Economic growth in PA result of foreign aid, not prime minister's actions

[This article first Appeared in YNET and is being reprinted with permission]

Salam Fayyad has been stating time and again that he is working towards declaring independence across all "occupied territories" in August 2011. He says that although he is willing to engage in negotiations with Israel he does not view this as a requirement for Palestine's establishment. The Palestinians demand the application of international laws on self-determination, he says, adding that Israel is not the only player in this game.
Fayyad has also threatened to act unilaterally: “"We are not relinquishing negotiations as a method to establish a state, but in case this doesn't work we are preparing for a second possibility – to turn our dream into a reality."

Fayyad is not a military leader. He is building himself up as a political leader, yet there is no better way to judge his actions than to examine his deeds on the economic front, thereby exposing the immense gap between his words and intentions.

Had his intention indeed been to be the Palestinian Ben-Gurion  he would have been acting for the sake of economic independence and the building of an infrastructure for the state in process. Instead, Fayyad dedicated the huge funds he’s been receiving from the world to paying salaries, in a bid to boost his support. He remembers well that the party he established years ago won less than 2% of the vote in the elections. Just like any politician, this is what truly interests him: building a support base.

Recently, he started rewarding not only the 150,000 employees of the Palestinian Authority and its security arms. Fayyad established a fund (seemingly for development purposes) that hands over funds directly from donor states to salaries in more than 500 city halls and local councils established in the PA. In the past 16 years, these grew fivefold.

Reports replete with excuses

The Palestinian prime minister boasts of being an economic reformer, yet in practice the growth we have seen under his leadership originates in greater international aid, which has been growing as result of a promise he has not delivered on: Minimizing Palestinian government bureaucracy.

Moreover, he has enjoyed an unusual contribution – the shopping sprees undertaken by Israeli Arabs, with government approval, in Palestinian towns. These purchases boosted the Palestinian economy in Judea and Samaria by more than 10%, thereby boosting the total value-added tax pouring into the PA’s coffers by hundreds of millions of shekels.

Not only has the Israeli government refrained from demanding repayment of these VAT sums, estimated at about NIS 1 billion (roughly $280 million) a year and belonging to Israel by law and in line with agreements with the PA – according to a document recently distributed by our Foreign Ministry, Israel has granted an exemption from issuing invoices to PA merchants. And so, we are granting the Palestinian Authority (completely voluntarily and in contradiction to the law – according to the Foreign Ministry Document) a gift totaling additional hundreds of millions of shekels a year.

Fayyad wants us to give him more territory, seemingly one needed for “independence.” He also wants us to continue serving as his excuse for not investing the funds at his disposal in development – each report he submits to the World Bank is replete with excuses as to why the development funds had not been fully used. Would you like to guess who he blames?

Had Palestinian Prime Minister Salam Fayyad possessed real plans for independence, he would already be starting to prepare an infrastructure for independent Palestinian currency. A state that wants to develop a private sector and the ability to reward exports cannot do it by a clinging to the shekel – the currency of a modern and highly developed economy like Israel’s.

As an economist who worked for the International Monetary Fund, Fayyad knows well that the ability to carry out currency depreciation is the most important capacity demanded by the IMF from any independent state, yet this is apparently unfit for “Palestine.” 

This is clear proof that he does not intend to promote real independence. He wants to continue relying on us and remain in an undefined state of half-occupation and half “independence” until demography plays its part. What Hamas is trying to do militarily, and what Arafat attempted to do diplomatically, Fayyad seeks to do economically.

The Paris Accord, which is the economic cornerstone that serves as the basis of the Palestinian Authority’s very existence, allows each side to request new discussion on the deal’s details. The agreement was signed 16 years ago, yet despite all the political and economic changes that took place since then, Israel continues to adhere to it while making voluntary additions, hoping that these “bribes” will mitigate international pressures.

How should Israel respond?

However, Israel must make three demands of the PA that will expose the latter’s lack of economic independence and its dependence on Israel:

1. The Palestinians should immediately embark on steps towards issuing an independent Palestinian currency and make sure to stabilize it. The usage of the Israeli shekel in Palestinian territories will be annulled in August 2011 – the date Fayyad set for “independence.”

2. The PA should compensate Israel for the damages caused by the former’s actions (damaging the fence) and by Palestinian criminal activity (car theft, medicine theft, and agricultural theft.)

3. The Palestinian Customs Authority should collect on its own, and without Israel’s help, the added-value tax and other taxes currently collected on its behalf by the Israeli government. No longer will we see the monthly transfer of VAT funds. You want independence? It’s all yours. Once Fayyad’s customs officials engage in collecting taxes, they will have no more time for the new job he found for them: Destroying Israeli goods imported into the PA.

Should Fayyad meet these economic targets, he would be able to become a model head of state. And should he wish to extend his rule to Gaza, Israel should not be embarking on another Operation Cast Lead aimed at taking over the Strip and handing it over to him on a silver platter.

Instead, Israel should allow his trained army to pass through en route to Rafah in Egypt; from there, he would be able to enter the Gaza Strip like another eminent Palestinian leader did 16 years ago. Do you think Hamas would allow it? That’s the real test of independence.