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Analysis: Can Oslo's failed aid model be laid to rest?

Nov. 2, 2013 4:20 P.M. (Updated: Nov. 6, 2013 12:52 P.M.)
By: Al-Shabaka
The first installment of a two-part policy brief from Al-Shabaka, the Palestinian Policy Network.

Al-Shabaka is an independent non-profit organization whose mission is to educate and foster public debate on Palestinian human rights and self-determination within the framework of international law.

The policy brief is co-authored by Jeremy Wildeman and Alaa Tartir.


Since the signing of the 1993 Oslo Declaration of Principles, the donor community has invested more than $23 billion into "peace and development" in the Occupied Palestinian Territory (OPT), making it one of the highest per capita recipients of non-military aid in the world. However, aid has not brought peace, development, or security for the Palestinian people, let alone justice. Al-Shabaka Guest Author Jeremy Wildeman and Program Director Alaa Tartir examine the origins of the present aid-for-peace model as well as its effects on socio-economic conditions and pull together the many critiques of the Oslo economic model.

The authors argue that donors are reinforcing failed past patterns associated with the so-called peace dividends model while making only cosmetic changes to their engagement. Indeed, donors do not appear ready to change an approach dominated by policy “instrumentalists” who ignore and reject outcomes that do not match their pre-determined values instead of upholding international law on Palestinian rights and international development principles that strive to "do no harm." They underscore the alarming possibility that the Oslo aid model may serve too many interests to be dismantled and conclude with an assessment of what will be needed for change.

The Invention of the Oslo Economic Model

In 1993, soon after the first Oslo agreement was signed the World Bank laid out an economic plan for the Palestinians called An Investment in Peace. This plan was meant to guide major bilateral donors on how to disburse their aid in support of the peace process. It would do this by building institutions, fostering open and free markets, trade, investment, and financial liberalization, advancing good governance and regional economic integration. It also encouraged economic integration with Israel, at the same time that it was supposed to be preparing Palestinians for independence. In addition, a semi- autonomous Palestinian authority would be established to police Palestinians in the OPT in lieu of the Israeli military.

Closer economic integration with Israel was one of the main "successes" of the plan, beginning with the establishment in 1994 of the Paris Protocol as an annex to the Oslo Accords. The Paris Protocol created a customs union under which the Palestinian Authority (PA) would implement the Israeli trade and tariff policy and gave Israel the right to change policy and simply notify the PA of such changes. The Protocol regulated taxation, trade policy and established a Joint Economic Committee to manage the agreement. Under the Protocol’s customs envelope all foreign aid donated to the Palestinians had to pass through Israel, which was free to tax it. An Israeli negotiator involved in designing the protocol said it "basically legalized the forced marriage of the two economies since 1967."

An Investment in Peace is a neoliberal policy plan which parallels other programs developed by international financial institutions for the developing world in the 1990s. Based on elements of the conventional wisdom of the Washington and Post-Washington Consensus, it ignored the fact that the Palestinian territories were under a longstanding military occupation, which gave neoliberalism in the OPT its own particularity and flavor. The philosophical rationale for the World Bank plan was to improve Palestinians’ standard of living and encourage them to participate in the peace process by cashing in on peace dividends.5 This rationale remains the same today: invest more money to make Palestinians feel better economically to make it easier for them to compromise politically.

As a result, Palestinians in the OPT have become one of the highest per capita recipients of non- military aid in the world. International aid disbursements to Palestinians totaled around $22.7 billion between 1993 and 2011, averaging $360 per capita annually. Aid inflows increased from an annual average of $656 million between 1993 and 2003 to over $1.9 billion since 2004. In fact, international aid increased by 17 times between 1993 and 2009 and the amounts disbursed from 2008 to 2012, during the term of former prime minister Salam Fayyad and further entrenchment of the neoliberal approach which came to be known as "Fayyadism," exceeded the total amount of aid received between 1994 and 2005. At the peak of aid flows to the OPT in 2008-9 only Liberia and Timor-Leste had a higher level of aid as a percentage of the Gross Domestic Product (GDP.)

Is One Person’s Failure Another’s Success?

The World Bank’s Investment in Peace, which shaped how foreign aid has been disbursed to the Palestinians over the previous two decades, failed spectacularly in achieving its own goals: sustaining economic growth, fostering peace and establishing an independent Palestinian state. Nevertheless, the World Bank continues to exercise incredible influence over the aid process and to recommend the same policies, although some of these have become even more impractical over time, for example those set out in the Bank’s 2012 growth report, that we have previously critiqued.

Palestinians are far worse off today than they were in 1993 using any economic or political criterion. According to the income-based definition of poverty, 50% of Palestinians lived in poverty in 2009 and 2010, 38% in the West Bank and 70% in Gaza. The World Food Program has found that 50% of Palestinian households suffer from food insecurity. Unemployment has been stuck at around 30% since 2009, with 47% unemployed in Gaza in 2010 and 20% in the West Bank. The unemployment rate for Palestinian youth under 30 is particularly alarming at 43%. The income and opportunities inequality gap continues to widen not only between the West Bank and Gaza, but also within the West Bank. Manufacturing and production capacities continue to erode.6 Meanwhile the agriculture sector that once drove the Palestinian economy remains sorely neglected: Since the PA’s establishment and the application of An Investment in Peace-guided aid programs, the amount allocated to the agriculture sector did not exceed 1% of the total PA annual budget between 2001 and 2005 and the agricultural sector’s contribution to GDP dropped from around 13.3% in 1994 to 5.9% in 2011. Furthermore, around 85% of the tiny budget allocated to agriculture went to Agriculture Ministry staff salaries.

Public debt has doubled, while private debt has ballooned because of easier access to credit. At the macro-economic level, the celebrated economic growth of 7.1% in 2008, 7.4% in 2009 and 9.3% in 2010 was an aid-driven jobless growth that excluded Jerusalem and simply reflected an economy recovering from a low base. Instead, Palestinians have become completely dependent on foreign aid to sustain their isolated enclaves in the West Bank and Gaza, a captive market based on aid money used to buy most of its needs from Israel. NGO-aid induced inflation, personal debt and rising cost-of-living have been linked to the stalled peace process – a process that has steadily seen life for Palestinians get worse and aspirations of self-determination recede.

At the political level, the PA, which administers a large proportion of the aid lacks both de jure and de facto sovereignty. Israeli settlement building and the confiscation of Palestinian land accelerated dramatically after Oslo, as did Israeli closure policies limiting Palestinian entry to work in Israel or move freely within the OPT and with the rest of the world, a primary factor in the steep decline of the Palestinian economy. Daily Israeli armed raids have resulted in the death, disability, and the imprisonment of tens of thousands of Palestinians. The deductions from the wages and salaries of the Palestinian workers in Israel between 1970 and 1993 – which totaled 16.5 billion Israeli shekels - are still benefiting the Israeli economy. The PA has been powerless to fight for these workers’ rights or the lost revenue to its treasury. In the final analysis, aid is being used to sustain a failed peace process as well as the Israeli occupation itself.

It comes as no surprise that there is broad agreement in the literature that aid has failed the Palestinian people. However, there is disagreement as to why aid has failed and we have identified four schools of thought. One group can be termed "instrumentalist" and argues that the fundamentals of An Investment in Peace are sound and the model should be maintained but simply needs to be better applied. This group tends to sanitize the Israeli occupation and the settler colonial nature of the Israeli state. It ignores Israel’s remarkably consistent policies towards Palestinian land and people since a time that predates the formation of the state of Israel. It also lays a disproportionate amount of blame on the PA for the failure of aid to achieve results.

This group includes researchers at the World Bank, the International Monetary Fund, and many bilateral government donor agencies. The instrumentalist approach helps to explain why the model adopted in 1993 with An Investment in Peace has not changed after two decades of conflict and economic collapse. A second group, the "critical instrumentalists," do focus on the occupation as the main obstacle to peace and development. However, they share the instrumentalist faith in the ability of policy to bring about positive change.

The third group consists of critics of the Oslo aid model. Many in this group assert that the aid model is itself a part of the occupation, because it is designed in a way that subverts Palestinian development while reinforcing and subsidizing the Israeli occupation, along with longstanding Israeli policies dating back to the 1948 Nakba and beyond. For critics, development is not policy to be implemented, but domination to be resisted, because in the case of Israel-Palestine the hidden intent behind development aid is to reinforce the occupation.

There is a fourth group not often considered when analyzing the impact of aid: The neo-colonialists, who consider aspects of foreign aid to have been a success. Particularly in the West Bank, Palestinian resistance to the Israeli occupation has largely been mollified and Israel’s policy aims have largely been achieved. This perspective is highly influential, especially in the United States, where it is very effective in aligning itself with Israeli government interests while largely defining American aid policy toward the Palestinians. For example, organizations such as the Washington Institute for Near East Policy have since at least the 1980s been advocating an approach to aid that provides economic incentives to Palestinians in return for their giving up rights.

The impact of the neo-colonialists is perceptible. A June 15, 2012 Congressional Research Service report spelled this out when it noted that aid for the Palestinians has been intended, over the years, to support at least three major U.S. policy priorities: Combating terrorism against Israel; encouraging Palestinian peaceful coexistence with Israel while preparing Palestinians for self-governance; and meeting humanitarian needs to prevent further destabilization. The first point has been expanded to include opposition to a Palestinian bid for recognition as a state at the United Nations and to any initiatives aimed at increasing international recognition outside of the “peace process.”

When foreign aid to Palestinians is analyzed from a neo-colonial perspective, it may not be failing at all. With an increasingly subdued Palestinian population in the West Bank governed by a pliant PA, Gaza locked up and surrounded by an impenetrable blockade, and Palestinians in Jerusalem being squeezed out, aid may actually be a great success. It encourages Palestinians to give up any kind of resistance to the Israeli occupation and keeps them fed and subdued, and Israel can apply a financial boycott when they resist these processes. Meanwhile, Israel swallows up the OPT without having to foot the costs of those living under occupation.

Originally published on Al-Shabaka's website on Sept. 19, 2013.

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