JUNE 8 MEETING OF THE AD-HOC LIAISON COMMITTEE

UNCLAS STATE 061707

SIPDIS

E.O. 12958: N/A
TAGS: EAID KPAL PGOV PREL WBG EU IS
SUBJECT: JUNE 8 MEETING OF THE AD-HOC LIAISON COMMITTEE

REF: STATE 55527


1. Summary: The United States used the June 8 meeting of the
Ad Hoc Liaison Committee (AHLC) -- the principle
policy-coordinating mechanism for donor assistance to the
Palestinian Authority (PA) -- to focus donors on the need to
(1) strengthen the PA with immediate budget support and (2)
foster economic growth by developing the Palestinian private
sector. PA Prime Minister Salam Fayyad urged donors to meet
the PA's baseline budgetary needs for 2009 and provide the
assistance necessary for the PA to implement its plan for
Gaza recovery. As expected, few donors made new commitments
of assistance, however, with many tying continued aid to
improvements to conditions on the ground and progress on
negotiations between the parties. The Israeli delegation
emphasized the steps that Israel is taking to improve the
Palestinian economy, including removing obstacles to access
and movement in the West Bank. On Gaza, the Israeli
delegation linked increased access for goods and personnel in
support of humanitarian assistance and early recovery efforts
to the establishment of end use verification and monitoring
mechanisms. End summary.

"Assistance is Political"
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2. Norway's Foreign Minister Stoere opened the meeting with a
call for donors to fulfill their pledged commitments from the
2007 Paris and 2009 Sharm al-Sheikh donors' conferences and
meet the PA's immediate budgetary needs. Stoere argued that
direct budget assistance is necessary to keep Fayyad's new
government viable and for the PA to make progress on economic
development in the West Bank and recovery in Gaza. Stoere
cautioned, however, that donor commitments to the PA depend
upon a "political horizon" in the form of progress toward a
peace settlement. He also called on Israel to quickly reduce
restrictions on access and movement and stop settlement
construction. "International donor support is, in essence,
political, not humanitarian," he said.


3. U.S. Special Envoy for Middle East Peace George Mitchell,
who addressed the meeting on his way to the region, assured
donors that the U.S. is committed to moving the parties as
quickly as possible to meaningful negotiations to realize a
two-state solution. He reiterated the U.S. position that
both sides need to live up to their roadmap obligations,
specifically that Israel stop settlements and the PA improve
security and end incitement. Mitchell asked donors to
provide immediate budget assistance to ensure the viability
of the PA, which he stated was necessary to advance peace
efforts. In his remarks, Office of the Quartet
Representative Tony Blair added that there is no better team
than President Mahmoud Abbas and Fayyad to build the PA's
institutional capacity, arguing that the international
community must support the PA government if we truly are
committed to a two-state solution. Directing his comments
primarily toward the Israeli delegation, Blair concluded by
saying that "squeezing Gaza has proven to be the wrong
strategy" and that the international community could not
afford to forget the people of Gaza.

The PA: A Bleak Picture
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4. PM Salam Fayyad presented a stark picture of the PA's
financial situation. In 2009, donor assistance, he said, has
fallen short of the PA's budgeted need by approximately $30
million per month. As a result, the PA has not been able to
meet even its recurrent expenses, accumulating millions of
dollars of bank debt to pay PA salaries while postponing
payments to the private sector. Fayyad bluntly stated that
if donors believe in the PA and think that it should
continue, then they need to provide immediate budget support
in addition to pledged assistance already in the pipeline
(including the U.S. pledge of $200 million). He appealed to
donors "to look hard for additional resources" and, at a
minimum, commit to raising average monthly disbursements by
$30 million for the remainder of the year - the minimum
required to allow the PA to function. In order to begin
funding Gaza's recovery, Fayyad said, the PA requires
immediately $300 million of the almost $4.8 billion pledged
at the Sharm al-Sheikh donors' conference, most of which has
not materialized. The $300 million would allow the PA to
implement the housing compensation and reconstruction
components of its plan for Gaza.


5. Fayyad emphasized that financial support needs to be
accompanied by a sustained international commitment to
changing the reality on the ground in the West Bank in
preparation for a two-state solution. He acknowledged the
GOI's recent removal of two important checkpoints as helpful,
but noted that much more needs to be done quickly to improve
access and movement and conditions for economic growth. On
Gaza, Fayyad expressed frustration that five months after the
end of the conflict, GOI restrictions on many items,
including construction materials, remain in place. He
stressed that current access restrictions run counter to the
interests of the PA, Israel, and the international community
as Gazans lose confidence in the commitments made at Sharm
and as the illicit tunnel activity flourishes. Fayyad
expressed support for a United Nations (UN) plan to jumpstart
$78 million in stalled humanitarian construction projects
through UNRWA and UNDP, while noting that the UN plan
promises to address only a small portion of the need.

Israel: Steady Improvements
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6. The Israeli delegation used its presentation to express
commitment to support Palestinian economic growth and the
development of a viable Palestinian economy, which it
described as being in Israel's strategic interest. Irit Ben
Abba, MFA Deputy Director General for Economic Affairs,
pointed to action that Israel is taking to reduce barriers to
access and movement and promote economic activity in the West
Bank, specifically: increasing the number of permits for
Palestinian businessmen to enter Israel and travel abroad via
Ben Gurion; the removal of checkpoints near Ramallah and
Nablus; and a commitment to upgrade the Jenin/Jalameh
crossing. She stressed, however, that there cannot be
genuine economic development without continued improvements
to security and the rule of law, and called on the PA to do
more to prevent attacks, including through prosecutions and
confiscation of weapons. "We do not wish to keep up
obstacles," she said, "but as long as there are security
threats, we have no choice."


7. In Gaza, she continued, conditions must be put in place to
ensure that donor assistance does not allow Hamas to benefit.
Ben Abba said that increased access for goods, cash and
personnel into Gaza must be linked to the establishment of
mechanisms, developed in conjunction with the PA and donors,
to ensure that assistance is not misused and diverted.
Israel, like the PA, offered its qualified support for the UN
plan as a potential model for facilitating the entry of
humanitarian and commercial goods.

The Donor Response
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8. A few donors declared new commitments in support of the
PA's budgetary needs. Germany announced that it would
provide 25 million euros ($34 million) through the EU's
PEGASE mechanism to pay for fuel and electricity transfers to
Gaza; the UK said that it would make 10 million pounds ($16
million) in budget support available immediately; and the UAE
announced it would disburse $45 million in assistance this
year from its Paris commitment (the UAE did not clarify the
intended purpose of the funds.) (Note: Arab donors were
represented by Egypt, Tunisia, Kuwait, the UAE, Saudi Arabia,
and Jordan, as well as the Islamic Development Bank and Saudi
Development Fund, which sent low- to mid-level officials.
End note.) The European Commission (EC) declared that it so
far this year had transferred 160 million euros ($223
million) in regular, monthly installments to the PA through
PEGASE, and is on schedule to fulfill its pledged commitment
by July. However, the EC said that it planned to continue to
provide an additional 39 million euros ($54 million) in
three, monthly disbursements through October; after that, it
would not be able to commit additional budget support for the
rest of 2009.


9. Despite these commitments, many donors indicated growing
"donor fatigue," and some Western donors suggested that
significant signs of progress in conditions on the ground and
in the political process are necessary to justify continued
high levels of development and budget assistance to the PA.
Canada, for instance, said that it had a responsibility to
show its tax payers "demonstrable results" from its
assistance before it could ask for more. The UK said that it
was time for "transformational change" in conditions on the
ground and called on Israel to make bold and concerted
efforts to improve the investment climate in the West Bank.


10. The U.S. called on donors and the parties to work in
tandem to develop the Palestinian private sector and improve
conditions. Through the U.S. model, the PA sets the
development priorities and creates the conditions for priave
sector growth by enhancing security and the rule of law.
Donor nations provide financial resources, technical
assistance, and access to private investment, while Israel
lowers barriers to access and movement. By pursuing this
model in targetted private sector initiatives already
underway, such as those to promote the development of
affordable housing and small- and medium-sized enterprises,
donors will create virtuous cycles of economic opportunity
and trust between the parties that can change the envrionment
on the ground.

The Next AHLC Meeting
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11. In his closing comments, FM Stoere announced that the
next meeting would be held on the margins of the United
Nations General Assembly in New York at the ministerial
level. He called on donors and the parties to continue their
work on the local level through the Joint Liaison Committee
(JLC).
CLINTON