World Bank Offers Sobering Bottom Line on West Bank and Gaza

There have been reports recently suggesting that the economic situation in the West Bank is improving. A World Bank report published on June 8, 2009, however, offers a sober assessment of the overall Palestinian economic situation, finding that “Large amounts of donor aid have produced insignificant growth and an increase in economic dependency.” Some 30 percent of the Palestinian gross domestic product is now made up of foreign donations. The current policy of massive foreign aid seems to be just temporarily shoring up an ill economy. Some achievements are noted. The Palestinian Authority has instituted some fiscal reforms. But the private sector has seen little improvement and the need for foreign funds continues to grow.

The report itself exhibits a mindset locked into a narrow perspective on how to address the problem. It repeatedly lays responsibility for the difficulties of the Palestinian economy on Israeli measures, stating,

As a result of the Israeli security regime, the Palestinian economy has hollowed out.

When discussing the more serious situation in Gaza, it notes

Donors’ intentions and efforts have been thwarted, to date, by the closure that continues to be imposed on Gaza and that does not allow the entry of such basic materials as cement, steel, glass, equipment and spare parts.

It concludes that

removing the closure policy on Gaza and the restrictions in the West Bank was deemed a precondition for recovery and reconstruction.

The problem with this assessment is that it does not acknowledge that Israeli measures are a response to the security threats it faces and can only be removed as the threat diminishes. Because the report does not address this issue (since it is political and not economic), it leaves the impression that all efforts should be put into convincing or pressuring Israel to abandon its security regimen.

There is also an inconsistency in the thinking about how to establish conditions conducive to peace between Israel and the Palestinians. The intent of the current policy of generous aid is to establish a degree of prosperity and build functioning institutions in the West Bank and Gaza so that Palestinians will be less inclined towards extremism and violence. The report calculates a decline of 34 % in Real per Capita GDP since 1999 and admits that none of the current models envision recovering that lost ground in the near future. Yet, it was under the more favorable economic conditions of 2000 that the second intifada exploded.

This suggests that without concurrent political progress, an improved economic environment may be irrelevant or even counterproductive. The recent election of hardliners and key instigators of the previous intifadas to the Fatah Central Commiittee suggests that lavishing aid on the Palestinians which creates dependency and lack of accountability for longterm societal malfeasance may be working at cross purposes with the international efforts to build a stable longterm environment for peace.