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The Massive New U.S. Investment in Palestinian Mortgages Is a Really Bad Idea

Giving more money to a corrupt, inept economy isn’t going to solve the problem. It is the problem.

Liel Leibovitz
August 30, 2013
Palestinian workers put on display vegetables at a large Jewish-owned supermarket located in Gush Etzion Junction on July 4, 2010.(Menahem Kahana/AFP/Getty Images)

Palestinian workers put on display vegetables at a large Jewish-owned supermarket located in Gush Etzion Junction on July 4, 2010.(Menahem Kahana/AFP/Getty Images)

Like Miley twerking or the Mets falling short of expectations, the reports earlier this week that the U.S. government will soon award nearly half a billion dollars in aid to Palestinians oughtn’t to have been news. After all, since the establishment of Palestinian self-governance in the West Bank and the Gaza Strip in the early 1990s, the United States has awarded more than $4 billion to the Palestinians; add to that the billions pouring in from Europe, and you should hardly wonder why the Palestinians are, according to some accounts, the world’s largest per capita recipients of international aid. Another hefty relief package, then, this one geared mostly toward mortgages and small-business loans, hardly seems like much of a story.

But the new measure of assistance—delivered by the Overseas Private Investment Corporation, the self-described “U.S. Government’s development finance institution”—is a perfect microcosm of all that is complex about the realities of economic life in the West Bank and all that is misguided about foreign attempts to facilitate market growth in the embattled region. As we prepare to commemorate the 20th anniversary of the Oslo accords next month, OPIC’s latest overture can tell us a lot about the challenges yet to be surmounted en route to coexistence.

What larger story, then, do the new mortgages and loans tell us? Sadly, not a very cheerful one. As Americans recently learned only too well themselves, mortgages, when divorced from a robust economy in which people are able to make enough money to pay them back, have a tendency to make the ground tremble. Seemingly oblivious to the searing lessons of America’s costly flirtation with unaffordable mortgages, Palestinians have been gobbling up the stuff: Personal debt has more than doubled between 2008 and 2011 and spiked another 40 percent in 2012, with most of the increase due to home loans. Couple that with an economy that the International Monetary Fund labeled earlier this year as “increasingly precarious,” a massive budget deficit, and an unemployment rate that hovers at the 20 percent mark, and what you get is far from a sound investment.

Presented with these grim figures, Palestinian leaders usually argue that it’s hard to run an economy when you’re living under an occupation and when the movement of much goods and many people is sometimes curtailed by Israeli military control of key roads. To an extent, this argument is sound; but the occupation is far from accounting for all or even most of the Palestinian economic plight. According to the CIA World factbook, for example, the “real per capita GDP for the West Bank and Gaza Strip (WBGS) declined by 36.1 percent between 1992 and 1996,” Oslo’s first—and in many ways rosiest—years. And while no one factor can explain the Palestinian economy’s failure to launch despite such massive foreign aid and investment, one prevalent and recurrent theme is corruption: According to a recent report by a Palestinian NGO dedicated to good governance, corruption is still rampant in the Palestinian Authority’s public institutions. “The data also revealed the extent of structural deterioration within the P.A. institutions and the massive and unnecessary increase in the number of public employees,” read the group’s account. “These slack policies and haphazard expansion were ignored for several years to where these practices have become themselves an obstacle to the efficient utilization of resources, thus leading to an evergrowing tide of inefficient spending of public funds mostly used as a quick-fix for problems facing the P.A.” Considering the fact that the public sector employs nearly a quarter of all Palestinians, and that the recipient of OPIC’s recent generosity, the Palestine Investment Fund, has faced allegations of corruption resulting in the sentencing last summer of a senior economic adviser to 15 years in prison for embezzling $34 million of the fund’s money, it’s hard to imagine the current American funds not joining their predecessors down a black hole of Palestinian officialdom’s inefficiency and lack of accountability.

This already convoluted picture is rendered even more complex if one considers the issue of small-business development. One might take umbrage, as the blogger Yisrael Medad did earlier this week, at the fact that the recent bit of American aid excludes the West Bank’s Jewish residents; and while many would rightly argue that the settlers receive more than their fair share of financial support from the Israeli government, any survey of the layered realities in the West Bank will reveal that investment in Jewish-owned businesses often translates into a windfall for Palestinians as well.

Of the 134 employees in the Rami Levy supermarket in Shaar Binyamin, for example, 60 are Palestinians who live in nearby Jab’a, Hizma, or Anata, and 74 are Jewish settlers from Beit El, Kochav Ya’akov, or Adam. Similarly, 90 of the 120 employees of the Shamir Salads factory in the Barkan Industrial Zone are Palestinian, and 13 other industrial zones scattered across the West Bank employee tens of thousands of Palestinians; in the area known as Samaria alone, for example, 12,000 Palestinians work for Israeli-run enterprises. To truly promote the welfare of Palestinians, such entities mustn’t be ignored but rather rewarded for their proven contributions to the local economy.

It is easy, of course, to dismiss any and all such accounts as merely the continuation of the occupation by economic means, but to ignore the fact that a Palestinian laborer earns approximately 2,000 NIS (about $546) working for a Palestinian-run business in the West Bank and more than four times that, plus benefits, working for Israelis, you’d have to be morally corrupt or economically inept.

The current Palestinian leadership, sadly, seems to be both. Rejecting Secretary of State John Kerry’s proposal for a $4 billion investment plan that might help revive the moribund peace process, Mohammad Mustafa, Palestinian President Mahmoud Abbas’ chief economic adviser, said that “the Palestinian leadership will not offer political concessions in exchange for economic benefits.” Considering the fact that Mustafa is the chairman and CEO of the Palestine Investment Fund—and therefore the proud recipient of several hundreds of million dollars’ worth of American munificence—and that the Oslo process, with Abbas at or near the helm, was nothing if not a lengthy ballet of political concessions and economic benefits pirouetting past each other on stage, that statement suggests that nothing hopeful this way comes.

What, then, to do? It’s easy to point to OPIC’s recent expense as the latest in a series of well-intentioned but unfortunate investments, targeted at Ramallah when they ought to go to Detroit or Newark or New Orleans. But even if we accept that foreign aid is a fundamental tool for preserving America’s interests worldwide and admit begrudgingly that it sometimes succeeds in achieving its goals—Israel itself is probably the greatest example in recent memory of a nation that has skillfully put massive foreign aid to industrious use—we must still be vigilant. OPIC, thankfully, is self-sustaining, and operates at no cost to taxpayers, but it’s still a federal program, and as such we ought to watch its investments closely to make sure all that cash and all that good will don’t go to waste.


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Liel Leibovitz is a senior writer for Tablet Magazine and a host of the Unorthodox podcast.

Liel Leibovitz is editor at large for Tablet Magazine and a host of its weekly culture podcast Unorthodox and daily Talmud podcast Take One.