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Too much of a good thing? Palestinians realize downsides of foreign aid boom

With food insecurity soaring and GDP declining, Palestinians in the West Bank are waking up to the fact that their foreign aid dependent economy is unsustainable.

Luay Abdel Rafah was unconcerned with President Obama’s visit to nearby Bethlehem last Friday, or by the announcement that the United States would unblock $500 million in US funds for the Palestinian government. He was busy tending to the last organic radish, onion, and lettuce crops of the season in a rooftop permaculture garden above the congested Dheisheh Refugee Camp.

Here, as in the 18 other West Bank refugee camps, food insecurity rates have soared to 29 percent, according to the United Nations Relief and Works Agency (UNRWA), which administers Palestinian refugee camps throughout the region. In response, Mr. Abdel Rafah and fellow volunteers at the Karama  (“dignity” in Arabic) Organization devised this greenhouse, the first in the West Bank.

“We have a lack of space and financial difficulties, but we all have a farming background, so we made greenhouses that will last for years,” said Abdel Rafah. Most Dheisheh families lived in agriculture-based villages before fleeing or being expelled in the 1948 war.

But what sets Karama’s project apart is the fact that it draws almost entirely from local resources — a rarity in the aid dependent West Bank.

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Palestinians are among the largest per capita consumers of foreign aid worldwide. While desperately needed, the billions of dollars flooding in from overseas since 1994 have also caused economic productivity to plummet by flooding Palestinian markets with imported goods.

A recent World Bank report asserts that foreign aid has caused long-term damage to the Palestinian economy. Aid is primarily directed toward products for export that don’t reach Palestinians and rely primarily on low-cost labor. And with 85 percent of those exports headed to Israel, Palestinian economic welfare is dependent on Israel continuing to serve as a market for low-cost Palestinian products. Even with such investment, exports have declined, from 10 percent in 1996 to 7 percent in 2011, according to the report – one of the lowest rates in the world. 

Meanwhile, more profitable sectors that would keep the greatest benefits in the West Bank, such as technology, remain undeveloped and GDP is plunging, from 11 percent in 2011 to 6.1 percent in 2012. 

Karama is striving to overcome that perennial dilemma. It refuses aid that comes with preconditions or inflexible designations of how it should be used, making it a leader in a burgeoning grassroots movement that aims to redirect foreign funding toward local programs, rather than those conceived abroad that may have little connection to problems on the ground.

“We’re here to meet people’s needs, not file papers,” says Abdel Rafah. “This is not Ramallah, where they speak to the donor mentality.”

Today, 13 cash-strapped houses are topped with a garden, saving participating families an estimated 300 shekels per month. Resident businessmen recently approached Karama about funding an expansion of the greenhouses to the entire camp.

The Ramallah bubble

In cosmopolitan Ramallah, a construction boom and cappuccino-fueled culture of luxury cars and inflated real estate suggest an economic upswing. But experts warn that the growth is fostered largely by foreign donations to the Ramallah-based Palestinian Authority (PA), and the profusion of NGOs setting up shop in the de-facto capital has created a bubble – hollow and unsustainable.

Distributing foreign aid has fallen largely to the PA, which Palestinians pan as a complex, inefficient network of donor-supported ministries prioritizing international desires over projects with tangible benefits for Palestinians.

“The Palestinian Authority is the big NGO,” says Itiraf Remawi, acting director of the Bisan Center in Ramallah. “The funding could be useful if reallocated to the Palestinian context, but not to make joint projects with Israelis, or democracy from the western model,” Mr. Remawi said.

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He said that with two decades of growing but misdirected aid, poverty in the West Bank has soared and unemployment has risen to 30 percent.

The PA was intended as an interim body that merely paved the way for a permanent government. But 20 years later it is still in place, subsisting on a budget derived almost entirely from foreign aid – $8 billion between 1994 and 2004, according to the book “How Aid Hurt Palestine,” by Anne Le More.

The money thrown at Palestinians in the form of salaries and bank loans to subsidize lifestyles they can’t afford has dimmed prospects for real development, argues Nora Lester Murad, co-founder of the Dalia Association, which provides grants to female-run small businesses and village agricultural projects.

“Because they’re more dependent on this aid, they’re less willing to speak out against its harm,” Ms. Murad adds. 

Learning to stand alone

PA Prime Minister Salam Fayyad’s goal is to finance the government’s operational costs entirely with local revenue by the end of 2013 – an ambitious deadline made more challenging because it is dependent on Israeli actions. 

The extent of that dependency was starkly illustrated in 2012. When Israel withheld millions of dollars in monthly tax revenues and the US Congress froze $500 million in aid as punishment for its successful UN bid for nonmember observer status in November 2012, the PA was unable to pay its 150,000 employees.

The Arab League pledged to fill the gap created by the withholding of tax revenue and to help pay off the PA’S billions of dollars of debt, but the funds never arrived, Mr. Fayyad told the AP in January 2013.

In the following weeks, Palestinians staged demonstrations and strikes throughout the West Bank protesting unpaid salaries. Ensuing violence prompted speculation about a third intifada.

To ease tensions, Israel transferred $100 million of the withheld taxes in January. And as President Obama wrapped up his visit here last week, the $500 million in American funds to the PA were also unblocked.

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The global economic crisis curtailed foreign aid substantially – in 2011 the PA received $800 million of its anticipated $1 billion, according to the International Monetary Fund – but this may actually be a blessing because it forces Palestinians to create other revenue sources, Ms. Murad argues.