Palestinian Authority faces economic woes, public anger as statehood efforts lag

RAMALLAH, West Bank — Even as attempts to end the Israeli occupation have idled in recent years, Palestinians and their international backers have hailed the West Bank’s expanding economy as one critical step on the path to statehood. Now the Palestinian Authority is mired in financial crisis, and there is a growing sentiment here that economic development efforts intended to lay the groundwork for independence have backfired.

That feeling was bolstered this month as the International Monetary Fund and the World Bank warned that a growing deficit is imperiling the Palestinian Authority’s gains and faulted Israel for doing too little to facilitate business and trade. Donors pledged support at a meeting in Brussels last week, and U.S. lawmakers released $88.6 million in development aid that had been frozen since August. But concerns remain that foreign aid will continue to drop as the West focuses on its own economic woes and Arab neighbors grapple with political upheavals.

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 Beyond the frequent images of violence and destruction, view scenes from the West Bank and Gaza Strip.

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Snapshots of conflict and peace: Since declaring independence in 1948, the Jewish state has been embroiled in conflict with its neighbors and has made peace with two of them.

In the West Bank, where a construction boom has slowed and unemployment is high, discontent has centered on the Palestinian Authority leadership, including the technocrat prime minister, Salam Fayyad, who introduced tax increases and other austerity measures. Analysts say those steps have contributed to plunging approval ratings for Fayyad and President Mahmoud Abbas.

Anger over the measures has combined with long-standing criticism that Fayyad’s strategy of building institutions and improving law and order — widely viewed as successful — have not moved the Palestinians closer to statehood. A bid for recognition at the United Nations is stalled, plans to reconcile the two main Palestinian political factions appear frozen, peace talks with Israel have crumbled, and the Obama administration is not publicly pushing the issue.

Higher taxes and moves to rein in spending on civil servants — a 165,000-strong workforce that is the backbone of the Palestinian economy — seem like an affront, critics say.

“Most of the money is spent on security, and the security is not for the Palestinian people. It is for the world, especially Israel,” said Bassam Zakarneh, president of the Palestinian Authority workers union. “If they say we will cut your salary 50 percent to create a sovereign state, we agree.”

But that has not happened, and now some are calling for the Palestinian Authority — formed as an interim body more than 16 years ago — to be dismantled. Fayyad, an economist who in 2009 outlined a nation-building strategy based on economic development and good governance, said that would be a profound mistake.

“To bring about an end of the Israeli occupation, that was a key motivation,” Fayyad said in an interview. “The other part of it was obvious . . . namely the creation, emergence of a well-functioning state of Palestine. If that’s your objective, then you need to get ready for it.”

The economy, he acknowledged, does not look good. Growth in the West Bank slowed considerably in 2011, and the budget deficit grew to $1.1 billion, according to the IMF. A key problem was a $500 million shortfall in aid from the foreign donors who bankroll the Palestinian Authority, particularly Arab countries.