Israel Matzav

Surprise! The 'West Bank' economic miracle is mostly foreign aid

I suspected this all along - many of you probably did too.

We keep hearing about the 'economic miracle' created by 'Palestinian' Prime Minister Salam Fayyad (pictured throwing Israeli products into a fire) in the 'West Bank' and how the gross domestic product (GDP) for that area is one of the fastest growing in the world. Surprise: That 'economic miracle' is mostly the result of smoke and mirrors foreign aid money. Come on, you didn't really think the 'Palestinians' suddenly started to produce a lot real goods and services, did you?

[T]he absurdity inherent in his statements regarding "Palestinian independence within two years" is clear to anyone familiar with the Palestinian economy. Fayyad is a former World Bank official, but even on the financial front his deeds are far from the image he has nurtured.

The Palestinian economy is the only place in the world where the per capita GDP is less than half the disposable income per capita. This is the result of three factors:

1. The Palestinians barely produce anything. Most of their GDP comes from government expenditures by the PA itself.

2. The Palestinians receive immense sums donated by the world.

3. Tax collection is almost unheard of, aside from the taxes collected (for Fayyad) by the Israeli government, which provides the PA with NIS 450 million (roughly $120 million) monthly; this comprises about 40% of the PA's budget.

The result is clear: Low GDP, but high disposable income. Indeed, it's an economic miracle.

And in the Gaza Strip, where we already know there's nothing being produced (except Kassam rockets), and don't just suspect it, the situation is even worse.

Meanwhile, the situation is even more extreme in the Gaza Strip, where the PA spends 57% of its budget. Fayyad hands over salaries and allowances to 150,000 people, yet tens of thousands of them don't work, while others receive two salaries: One from Fayyad and another from Hamas. This is why the only industries active in Gaza are imports through smuggling tunnels and real estate – the surplus of cash in Gaza's banks prompts them to offer mortgages, and this results in a rise in real estate prices.

And yes, Fayyad is still paying Hamas, something I've raised many times on this blog.

The former finance minister in Fayyad's government expressed it vividly in an interview with Le Monde: He said the Europeans are unaware that their money funds Hamas. Hamas doesn't know what to do with all the money in its pockets so it buys real estate [Ismail Haniyeh just spent $4 million on real estate a few days ago. CiJ]. As result, the price of upscale beachfront real estate in Gaza increased by 300%. The money from the EU and from the taxes collected by Israel ultimately reaches Hamas, he said.

When Hamas took power, Fayyad was supposed to ensure (in line with the international community's demand) that the salaries he hands over do not reach Hamas hands. He indeed proceeded to remove 20,000 people form the list of salary earners, but two months later added more than 10,000 of them to the list of recipients of government allowances.

Read the whole thing.

Fayyad also practices creative accounting.

About two years ago, the World Bank demanded that Fayyad ... minimize the second-highest PA budget clause: Payments aimed at covering electricity and water bills which PA residents refuse to pay (the accumulated electricity debt of Gaza residents stands at $2.7 billion.) This clause, which constitutes about 8% of the PA's budget, is hidden by Fayyad under the heading “Net Lending.”

Fayyad seemingly charges local authorities for the electricity provided to their residents by Israel, yet immediately “loans” them the money. As such, they appear as a local authority debt to the Palestinian Treasury. Two years ago, he attempted to force PA residents to present proof of payment on their electricity bills before receiving government allowances. The PA’s “public service sector” immediately embarked on a warning strike, and Fayyad got the hint and has refrained from demanding that the bills be paid.

A few months ago, Fayyad came up with an original solution: As he hands over immense sums for the salaries of tens of thousands of security officials in Gaza, who no longer work since Hamas took power there, he raised their salaries by 4% and even got EU funding for this. However, at the same time he deducted a similar sum from these salaries for “electricity bills.”

Everyone was pleased until Hamas authorities found out about it. They viewed it as financially detrimental to their government, and in response stopped handing over to the Palestinian fuel authority the sums of money collected from Gaza residents who do pay for electricity. This was the reason for the latest fuel crisis in the PA.

On the security front, things are no better.

On the security front, Palestinian PM Salam Fayyad counts on the IDF and Shin Bet. Despite his claims that the IDF should not be operating "in the Palestinian state's territory," he knows that he has no control on the ground, neither in the Gaza Strip which he dreams of reuniting with the West Bank, nor in his own backyard in Judea and Samaria.

If Fayyad is indeed interested and capable of reuniting Gaza and the West Bank, when and how does he intend to do so? Will he be leading a Palestinian army that will deploy in Rafah and move north until it retakes Gaza City from the hands of Hamas? Obviously not. He is in fact creating the conditions for boosting Hamas, so that the IDF will ultimately have to enter Gaza, retake it while paying a heavy diplomatic price, and then end the "occupation" and hand it over to Fayyad, without him having to do a thing.

Read the whole thing. Anyone think they could handle a 'state' even if one were in the offing?

Barry Rubin adds:

Fayyad is the most moderate guy in the PA leadership. He was doing about the best he could. But that’s the point. He has no base of support, isn’t a Fatah member, and doesn’t really represent Palestinian thinking. He is in office only to keep Western donors happy. Thus, Fayyad couldn’t go any further because he knows his Fatah bosses, Palestinian constituents and Hamas enemies would throw him out if he offered the slightest concession and demanded any less than everything they want.

...

Four days before Fayyad’s speech, the imam Fayyad appointed in Nablus gave a sermon over the television Fayyad controls. As translated by MEMRI, he said: “The Jews are the enemies of Allah and [Muhammad], the enemies of humanity in general, and of the Palestinians in particular... Jews will not cease to be hostile to the Muslims.” Only jihad, not negotiations, can liberate the land.

How can this be reconciled with Fayyad’s claim of Palestinians just wanting “to live alongside you in peace, harmony and security”?

Answer: The sermon is meant to shape Palestinian politics and public opinion; what Fayyad says is meant to shape Israeli and Western politics and public opinion. Fayyad believes what he said but, as a figurehead, also knows that he isn’t going to change the dominant Palestinian view or even try to do so. The audience applauded Fayyad because it does want peace and prefers him to all the worse alternatives, especially Hamas but also those in Fatah. Yet few have any illusions that peace is at hand or that Fayyad is going to deliver it.

Well, few outside of Washington anyway.

posted by Carl in Jerusalem @ 11:36 AM