Following Hamas’s victory in last year’s Palestinian elections, the international community suspended direct aid to the Palestinian Authority government until the newly empowered Islamist organization renounces violence, recognizes Israel’s right to exist and agrees to abide by previous official agreements between Israel and the Palestinians. Opponents of the suspension have decried the policy, claiming it ignited a humanitarian crisis in the Palestinian territories. But in fact, aid to the Palestinians has substantially increased since Hamas took over.
In order to bypass Hamas, Western governments simply redirected aid to the office of Palestinian President Mahmoud Abbas, who at least in theory recognizes Israel. This leaves the Palestinians as the largest recipients per capita of charitable assistance in the world.
The decline in the Palestinian economy has occurred despite the increase in foreign support, and not because of any supposed decrease in aid.
Aid to the Palestinians in 2006
Two recent reports highlight the confusion over aid to the Palestinians. The first, an article in the National Catholic Reporter, asserts:
[T]he decision to cut off aid and impose economic sanctions on the two regions [the West Bank and the Gaza Strip] could lead to an experiment in famine. (“Another Somalia in the Making?,” Neve Gordon, Feb. 2, 2007)
Similarly, an article in the Financial Times states:
Concern is mounting in the international aid community that policies aimed at isolating the Palestinian Authority’s ruling Hamas movement have backfired by further impoverishing the people of Gaza and the West Bank without seriously undermining the Islamists. (“Palestinian aid policies backfiring,” Harvey Morris, Feb.7, 2007)
These assertions overlook the fact that while the Palestinian Authority’s Ministry of Finance is receiving less funds since Hamas took over, the aid has continued to flow to other institutions not controlled by Hamas, in particular the Office of the President. An October 2006 report by the International Monetary Fund (IMF) explains the situation:
Government reciepts and expenditures, instead of being channeled through the Ministry of Finance’s Single Treasury Account, are now recieved or made by various institutions, including the MoF (now only to a very limited extent), the Office of the President, … [and] international donors ….
The IMF notes that the Palestinian Authority received $573 million during the first three quarters of 2006. In a later report, released on Dec. 17, 2006, the IMF estimated that during the last quarter of 2006 the Palestinians had received an additional $136 million, bringing the total for the year to $709 million. This figure is up substantially from the approximately $350 given to the Palestinians in 2005, as reported in the October 2006 IMF report.
Actual receipts might even be higher. Mohammad Yagi, a columnist for the Palestinian daily Al-Ayyam and an analyst for the Washington Institute for Near East Policy, stated that according to the Palestinian Central Bureau of Statistics total donations to the Palestinians exceeded $760 million this past year.
An article appearing in the Dubai based Gulf News on Dec. 7, 2006 quotes a figure of $900 million in foreign aid during 2006.
Additionally, an estimated $66 million has been smuggled in by Hamas couriers and government ministers, the funds apparently being deposited into the PA Finance Ministry. (See, for example, this Dec. 6, 2006 article in the Jerusalem Post.)
Based on these figures, total donations to the Palestinians amount to at least $775 million, more than doubling total foreign donations reported by the IMF in 2005.
The increased donations offset the reduction in revenue arising out of Israel’s decision to withhold money it collects and had agreed to turn over to the Palestinian Authority government on the basis of negotiated agreements with the previous Fatah-dominated Palestinian Authority. According to an article in the Jan. 19, 2007 issue of the International Herald Tribune, Israel withheld $500 million in 2006. This, however, has been softened by Israel’s recent decision to transfer to Palestinian President Mahmoud Abbas $100 million of this revenue.
The overall aid picture is still higher. Not only is funding given to the Office of the President and other governmental or quasi-governmental institutions, but money is also channeled directly to the Palestinian people through humanitarian and development organizations such as UNRWA, Oxfam, the ICRC, UNICEF and others.
Ibrahim Gambari, Undersecretary General for Political Affairs at the UN, explained on Jan. 25, 2007:
Total assistance to Palestinians last year – not including funds channelled to the Palestinian Authority Government or Hamas by regional donors – had been some $1.2 billion, which represented a nearly 10 per cent increase over 2005. Humanitarian assistance alone had doubled since 2004, taking mainly the form of food aid and cash-for-work programmes.
The Real Crisis
Despite the influx of foreign donations, Palestinian productivity has declined, a trend which undoubtedly has increased the suffering of the Palestinian people.
The Palestinian Authority’s Central Bureau of Statistics notes a broad decline in productivity in Gaza and the West Bank that began when the Hamas government took power in early 2006. This decline reversed a gradual improvement that was underway in 2005. According to the Bureau’s figures, the per capita gross domestic product in the West Bank and Gaza declined 18.3 percent between the third quarter of 2005 and the third quarter of 2006. And based on continuing trends, it is quite possible that figures for the fourth quarter of  ;2006 will likely show an even wider gap from this time frame and the fourth quarter of 2005.
Reduced trade with Israel, the single largest trading partner and employer of Palestinians, is certainly one important component of the Palestinian economic deterioration. This decline in trade is a consequence of Hamas’s electoral victory in 2006. Hamas’s commitment to the destruction of Israel and refusal to renounce violence, the unabated missile bombardment from Gaza of southern Israel, and the continuing attempts to infiltrate suicide bombers into Israel have prompted Israel to establish a security regimen that sharply curtails economic activity between Palestinians and Israelis. Notably, Palestinian groups including Hamas have also attacked crossing points between the Gaza Strip and Israel, for example the Karni cargo terminal, which are vital to the Palestinian economy.
The unstable political situation in Gaza and the West Bank is another cause of economic decline in Palestinian areas. Increased factional and clan violence, which especially in the Gaza Strip has become part of Palestinian life, interferes with normal business activity and discourages private investment.
Journalists who blame economic hardships in the West Bank and Gaza Strip on a nonexistent “cut-off” of international aid mislead the public, and miss out on reporting the actual causes of the recent crisis: the election of a Palestinian government that refuses to recognize—and launches attacks against—its neighbor and largest trading partner; repeated Palestinan attacks on crossing points that are vital to the Palestinian economy; and intra-Palestinian violence bordering on civil war.