PM FAYYAD: SETTLEMENTS AND PALESTINIAN ECONOMIC

S E C R E T JERUSALEM 001623 SIPDIS NEA FOR FRONT OFFICE AND NEA/IPA; NSC FOR SHAPIRO/KUMAR E.O. 12958: DECL: 09/07/2019 TAGS: PGOV ECON EAID PREL KWBG IS QA KU SA SUBJECT: PM FAYYAD: SETTLEMENTS AND PALESTINIAN ECONOMIC PRIORITIES REF: JERUSALEM 1498 Classified By: Consul General Daniel Rubinstein for reasons 1.4 (b) and (d). ¶1. (S) Summary: PA Prime Minister Salam Fayyad told the Consul General on September 8 that a deal on settlements with the GOI needed to be "inclusive" or otherwise risked undermining U.S. credibility. He noted that West Bank economic growth continued to exceed expectations, but warned that, absent "something really dramatic" from the GOI, it could not be sustained. End Summary. ¶2. (U) Consul General paid an introductory call on PM Fayyad on September 8 in Ramallah. Fayyad was joined by his special assistant Manal Zeidan. On Settlements: Better All or Nothing -------------- ¶3. (S) Fayyad expressed concern about press reports that a U.S.-Israeli "deal" on settlements is near conclusion, and that it would allow continued settlement construction in the West Bank and not include Jerusalem. Exemptions to a freeze would be "completely disastrous" for the Palestinian leadership, he said. The number of units reportedly excluded, he claimed, would approximate the pace of building in recent years. "It would be better for U.S. credibility," Fayyad said, "for you to say you tried and failed" rather than be seen as "putting the best face on a very bad situation." The Consul General responded that S/E Mitchell would be in the region shortly, and the PM should wait to hear directly from the Senator. West Bank Economy: Burning Brightly, or Flaming Out? -------------- ¶4. (C) Turning to the economy, Fayyad expressed appreciation for U.S. budget support, as well as U.S. efforts to secure Saudi Arabia's contribution (reftel). These two donations will keep the PA above water through October, but "then we will start to have problems," he said. He encouraged "relentless" efforts to secure additional Kuwaiti support. He called Kuwait the Arab nation most behind in its payments, based on the 2002 Arab League Summit (alongside Libya). He lamented that Qatar can count donations to the Hamas-led PA in 2006 and 2007 against their Arab League quota, "though they've given nothing to my government." (Septel on Palestinian impressions about potential changes in Qatar's approach to aid to the PA.) ¶5. (C) Fayyad said the West Bank "is doing better than everyone is saying." He said the World Bank and IMF had been both too slow and too cautious in estimating economic growth. There are signals, he said, of real expansion, including demand for non-essential goods and increased business expenditures on advertising. Fayyad "doesn't believe" the claim that growth is mainly the result of Israeli relaxations on movement and access. "The easing has only been in recent months, and can't account for growth that began in late 2007." The one easing that made a difference, he said, is improved access for Israeli Arabs to the West Bank, with Nablus as the primary beneficiary. ¶6. (C) The improvement in the West Bank economy, Fayyad said, can be directly traced to a massive increase in government spending. "Thanks to donors, we were the first to launch our stimulus package," he said. Government spending, including the repayment of large amounts of arrears, drove economic performance in 2008 and 2009. (Fayyad's economic advisor, Karim Nashishibi, claims the injection of cash amounted to ten percent of Palestinian GDP.) However, given that assistance levels will not increase year-on-year, "we need something really dramatic from the GOI" in order to stimulate the private sector, he said. And while the PA would continue to stress the importance of removing checkpoints, the real obstacle to private sector growth, he said, is a restrictive Israeli framework of "permits, regulations, practices, and uncertainty." RUBINSTEIN