Rebellion in Ramallah?

Thousands of Palestinians take to the streets. In Hebron, demonstrators burn an effigy. In Tul Karm, Ramallah, and other cities, they block streets and set tires ablaze. Teens hurl stones. All of the West Bank's bus, truck, and taxi drivers go on strike for a day. In Bethlehem, truckers park sideways, blocking streets. In Nablus, kindergarten teachers join the strike; elsewhere storekeepers shut their shops. Universities announce they, too, will strike.

These are updates from the West Bank over the past week. They sound as if taken from the start of the first Palestinian uprising against Israel 25 years ago. But the leader burned in effigy in Hebron was Salam Fayyad, prime minister of the Palestinian Authority. The Palestinian government in Ramallah, rather than Israel, is the direct target of protest. Economic frustration sparked the fury. This sounds like a variation on revolts in other Arab states—except the Palestinian Authority isn't an independent state. Set up as to provide short-term, limited autonomy until a peace agreement, it has become the lasting means by which Israel outsources its rule over Palestinians in occupied territory. Donor countries foot the budget; the PA provides local services. Israel's current government acts as if the arrangement can last forever. The protests show how unstable it really is.

The immediate reason for anger was the PA government's decision to increase fuel prices and the value-added tax on goods and services. The cost of filling a gas tank is, of course, a function of world markets. But in the Palestinian Authority, it's also a result of the price that the Israeli government sets, including Israeli taxes. The 1994 Paris Protocol, which governs economic relations between Israel and the supposedly temporary Palestinian Authority, specifies that gasoline can't be more than 15 percent cheaper in PA territory than in Israel. It also links the level of value-added tax in the PA to the Israeli rate—so when Israel hiked its rate this month, so did Fayyad's government.

The protocol did leave a little wiggle room for smaller increases. But the PA is short on cash. Much of its budget comes from state donors—including the United States and European and Arab countries. The Education Ministry building in Ramallah has a sign saying it was donated by the Kingdom of Norway. If the PA's operating budget were a building, it would also have a donation plaque at the door.

But donors sometimes don't pay pledges, or pay late. As of June, the PA suffered a shortfall of $300 million in donor funds, according to one economic source. More recently, Palestinian Finance Ministry officials reportedly placed the shortfall at $1.2 billion, a quarter of the Authority's annual budget. PA employees—nearly a sixth of the West Bank workforce—can't be sure when they'll get their monthly salary, or how much of it they'll receive. Rumors that Gulf states are holding back funds at Washington's request—in order to pressure Palestinian President Mahmoud Abbas to drop his request for U.N. recognition of Palestinian statehood—are rampant. Actually, says political analyst Mouin Rabbani, the Gulf states have always paid late or not at all, as a result of inter-Arab disputes with the PA. The rumors do, however, testify to the level of America's political credit among Palestinians.

The foreign donations are supposed to lay the foundation for Palestinian independence. Fayyad, an American-trained economist and ex-IMF official, promised in 2009 that he would build a state from the bottom up by 2011. He has made PA finances more transparent, earned Western respect—and angered veteran members of Abbas's Fatah movement. What he can't do is build a self-sustaining economy. The Paris Protocol locks the PA into a customs union with Israel. The West Bank's currency is Israel's shekel. Israel controls the borders, imports and exports. Almost 60 percent of West Bank land is still defined as Area C, under Israeli rather than PA administration. Area C is where there's open space that could be used for industry, but it now serves as a reserve for settlement growth. Instead of building a state, the donors are reducing the cost to Israel of governing the West Bank. Yet when the donors hold up funds, they impoverish people in Bethlehem and Tul Karm.

On Tuesday, Fayyad announced a partial rollback of the tax and price increases and promised to pay some overdue salaries. So far, demonstrations and strikes are continuing. Increasingly, demonstrators demand that the PLO renegotiate the Paris Protocol. But without a political change—meaning independence—there's little chance of altering the economic relationship. No one knows whether the protests will grow or sputter out now only to flare up again later. They could force a change of power in the PA or its collapse or turn more directly against Israel. The outsourced occupation depends on the whims of donors; it produces high prices, hunger, unemployment, and unpaid salaries. Economically, it cannot be sustained.

The subtext of the last week's protests is that the donors are essential to the PA on a day-to-day basis. But in the longer run, Europe and the United States are helping Israel maintain the political stalemate. Rather than just write hurried checks, they should set a condition for both Israeli Prime Minister Benjamin Netanyahu and Abbas: renew negotiations now on a two-state agreement. Europe is busy with its own problems, though, and Washington certainly can't be bothered until November. What Ramallah will look like in November is anyone's guess.

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