FAYYAD PRESENTS INSTITUTION-BUILDING PLAN AT AHLC

C O N F I D E N T I A L STATE 100749

SIPDIS

E.O. 12958: DECL: 09/24/2019
TAGS: EAID KPAL PREL PGOV WBG EU IS
SUBJECT: FAYYAD PRESENTS INSTITUTION-BUILDING PLAN AT AHLC
MEETING IN NEW YORK, SEPTEMBER 22

REF: STATE 99834

Classified By: NEA Acting Assistant Secretary Ronald Schlicher,
reasons 1.4(b),(d).


1. (U) Summary: Representatives of the United States and more
than 20 donor countries joined Israel and the Palestinian
Authority (PA) for a September 22 meeting of the Ad-Hoc
Liaison Committee (AHLC) at United Nations headquarters in
New York. Norwegian Foreign Minister Jonas Stoere, who
chaired the meeting, drew a direct link between the AHLC's
economic and institution-building agenda in support of a
two-state solution and President Obama's meetings with the
Israeli and Palestinian leadership to relaunch peace
negotiations (reftel). PA Prime Minister Salam Fayyad
presented and called for international support of the PA's
two-year institution building plan, titled "Palestine: Ending
the Occupation, Establishing the State." Fayyad also called
on donors to provide additional budgetary assistance this
year to meet an anticipated $400 million year-end budget
deficit. Donors did not make new commitments of budgetary
support, but did give Fayyad's plan broad endorsement and
committed to supporting the PA's institution-building agenda.
Donors provided an overall negative assessment of the
conditions in Gaza, criticized Israeli policies for the lack
of project implementation in Gaza, and called on Israel to
open crossings between Israel and Gaza to allow greater
assistance for recovery and reconstruction. Stoere called
for the next meeting of the AHLC to be held at the
ministerial level in the context of the resumption of peace
negotiations. End summary.

Political Context
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2. (SBU) President Obama's meetings at the nearby Waldorf
Astoria Hotel with Israeli Prime Minister Netanyahu and
Palestinian Authority President Abbas provided the backdrop
for the AHLC, which opened as the President began his
meetings. In their remarks, most delegations, including the
United States, made an explicit link between the political
and economic tracks of peace efforts, arguing that donor
support for the PA and Palestinian institutional and economic
development was critical to ensure the success of
negotiations. Within this context, discussions at the AHLC
primarily focused on Fayyad's two-year institution-building
plan, entitled "Palestine: Ending the Occupation, Preparing
the State."

Fayyad's Plan
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3. (U) Prime Minister Fayyad used his comments to present
his two-year plan, which he described as a political document
that expresses his government's commitment to build the
institutions of statehood within two years, "in spite of the
Israeli occupation." He said the plan was "unabashedly
unilateral," but asserted that it was a form of "positive
unilateralism" that is designed to deliver on Palestinian
responsibilities under the Roadmap. The government's goal is
straightforward, he said -- to develop the institutions of a
viable Palestinian state that can support a negotiated
agreement. If, however, the occupation remains in place at
the end of the two-year timeframe, he said, the strength of
the institutions that the PA will have developed should make
the argument for continued occupation unsustainable.


4. (SBU) Fayyad assured donors that the plan does not
represent a radical departure from the priorities of the 2007
Palestinian Reform and Development plan, which donors have
supported with billions of dollars since its announcement.
In their statements, donors provided broad endorsement. The
European Commission (EC) representative expressed
"unequivocal support" for the plan and the PA's political
aspirations, and promised to align the EC's financial
assistance to the PA's priorities. The U.S. rep called on
donors to respond with assistance to support the PA's
institution-building goals. The Israeli delegation was
positive about the institution-building components of the
plan in a bilateral meeting with the U.S. delegation on
September 21, but refrained from addressing the plan directly
at the AHLC, simply reminding donors that a negotiated
settlement was the only acceptable way to end the conflict.

Budget Support
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5. (C) Fayyad used the AHLC to emphasize the importance of
continued donor support to meet the PA's projected $400
million budget shortfall in 2009. While thanking donors for
the more than $950 million in direct budget assistance
received to date in 2009, Fayyad warned donors that the PA
will require additional assistance as early as October to
meet recurrent expenses. Fayyad continued that the PA's
current level of debt with private Palestinian banks
precludes it from accessing bank financing to smooth over
gaps in donor assistance, therefore making the need for
timely donor support all the more acute. (Note: In a
bilateral meeting with the U.S. delegation on September 21,
Fayyad asked if the United States would be in a position to
make a second transfer this calendar year with fiscal year
2010 funds, arguing that he sees no other sources of support
in the absence of Arab contributions. End note.)


6. (SBU) No donors committed to new budgetary support. Of
the donors who mentioned budget assistance, Japan said that
it was "considering ways" to provide additional assistance in
2009 but gave no specifics. The UK stated that it was in the
process of restructuring its assistance to make sure that it
could deliver budget support more reliably in 2010, but was
not prepared to make any announcements at the AHLC. Among
Arab delegations, the UAE made no mention in brief remarks to
increasing budget assistance in 2009, and Kuwait and Saudi
Arabia were noticeably absent. New World Bank Vice President
for the Middle East Shamshad Akhtar made the point that
predictable flows of donor assistance will be required beyond
2009, predicting that even if the Palestinian territories
witnessed modest economic growth over the next few years, the
PA still would require budget support from donors totaling
11% of GDP in 2012.

Signs of Fragile Recovery
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7. (U) The AHLC welcomed signs of economic progress in the
West Bank, particularly the IMF's projection that the West
Bank could experience GDP growth of 7% in 2009. Quartet
Representative Tony Blair said that Palestinian security
gains and Israel's recent removal of some roadblocks are
resulting in visible improvements in business confidence and
quality of life. The head of the Israeli delegation, Irit
Ben Abba, Deputy Director General for Economic Affairs at the
Ministry of Foreign Affairs, highlighted Israel's actions in
support of the Palestinian economy, including: the reduction
since 2007 in the number of manned checkpoints in the West
Bank from 41 to 14 and Israel's recent announcement that it
would remove an additional 100 earth mounds; the timely
transfer of clearance revenues to the PA totaling 8.2 billion
NIS between June 2007 and August 2009; the extension of hours
at Allenby bridge for both passengers and cargo; and
increased access for Israeli Arabs into the West Bank,
approximately 80,000 of whom entered the West Bank to shop
and do business in 2009. She stated, however, that the
security wall and checkpoints within the West Bank remain
Israel's most effective defense against terror attacks, and
that as long as the threats remain, so will restrictions on
access and movement. (Note: Ben Abba cited statistics that
Israeli Defense Forces prevented 92 suicide attacks against
Israel and arrested 68 terrorists in the West Bank in 2008 as
evidence of the continuing threat against Israel emanating
from the West Bank. End note.)


8. (U) While acknowledging positive Israeli actions, Fayyad
reminded donors that the genesis of the West Bank's economic
recovery goes back to 2008 and the PA's policy of injecting
approximately $3 billion in donor assistance into the local
economy during 2008 and 2009. "You will have growth with this
amount of liquidity," he said, but cautioned donors and
Israel that the PA cannot sustain growth on the strength of
government spending alone.

Private Sector
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9. (SBU) The U.S. intervention stressed the need for all
stakeholders to support private sector development as the
engine of Palestinian economic growth, calling on donors to
support ongoing projects with technical assistance,
financing, and investment. The statement highlighted nine
affordable housing development projects that need $116
million in donor funding for infrastructure development, and
called on Israel and the PA to take additional, concrete
steps to improve the climate for investment. To that end,
the World Bank emphasized the need for the PA to focus
institution-building efforts on land management and judicial
sector reform, particularly resolving ongoing conflicts among
authorities in the justice sector that have limited the
impact of reforms to date. Most donors also called on
Israel to release the frequencies required for the commercial
launch of Wataniya, which would become the Palestinians'
second telephony provider, as a necessary signal to foreign
investors that Israel supports Palestinian private sector
development.

Gaza
- - -


10. (SBU) Fayyad laid out two immediate steps to address the
situation in Gaza: he called on Israel to improve access; and
on donors to disburse their pledges announced at the Sharm
al-Sheikh donors' conference in support of the PA's recovery
plan. He stated that the PA is about to receive money from
the EU to finance a program that will compensate Gaza-based
companies for losses incurred during Operation Cast Lead,
which will help restore private sector activity and bolster
local markets. He said that the PA would manage the program
through the private banks that would disburse grants directly
to eligible businesses. He hoped that this program would
provide a model for how donors can put their Gaza assistance
into action. (Note: Despite Fayyad's enthusiasm, the EU
separately told us that it still is in the process of
considering the PA's proposal and had not yet made a decision
whether or how to fund the initiative. End note.)


11. (SBU) Overall, donors provided negative assessments of
the situation in Gaza. UN Special Envoy Robert Serry bluntly
said that the situation in Gaza has not improved since the
last meeting of the AHLC in Oslo in June. Describing the
situation in Gaza as a "de-development crisis" as opposed to
a humanitarian one, he complained that Israel continues to
block approval for project implementation, including a
handful of housing and other projects proposed by the UN.
Blair added that the conditions in Gaza are a tinderbox, and
that if Gaza erupts it could undermine the political track
and undo the fragile economic gains that the Palestinians
have realized so far. "I continue to believe that the
blockade is wrong," he said, turning to the Israeli
delegation, and that Israeli efforts to squeeze Hamas should
not penalize the business community on which Gaza's recovery
depends. FM Stoere added to Blair's assessment saying, "if
we leave Gaza to its own devices, the tunnel economy and
Islamic radicalism will become Gaza's only growth sectors."
Israel argued that Hamas was primarily responsible for the
conditions in Gaza, and called for the release of Gilad
Shalit, the Israeli soldier that has been in Hamas captivity
for the past three years.
CLINTON