Condoleezza Rices Jenin Promise Fiscal Folly Recent CAMERA Study Suggests...

Last week, during Secretary of State Condoleezza Rice'ss visit to the West Bank city of Jenin, the U.S. State Department announced a new round of American government assistance to the Palestinian Authority totaling $14 million. This is on top of $562 million the U.S. State Department has already provided to the Palestinian Authority this year--part of the U.S.'ss share of a commitment made by eighty seven countries and international organizations in Paris on Dec. 17, 2007 to provide $7.4 billion over three years.

The unprecedented amount of aid was justified as necessary to provide immediate support to the entire Palestinian population, and to reward those Palestinians who favor peaceful coexistence with Israel. However, in a recent article in The Middle East Quarterly (http://www.meforum.org/article/1926), CAMERA'ss (http://www.camera.org) Senior Research Analyst Steven Stotsky questions the wisdom of such foreign assistance--pointing to links between increased aid and instability (http://www.camera.org/index.aspx_context=7's38;x_issue=70), as well as an alleged significant misdirection of funds (http://www.camera.org/index.aspx_context=7's38;x_issue=70's38;x_article=1394).

Stotsky points out that the recent injection of U.S. funds builds upon fifteen years of generous international support that has established the Palestinians as the world'ss foremost per capita recipients of foreign humanitarian assistance. In July 2007 the Israeli government also handed over $300 million in taxes it had previously collected for the Palestinian Authority. This aid also represents a leap of faith, as International organizations and diplomats acknowledge that up to this point much of aid money has allegedly been misused and diverted from its intended purpose. Nevertheless, these entities remain reluctant to study the deeper implications of how such aid affects Palestinian socio-economic and political culture.

One worrisome sign was the correlation between increasing aid and escalating violence after the start of the intifada in September 2000 through the end of 2007, Stotsky asserts. Increased funding of the Palestinian Authority corresponded to increased numbers of people, both Israeli and Palestinian, killed by Palestinians. The correlation between aid and homicides during this period does not mean that foreign aid causes violence, but it does raise the possibility that the flow of funds to the Palestinian government helped fuel Palestinian violence and hindered efforts to restore calm. Perhaps aid itself does not cause violence, but there is evidence that it has historically contributed to a culture of corruption and government malfeasance that has had lethal consequences for both Israelis and Palestinians over the past decade.

Figures 1 and 2 (see attached) illustrate how the number of homicides and level of donor aid correlate. The graphs depict how increased aid accompanied an increase in the number of both Israelis and Palestinians killed by Palestinians in 2001 and 2002. After June, 2002, Israeli countermeasures against Palestinian terrorism reduced the number of Israeli dead, but rising factional and societal violence increased the number of Palestinian victims.

The correlation becomes even stronger when the amount of aid given in one year is compared to the number of murders the following year (Figure 2) raising the possibility that the aid exacerbated the violence.

How might this have occurred Stotsky points out the violence launched against Israel (http://www.camera.org/index.aspx_context=7's38;x_issue=20) in 2000 disrupted the three main Palestinian government revenue sources--customs taxes collected by Israel, taxes on wages earned by Palestinians working in Israel, and domestic tax revenue. The Israel security measures against terrorists and punitive actions against the Palestinian Authority for not doing enough to help curb the violence led to a sharp decline in revenue for the Palestinian government.

The international community responded to the ensuing Palestinian financial crisis by nearly doubling its aid, from $482 million in 2000 to $929 million in 2001. There was also a change in how aid was given. Prior to the outbreak of the second intifada, foreign aid to the Palestinians was directed to economic development programs. In 1999, for example, no foreign aid went into the Palestinian Authority budget; by 2001, 58 percent of it went to the government budget. In a classic example of the creation of perverse incentives, the decision to fund the government budget made the Palestinian Authority less dependent on revenue derived from commerce. Thus, while the intifada damaged the Palestinian economy, the government was sustained by foreign money, separating Palestinian governance from responsibility for the economic health of the Palestinian people.

Increased support for the Palestinian Authority led to spiraling government payrolls. From 1999 to 2007, the PA payroll increased from 98,500 to 168,319. The security services grew in parallel to this increase, rising to 78,000 in 2006 and accounting for nearly half of all government wage earners.

The World Bank recognized as early as 2003 there was a problem with how aid was used, but continued to justify the redirection of funds for emergency aid believing they had no choice if they wanted to forestall the collapse of the Palestinian government.

But an Israeli Defense Forces report based on captured Palestinian documents estimated that the Palestinian Authority only needed 55 to 65 percent of its budget to fund legitimate government activities.

U.S. and European officials still believe that alleviating Palestinian poverty is critical to promoting a peaceful resolution to the conflict. The aid windfall promised at the Paris conference as well as the U.S. State Department'ss recent bonus are intended to strengthen the Palestinians's West Bank leadership (http://www.camera.org/index.aspx_context=7's38;x_issue=68) which is widely regarded as more moderate than Hamas. Nevertheless, doubts remain. It is unclear how much control the West Bank leadership has over armed elements nominally under its command.

The commander of Israeli forces in the West Bank, Major General Gadi Shamni, recently told Israeli president Shimon Peres that without the massive presence of the IDF in the West Bank, Hamas (http://www.camera.org/index.aspx_context=7's38;x_issue=20) would take over the institutions and apparatuses of the Palestinian Authority within days.

Although the correlation between aid and homicides from 2000 to 2007 does not prove cause and effect or establish a definitive link, it does suggest that with the level of uncertainty that prevails currently in the West Bank, providing extensive aid to the Palestinian Authority runs the risk of leading to more rather than less instability, misdirection of funds, and potential waste of financial resources at a time of international financial strain.

Steven Stotsky (http://www.googlesyndicatedsearch.com/u/cameradomains=camera.org's38;sitesearch=camera.org's38;q=steven+stotsky's38;x=7's38;y=7) is a senior research analyst at the Committee for Accuracy in Middle East Reporting in America (CAMERA). CAMERA (http://www.camera.org/index.aspx_context=24) is a national non-profit and non-partisan educational organization devoted to promoting accurate and balanced coverage of Israel and the Middle East.

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