deliver essential services to the people as needed. Elgindy called on the international community to “stop trying to engineer outcomes in Palestine, focus on consensus building rather than nation building, and to work to end the occupation.”

Robert Danin said that “there is no real end in sight to the peace process or to the occupation. Arab donors therefore are not keeping up with their contributions because they do not want to be seen as underwriting the occupation.” Additionally, the PA is facing a fiscal crisis because of Israel’s behavior in the territories. Israel has not allowed the occupation to be relaxed, further constricting the Palestinians economy’s ability to expand. Although negotiations were improving after the signing of the Oslo Accords, realities on the ground between Palestinians and Israelis were worsening. The peace process under the Obama Administration has largely fallen flat, while American leaders have deferred responsibility to the opposing parties. The PA’s bid for statehood at the U.N. brought forth punitive measures which have placed the Palestinian leadership in the position they are in today. At this point, the PA and the U.S. cannot agree to a strategy for the way forward. The next U.S. president will face a difficult decision: Will the U.S. continue to pour political capital into a process that has little chance of success? If nothing is done, the peace process will remain stagnant, the Palestinian economy faces collapse, and violence is likely to return to the region. Danin asked, “If the president decides to engage, then what strategy will be adopted?” The negotiations and economic development packages must become integrated because the realities on the ground are extremely important to the process itself. Danin agreed with Elgindy that the time for the two-state solution is rapidly waning. He concluded by pointing out that even after the Second Intifada the Palestinians and Israelis were able to return to negotiations. Therefore he cautioned against despair and said “calling the peace process dead is a self-fulfilling prophecy.”