Recent CAMERA Analysis Suggests Foreign Aid to Palestinians May Fuel Instability

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In a recent analysis, Senior Research Analyst Steven Stotsky of CAMERA (Committee for Accuracy in Middle East Reporting in America) raises questions as to how U.S. financial aid Secretary of State Clinton pledged to rebuild Gaza will be used. Stotsky's piece points out that between 2000 to 2007 increased international aid to the Palestinians accompanied increasing instability and violence.

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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

Last week, during her visit to Israel and the West Bank, Secretary of State Hillary Clinton announced that the U.S. would provide $900 million to help rebuild Gaza in the wake of the recent fighting. This is part of a 4.5 billion dollar commitment recently announced by the U.S. and E.U. at a conference in Sharm El-Sheikh. It is not clear whether this aid overlaps with the $7.4 billion the U.S., E.U. and Arab League committed at the Paris Conference in Dec. 2007. The extraordinary sum of money promised to a population that only numbers about 1.3 million in Gaza and over 2 million in the West Bank is unprecedented in a time of worldwide financial troubles. In a recent analysis, Senior Research Analyst Steven Stotsky of CAMERA (Committee for Accuracy in Middle East Reporting in America) raises questions as to how this money will be used. His piece points out that between 2000 to 2007 increased aid to the Palestinians accompanied increasing instability and violence.

Stotsky points out that the recent injection of U.S. and E.U. funds builds upon fifteen years of generous international support that has provided over $20 billion of aid, much of it in the past few years. Since the Oslo Peace Accords were signed in 1993, residents of Gaza and the West Bank have been the beneficiaries of an extraordinarily generous outpouring of international financial support that has established the Palestinians as the world's foremost per capita recipients of foreign humanitarian assistance. In 2007 and 2008, the Israeli government also handed over hundreds of millions of dollars in taxes it had previously collected for the Palestinian Authority.

This aid represents a leap of faith, as international organizations and diplomats acknowledge that up to this point much of the aid money has 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. Although the US and EU insist that the funds will not go to Hamas, it is difficult to imagine how the terrorist organization will not benefit from the flow of funds into the territory it completely controls. But even if it does stay out of the hands of Hamas, the record on funding of the Fatah-led Palestinian Authority itself during the past 9 years does not inspire confidence.

"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 Fatah-dominated 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 graphs) 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 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 international community responded to the ensuing Palestinian financial crisis by nearly doubling its aid, from $482 million in 2000 to $929 million in 2001. The increased violence also caused a change in where the money was directed. Prior to the outbreak of the second intifada, foreign aid to the Palestinians went 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 IDF 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 and rebuilding Gaza is critical to promoting a peaceful resolution to the conflict. The aid windfall promised at the Paris conference as well as the commitment to rebuild Gaza are intended to strengthen the Palestinians' West Bank leadership which is widely regarded as more moderate than Hamas. Nevertheless, doubts remain. Support for Hamas has only increased in the ensuing years and especially since the battle in Gaza. It is unclear how much control the West Bank leadership even has over the West Bank, while its influence in Gaza is minimal. The commander of Israeli forces in the West Bank, Major General Gadi Shamni, in 2008 told Israeli president Shimon Peres that "without the massive presence of the IDF in the West Bank, Hamas 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 providing extensive aid to the Palestinian Authority runs the risk of misdirection of funds and potential waste of financial resources at a time of international financial strain and may lead to more instability rather than less. It may also reward Hamas by showing that the world will always come to the rescue of the Palestinians no matter what irresponsible actions and policies its extremist leadership undertakes.

Steven Stotsky is a senior research analyst at the Committee for Accuracy in Middle East Reporting in America (CAMERA). Read his full article at: http://www.meforum.org/article/1926, contact him at Steve @ camera.org. CAMERA 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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