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No Money, Mo Problems: West Bank Financial Crisis Risks Upending Fragile Status Quo

Analysts debate whether Palestinian Authority’s budgetary shortfall will manifest in violence

Amid the resumption of rocket fire and the launching of rudimentary incendiary devices from the Gaza Strip into Israel, coupled with ongoing violent “March of Return” demonstrations directed by Hamas along the border, developments in the West Bank risk being overshadowed even as they bode poorly for long-term stability.

This week, the Palestinian Authority reduced by half the salaries of thousands of civil servants to compensate for its refusal to accept any of the estimated $1.2 billion in annual taxes and tariffs collected on behalf of and distributed to Ramallah by Israeli authorities in accordance with the 1993 Oslo Accords. (Low-level Palestinian workers, comprising about 40 percent of total government personnel, will still get their full paychecks, approximating $550 per month).

The move comes in response to Jerusalem’s implementation of a law requiring the withholding of about $150 million in funds to offset stipends paid by Ramallah to Palestinians jailed for perpetrating violent attacks on Israelis and to the families of “martyrs”—those killed while carrying out those acts—as part of a controversial policy often referred to as “pay-for-slay.” In effect, the PA is willingly foregoing about $1 billion in revenue to protest a decision that has near-across-the-board political support in Israel and, parenthetically, in the United States Congress which recently overwhelmingly passed the comparable Taylor Force Act, named after an American citizen killed in a Palestinian attack in Tel Aviv.

That legislation in part precipitated President Donald Trump’s cut-off of hundreds of millions of dollars earmarked for humanitarian projects in the West Bank; to the United Nations agency tasked with attending to Palestinian refugees; and in direct aid to Mahmoud Abbas’ government that has been boycotting American officials since the White House’s December 2017 recognition of Jerusalem as Israel’s capital.

“The PA’s position is all-or-nothing because Israel has no right to cut anything and thus accepting the money minus the deductions would be tantamount to condoning this illegal action,” Dr. Gassan Khatib, a former Palestinian Minister or Labor and Planning, told The Media Line.

“The economic difficulties will not, however, destabilize ‘the street’ as people view the move as part of the occupation pressure that must be dealt with through steadfastness,” he continued. “Therefore, while problematic, the circumstances will not bring about blowback as the impression is that this represents a form of sanctions imposed by Israel and the U.S. because of their desire to force a political solution that most Palestinians oppose.”

Indeed, Trump administration officials are readying to release a two-years-in-the-making peace proposal that many are classifying as “dead upon arrival,” as Abbas has on numerous occasions publicly rejected out-of-hand any engagement in an American-led process geared towards ending the conflict. Citing historical precedent, many predict another unsuccessful peace initiative that could further demoralize, if not ignite the fury of, an already restive population, as it did in 2015 with the eruption of the so-called Stabbing Intifada in the wake of then-U.S. president Barack Obama’s failed peace push.

“The cumulative impact of the termination of aid is huge and could certainly lead to the PA’s financial collapse,” Brig. Gen. (res.) Michael Herzog, former head of the Israeli military’s Strategic Planning Division and previously a member of Jerusalem’s peace negotiating team for nearly two decades, told The Media Line. “The issue of payments [to terrorists and their families] is highly radioactive and there does not appear to be flexibility on either side.

“Because of the hardship,” he added, “the PA may stop sending about $100 million per month to Gaza, which could lead to an explosion in that arena too. As it is in Israel’s interest to avert this, there may be some kind of compromise after the [April 9] elections. The Israeli government will not accept the funding of terrorism but there may be ways to deal with the issue such as securing sufficient international funding for the Palestinians so that the basic economic environment is not disrupted.”

The pinch, though, is starting to be felt, with PA Finance Minister Shukri Bishara announcing a series of more general austerity measures to counter a budgetary shortfall that will require loans of at least $50 million in each of the next six months.

“A third of the PA’s income comes from Israeli remittances, another third from international donors and the rest from local collections,” Col. (res.) Grisha Yakubovich, former head of the Civilian Department of COGAT, the Israeli Defense Ministry body responsible for administering large parts of the West Bank, told The Media Line.

“But if there was an increase in law and order in the territories—for example, by tackling corruption—there would be an opportunity for the PA to raise revenues. Without attributing blame, after nearly thirty years this is the underlying message of the U.S. administration’s actions.

Yakubovich cited several indicators, including sales figures for concrete—which have doubled in five years—as showing that there is construction, which means growth and job creation.

“These are the facts, irrespective of what people say,” he stated. “So while there has always been a connection between the economic and security situations in the West Bank, if something is going to act as a check on another round of violence it is a recognition of this economic reality by average Palestinians.”

Compounding matters from Israel’s vantage point is the PA’s rejection of $60 million in funds from Washington to enhance security coordination between the sides; this, over fears that another new American law could expose Ramallah to financial liability in U.S.-based court cases brought against it by terror victims.

While Abbas repeatedly has warned of cutting all cooperation with Israel, the PA chief has to date refrained from doing so as Ramallah shares the supreme interest of curbing rival Hamas’ activities in the West Bank. Even so, some analysts believe that Abbas, should his back be pressed firmly enough against the wall, could opt for the “nuclear option” by following through on past threats to dismantle the PA and throw Israel the keys to the house.

Still others note that Israel and the PA have navigated such turbulent waters before, with the former having cut-off monetary transfers in 2012 over Ramallah’s attempt to gain statehood recognition at the UN and, more recently, due to Abbas’ decision to double-down on a never-actualized unity agreement with Hamas that essentially torpedoed Obama’s second-go at achieving Israeli-Palestinian reconciliation.

Following much bickering, mutual recriminations and diplomatic maneuvering in both of these instances, Israel and the PA eventually drifted back into a familiar status quo equilibrium that, while perhaps politically expedient, remains fragile and by most accounts untenable.

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