Tag it:

Foreign Aid to the OPT and Israel

Socioeconomic Bulletin Number One (2nd Edition): May 2005

by Shir Hever

  Click Here to Download the Pdf  Version (306.43 Kb)   

Table of Contents: 

 1. Foreign Aid to the OPT Since 1993: A Brief History

2. Current foreign aid to the OPT

3. Sources of Foreign Aid

4.The Israeli Context 

5. Benefits to Israel  

Summary

1. Foreign Aid to the Opt since 1993: a Brief History

The issue of foreign economic aid to the Palestinian territories has played a crucial role in the development of the Palestinian economy since 1994, when the Oslo agreements were signed.

The funds were aimed at fostering the development of the economy for the future independent Palestinian state, in the belief that economic prosperity can help lead to peace.

The Protocol on Economic Relations, signed in 1994 by Israel and the Palestine Liberation Organisation, maintained an Israeli-controlled customs-union between Israel and the Occupied Palestinian Territories (OPT) in exchange for Palestinian access to the Israeli labor market. Closure of the OPT by Israeli forces prevented that access, thus increasing the dependency of Palestinians on foreign aid.

The second Intifada and the escalation in fighting and in military measures against the Palestinian civilian population have caused a deep crisis in the Palestinian economy, and per-capita GDP fell by 40% in just two years (2001-2002). Jobs became scarce, infrastructure was damaged and investments plummeted.

The response by international donors was to change the spending priorities of aid. The focus shifted from development to emergency assistance, and the ratio of aid reversed itself from 5:1 in favour of development, to 7:1 in favour of emergency assistance.

Current foreign aid to the OPT

Though aid to the OPT is comparatively high, there is no truth to the claim that it is the highest per-capita aid in the world. In fact, by comparing various countries and the aid which they received (including non-humanitarian, foreign aid), it becomes apparent that Israel is the highest per-capital recipient of aid in the world. This, despite the fact that Israel does not qualify for humanitarian aid because of its high standard of living.

Even with the substantial aid that OPT received in the last few years, the poverty rate grew rapidly. By comparing the GNI, the gross national income to the aid, it becomes apparent that the OPT becomes increasingly dependent on aid as a growing part of its economy. This trend threatens the prospects of a future independent Palestinian state.

Sources of Foreign Aid

The sources of foreign aid for the OPT include Arab States, the EU, Japan, the United Nations, the United States and the World Bank. The biggest distributor of aid is the United Nations which, through the United Nations Relief and Works Agency (UNRWA) project, gave US$ 2.9 billion in aid between 1994 and 2002. The UNRWA is also responsible for managing about 61% of the total funds disbursed in the OPT. Most of the budget of UNRWA and other UN organizations in the OPT comes from Europe, in turn. The US diverts most of its aid to Israel rather than to the OPT.

The Israeli Context

Israel, due to its per capita income and its influence on the external market, has a strong economic position. However, it is also a very unequal country and the wealth is concentrated among the upper echelons. Much of Israel’s gross domestic product (GDP) is consumed by the military and the military industry. The foreign aid which sustains the Israeli economy comes from Holocaust compensations, Jewish communities abroad and first and foremost from the American government.

The aid forwarded to Israel by the US since 1949 amounts to over US$ 134 billion (as of 2000). Since 1973, aid was sustained at an average of US$ 3 billion annually, though in recent years the aid has been gradually reduced.

This makes Israel the highest recipient of per-capita aid in the world.

This raises important questions about the international interests which fuel the aid. Mainly, why the US funds Israel while Europe funds the Palestinians. Also, why does the US send its aid mostly in military form, while Europe sends its aid mostly as humanitarian assistance?

Benefits to Israel

Because of the Israeli-controlled customs union, 73% of all imports to the OPT come from Israel, and 92% of total exports to the Palestinian territories are directed to Israel.

Therefore, Israel continues to enjoy a captive market in the Palestinians – controlling both imports and exports to and from the OPT. The humanitarian aid to the Palestinians is given mostly in kind, by distributing goods that are often purchased from Israeli companies.

Administrative hurdles and customs make imports of such goods very difficult and expensive to from nearby countries (despite the basic lower costs of these goods, before customs).

Utilities (such as water and electricity) are also controlled by Israel, which sometimes charges more money from Palestinians for the same services than it charges from Israelis.

Altogether, the combination of severe limitations on movement imposed by Israel and the reliance on aid as a growing portion of the economy have turned the Palestinians into a nation of consumers, people who consume but do not produce, and thus increases the profits of Israeli companies without competing with them.

Despite the fact that Israel interferes with the distribution of the aid, it benefits from this same aid immensely. The aid stalls the collapse of the Palestinian Authority, and in effect enables Israel to continue the occupation and the violent measures without being accountable for the effects on the civilian population. Israeli ministers have already realized the importance of the aid to the Israeli interests and have put pressure on the donors to sustain the aid.