Every Israeli-Palestinian negotiating process comes with a price tag. The current process, which was re-launched in Annapolis, Maryland, and continued at the Paris Donor’s conference, is no exception.  It was in Paris that donors examined Prime Minister Salam Fayyad’s three-year reform plan and then pledged 7.4 billion dollars to help implement it.

Although money alone will not solve the many challenges facing the Israelis and Palestinians, it can, if spent well, keep the Palestinian Authority afloat, advance Israel’s security needs, and fund the institutional development necessary for a Palestinian state.

In his speech in Paris, Fayyad stated that the PA needed immediate financial support just to “continue to function as an institution.” According to Fayyad’s plan, 70 percent of the initial aid would go to ensuring the PA’s viability and reducing the deficit. Over the next three years, the aid would progressively be veered to new development and reform projects.

Achieving Fayyad’s goals won’t be easy.

According to a World Bank report prepared for the conference, half of the PA’s budget has been devoted to paying the salaries of its security and civil service employees. Since 2004, PA wage subsidies have increased by almost 60 percent. The majority of Palestinian families have become dependent on government assistance.

The dependence of Palestinians on government salaries is particularly pronounced in the security services (the World Bank estimates that 44 percent of government payroll expenditures go to the security services). While consolidating the security services into a few groups that are loyal to the PA is a crucial step toward achieving law and order, it requires the difficult and potentially volatile tasks of firing and disarming personnel. This is a particularly sensitive issue, since it means “laying-off” armed men at a time when not only Hamas and Fatah are fighting each other, but Fatah’s security personnel are fractured and competing for jobs.

Reducing the number of security personnel without contributing to unemployment and poverty requires that jobs be available for those leaving the security services as well as the Palestinian population at large, which suffers from staggering unemployment (23 percent in the West Bank and 33 percent in Gaza).

There is a consensus that development projects such as the ones outlined by Fayyad will create jobs. Mark Ward , USAID’s senior deputy assistant administrator, described the diverse infrastructure projects needed in the West Bank and Gaza in his testimony to the House Foreign Affairs Committee. As an example, Ward cited the labor intensive construction projects that are needed to build and repair new roads, sewage and water pipes, classrooms and community centers.

However, without a strong private sector, adding new public works jobs only contributes to the problem of a bloated public sector that is reliant on the government for its livelihood. Various private sector initiatives have been promoted by the international community. Since becoming the Middle East Quartet’s envoy, Tony Blair announced new projects including an Agro-Industrial park in Jericho and a new industrial zone in Hebron. Both of these projects are designed to create local jobs and strengthen the private sector.

As past experience demonstrates, however, even the most generous international assistance cannot solve the Palestinians’ economic plight unless Israel offers a hand. The system of closures and roadblocks instituted by Israel has severely impeded the movement of people and goods in the West Bank.

In Gaza, the situation is even worse. Since the Hamas takeover in June, Israeli sanctions, which have restricted the movement of goods to essential food and medicine, have had catastrophic results, including the shutdown of its industrial zones.

The 500-plus roadblocks, checkpoints, and barriers in the West Bank were put in place as a response to terrorist attacks. However, they also prevent Palestinians from not only transporting goods and traveling outside of the West Bank, but restricts them from moving from one part of the territory to the other.

In his December 24 article in the Jerusalem Report, Ziv Hellman, an economics reporter and Jerusalem report editor, describes how roadblocks and checkpoints have damaged a stone-cutting business in Hebron, its owner, Ahmad, and the over 15,000 families that depend on the stone-cutting industry. Checkpoints and roadblocks prevent new stone cutting tools from reaching Ahmad. “But even with his old tools,” Hellman explains, “. . . he frequently waits hours to move his truckloads of stone past IDF checkpoints in the West Bank to buyers in Israel, Jordan, and the Far East.”  Ahmad’s story is but one example of the existing Palestinian private sector that is struggling to get their goods to market.

While easing restrictions, such as opening borders and removing roadblocks, means taking certain calculated risks, it also offers benefits to Israel. A unified and streamlined Palestinian security service that is able to police its own neighborhoods and control its borders could help Israel fulfill its requirements under the Roadmap of withdrawing its forces from Palestinian cities and improving conditions on the ground. As stated by Foreign Minister Tzipi Livni in Paris, a “ prosperous Palestinian state that respects law and order. . .is also an Israeli interest.”     

And then the elephant enters the room. Part of the reason for Gaza’s economic catastrophe is that it was seized by a movement—Hamas—that does not receive financial aid from the international donors who participated in the Paris conference. The international community has worked to keep its funds from Hamas, until it accepts the Middle East Quartet conditions (renouncing violence, recognizing Israel, and accepting previous agreements).

There is a good reason for this policy. Neither Israel nor the Abbas-Fayyad government is interested in turning funds over to Hamas and seeing these internationally provided assets work against them. At the same time, it’s hard to imagine a long-term solution if conditions in Gaza are allowed to continue to deteriorate.
 
Salam Fayyad recently announced that the PA was ready to take over the border crossings in and out of Gaza to facilitate the movement of people and goods and to block the firing of rockets into Israel. This plan, however, would take a strong and reformed Palestinian security service, as well as some form of agreement from Israel and a possible overture to Hamas.

While ambitious, it is unclear that this arrangement could be facilitated any time soon and whether it would be enough to solve the fundamental problem created by the Hamas coup in Gaza.  
 
What is clear from Fayyad’s proposals to both address Gaza and the Palestinian economic situation  is that merely dumping money into the Palestinian territories will not solve its complex problems. For the money to be effective, the international community will need to be involved continuously to make sure that the PA can carry out its plans effectively and that the money reaches those who need it.

Israel will have to be involved as well, by easing restrictions on Palestinian access and movement in the West Bank in ways that don’t hamper its security and by working with the international community to try to rethink what can be done about Gaza. Otherwise, Oxfam recently noted, the aid money will be poured into a leaking bucket. “The challenge,” Oxfam stated in reaction to the Paris conference, “. . . is to fix the leak not pour faster.”

If used correctly, the money pledged in Paris will be well worth the price, but only if the international community led by Blair and the United States remain closely engaged.