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    Middle East
     Jul 4, 2012

Palestinian cash crisis opens a window
By Victor Kotsev

On Monday, news broke that Israel had sought a bridge loan of US$1 billion from the International Monetary Fund, on behalf of the Palestinian Authority (PA), "to help prevent its financial collapse". According to the Israeli daily Ha'aretz, the IMF rejected the request, "saying it did not want to set a precedent of a state taking a loan on behalf of a non-state entity".

Subsequent reports had the amount corrected at $100 million, but while the difference is noteworthy, it pales in comparison with how significant the precedent is by itself.

This is a major development, observers both among the Palestinians and the Israelis told Asia Times Online, although its precise significance is hard to gauge at this point. It could be, for example, that the PA, which has experienced a worsening


financial crisis for over a year, is truly on the verge of financial collapse; this possibility brings up alarming scenarios involving chaos and violence.

Alternatively, it could be that the Israeli request at the IMF is a confidence-building measure of sorts, a step designed to both create a sense of urgency and to demonstrate that Israelis and Palestinians can work together, including by sharing considerable financial responsibilities. At a time when the relationship between Israel and the PA is chilly and the Palestinians are plagued by systemic economic and financial deficiencies, this step involves a sizeable financial liability for Israel and demonstrates goodwill very clearly.

Among a long list of outstanding issues between Jerusalem and Ramallah, the administration of Palestinian President Mahmoud Abbas has time and again refused to return to the negotiating table without preconditions, while Israel has continued to expand its settlements in the West Bank at a steady pace. Last year, Abbas made an abortive unilateral bid for recognition of Palestine as a state at the United Nations, drawing severe Israeli and American condemnation and diplomatic flak. He is even rumored to be preparing a similar bid this year. [1]

However, this most recent development is clearly the result of a process that is antithetical to unilateral action, and the amount of intrigue on both sides in recent days suggests that something important is in the works. It comes in the wake of a brief but intense flare-up of violence between Israel and Gaza militants a couple of weeks ago, and also amid increasing signs that the intra-Palestinian reconciliation process (which Israel sees as a threat) is frozen. On Monday, the militant movement Hamas, which has ruled the Gaza Strip since a brief civil war with Abbas's forces in 2007 (and refuses to accept Israel's existence), suspended voter registration there, postponing a key step in the planned reconciliation. [2]

"From what I hear around the area, once again the reconciliation talks between Fatah and Hamas have re-entered the freezer," Dr Gershon Baskin, the veteran negotiator and scholar of the Israeli-Palestinian conflict, wrote last month in the Jersualem Post. "…The Palestinian unity talks probably fell apart now because of US pressure on President Abbas to give one last chance to negotiations with Israel." [3]

Although many analysts believe that negotiations between Israelis and Palestinians are unlikely to progress very far at this stage, they could boost the chances of US President Barack Obama to get re-elected in November, and also could temporarily take some steam off of the Israeli-Iranian confrontation over the Iranian nuclear program. Hence, Obama's team has been working hard to restart the talks.

In addition, the outcome of the Egyptian presidential elections strengthened their common enemy Hamas (an offshoot of the Egyptian Muslim Brotherhood), and this arguably pushed Israel and the PA closer together.

Hamas's regional standing, in fact, has improved greatly in recent times, and this justifiably worries both the Israeli prime minister and the Palestinian president. Rumor has it that Jordan, where Hamas's leader Khaled Meshal received a warm welcome last week, might be the militant organization's next base. [4]

Some of Abbas's recent actions and statements suggest that he is ready for a compromise. Over the last weeks, his forces launched a massive crackdown on crime, corruption and ideological dissent in the West Bank, confiscating over 100 weapons and eliciting lavish praise from Israel. [5]

Furthermore, last month the Palestinian president reportedly told France's president Francois Hollande that he would meet Israeli Prime Minister Benjamin Netanyahu in exchange for concessions such as the release of Palestinian prisoners and Israel's permission of an arms transfer to the Palestinian security forces. Although the Palestinians subsequently clarified that such a meeting would not constitute a resumption of the peace negotiations, the offer nevertheless set a precedent for a compromise in the future.

The internal political maneuvering, both among Israelis and Palestinians, has gone into overdrive in the last days, and this may be an additional sign that an important diplomatic development is in the works. The chairman of the largest party in the Israeli unity government (and former leader of the opposition), Shaul Mofaz, threatened to break up the coalition on Tuesday, days after a high-level meeting between him and Abbas in Ramallah was cancelled. Ostensibly, Mofaz's quarrel with Netanyahu was over a domestic issue, and his meeting with Abbas was cancelled over internal Palestinian opposition to it, but persistent rumors link the two intrigues. [6]

Mofaz has long advocated negotiations between Israelis and Palestinians, even presenting his own peace plan three years ago (at a time when Netanyahu was reluctant to even utter the phrase "two states for two peoples"). He claims that the peace process is one of his top priorities, and while his attempts to shuttle between Abbas and the Israeli prime minister can be interpreted as jostling for limelight in domestic politics, it is conceivable that he is serious on his mission. Even the distraction his spats with both sides provide could be a cover for a deeper and less public negotiations process.

On the Palestinian side, it is important to note that the joint application to the IMF was brokered by Palestinian Prime Minister Salam Fayyad, a technocrat who is nevertheless seen as a potential political opponent of Abbas down the road. Fayyad reportedly used his longstanding personal connections to the governor of the Bank of Israel, Stanley Fischer, to seal the agreement.

According to some reports, Mofaz's meeting with Abbas was scuttled by Palestinian officials who were unhappy to have been left out of the loop.

There is, moreover, another major reason why the failed cooperation attempt with the IMF might bode well for the Israeli-Palestinian peace process. The diplomatic impasse is a major contributing factor to the very real financial crisis in the West Bank (basic services are now at risk, as Palestinian banks refuse to extend further lines of credit to the government). Israel, furthermore, is rightly worried that a financial collapse of the PA would lead to chaos and violence.

The Palestinian economy suffers from diverse problems that deserve a longer discussion - the reader is advised to consult a separate article by Gershon Baskin titled "Encountering Peace: The economics of Palestine", which is by no means exhaustive [7] - but most of these are ultimately linked to the realities of the occupation. Even the issue of Gulf donors not meeting their pledges (which reportedly caused many of the gaps in the budget of the PA over the last year) can arguably be remedied by a successful restart of the peace negotiations.

As a prominent Palestinian businessman and intellectual told the Asia Times Online, the Palestinian Authority has been in a permanent state of financial crisis since its inception, and if the foreign donors wanted it to survive, it would. The Gulf countries, to many Palestinians, are just a proxy for US foreign policy.

Consequently, while the atmosphere is hardly ripe for a final status agreement between Israelis and Palestinians, a resumption of the peace negotiations could well follow a bold move such as their joint application to the IMF. The greatest danger is that this peace process would be hijacked and turned into political theater subordinate to other agendas (such as related to the American election or the crisis over the Iranian nuclear program). This has happened in the past, just as moments of opportunity have collapsed into prolonged episodes of violence and destruction.

1. If at First You Don't Succeed…, Foreign Policy, June 27, 2012.
2. Fatah: Hamas thwarting reconciliation, Ma'an, July 2, 2012.
3. Encountering Peace: Unity, disunity and peace, Jerusalem Post, June 18, 2012.
4. Hamas leader gets royal welcome from Jordan's king, Ha'aretz, July 2, 2012.
5. PA arrests 150 in W. Bank's largest-ever crackdown, Jerusalem Post, July 2, 2012.
6. Netanyahu prepared to reveal intel proving he didn't scuttle Mofaz-Abbas meeting, Ha'aretz, July 2, 2012.
7. Encountering Peace: The economics of Palestine, Jerusalem Post, April 9, 2012.

Victor Kotsev is a journalist and political analyst.

(Copyright 2012 Asia Times Online (Holdings) Ltd. All rights reserved. Please contact us about sales, syndication and republishing.)

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