An unaided peace? The (unintended) consequences of international aid on the Oslo peace process

Abstract

International aid played a significant role in the inception and implementation of the Oslo Accords between 1993 and 2000. This article assesses the nature of that impact in order to gauge how successful donors were in their objective of ‘consolidating and encouraging progress towards peace.’ In some respects, aid played a useful role in facilitating the signing and the rolling out of the Oslo peace process. It was, however, also responsible for a series of unintended consequences which undermined the short-term objectives of the Accords and prospects for peace in the long run. Broadly speaking, donors also declined to make their financial assistance conditional on the performance of the signatories, which allowed signatories to engage in activities detrimental to the legitimacy of the Palestinian Authority (PA) and the peace agreement itself. The article concludes that aid cannot ultimately be disconnected from the peace process it is supporting, which in the case of Oslo was insufficiently balanced and unambiguous to allow a broadly supported peace settlement to be established on the ground.

Introduction

Analysts wishing to dispel the suggestion that international aid is a panacea for peace need look no further than the example of the Oslo peace process.1 Levels of aid disbursed to the Palestinian Authority (PA) and the Israeli government were the highest anywhere in the world in the 1990s, far outstripping the response to humanitarian crises in Bosnia and Rwanda. Despite being lubricated by record amounts of aid, however, the Oslo Accords spectacularly failed to achieve their goal of a ‘just, lasting and comprehensive peace settlement’ to the Israeli/Palestinian conflict. By the end of 2000, the second intifada was in full swing and the peace process has since remained invariably ‘on ice’. At first glance, the Oslo process proves that aid and peace are not necessarily the natural bedfellows that one might intuitively assume them to be.

If no panacea, what kind of role can aid be expected to play in the rolling out of a peace agreement? In the case of the Oslo peace process, as with many other peace agreements, international assistance was intended to provide a helping hand along the rocky path of implementation. In the view of the World Bank ‘aid itself [had] a fundamentally political purpose: to consolidate and encourage progress towards peace’.2 In practice, this entailed a number of functions: to preserve support for the peace process on both sides; to encourage the execution of the Oslo Accords at regular intervals; to prepare the way for Palestinian statehood; and to help build a Palestinian administration that would be an effective partner for peace.

With $2.7 billion of assistance disbursed in the West Bank and Gaza between 1993 and 19993—and with American donations into Israel's coffers averaging $3 billion per annum during the 1990s4—it is hardly a bold statement to venture that aid had a marked impact on the dynamics of the Oslo peace process. The pertinent question though is whether the impact of these financial flows proved to be a ‘Good or Bad Thing’, or to put it more accurately—did aid assist or hinder ‘progress towards peace’?

This article will unpack this subject from several viewpoints. One approach will be to contrast the intended consequences of aid with its actual impact on the implementation of the peace process itself. While its influence will be shown to have been positive in several important areas, aid was also responsible for a series of unintended, detrimental effects which seriously harmed prospects for peace. Another angle will be the consideration of aid's ‘missed opportunities’ in employing the strategy of conditionality. The argument below will be that international donors did not do enough to condition their donations of aid on the ‘performance’ of its recipients—and where they did their bark too often proved far worse than their bite.

One final tack will be to conduct a whistle-stop analysis of the Oslo peace agreement itself, in an attempt to ascertain whether it was indeed worth supporting with foreign assistance in the first place. The inescapable landing point will be that aid cannot ultimately be separated from the peace process it is supporting, and Oslo's flaws were such that aid was fighting a losing battle from the outset. The article will conclude by highlighting some important lessons learnt from this groundbreaking experiment: culminating in some policy suggestions which are relevant both for the shifting sands of the Israeli/Palestinian peace process and for international involvement in such activities more broadly.

International aid as a Good Thing

Judged according to the goal of ‘consolidating and encouraging’ the progress of the Oslo peace process itself, international aid scored several apparent successes. Foremost amongst these was the role played by foreign assistance in luring the Israeli government and Arafat's Palestine Liberation Organisation (PLO) to participate in the peace process in the first place, and then to stay on board at critical times as the Accords unfolded. In the case of the PLO, the promise of substantial levels of aid was crucial in cementing their participation in the Oslo process. Its timing was hugely welcome from the perspective of the PLO leadership, which was desperate to find ways of ensuring the organisation's bureaucratic survival at a time when its financial state was deeply perilous.5 Unsurprisingly, the offer of becoming the chief conduit of aid to the Palestinian people—and therefore concentrating international aid into PLO hands—proved impossible to resist.

Financial assistance also played its part in cajoling and enticing the Israeli government into taking part in peaceful negotiations. As early as 1991, the US government's threat of withholding $10 billion in loan guarantees to help Russian Jews resettle in Israel proved significant in persuading Shamir to participate in the preliminary discussions held at the Madrid Conference.6 Three years later, Clinton's pledge on increased economic and military assistance also played an important role in convincing Rabin to take the plunge of signing the Accords despite the concessions inherent within it.7 Moreover, as the Oslo process unfolded and tricky obstacles emerged, financial assistance also proved to be a reliable means of keeping its implementation firmly on track. During the tumultuous Likud premiership, for example, the US government smoothed the path of the October 1998 Wye River Memorandum by offering an additional $300m per annum in assistance to the PA.8

International aid efforts also underpinned many of the tasks involved in transforming the PA into a suitable ‘partner for peace’, paving the way for future Palestinian statehood and trying to sustain support for the peace process. When assessing aid effectiveness in enhancing these goals, the World Bank's appraisal is buoyant:

The overall impression that emerges from the aid effectiveness study is positive: donor support slowed the overall economic decline, contributed to economic growth, and strengthened key institutions and local capacities. In doing so, donors have contributed to political stability, thus helping to sustain continued Israeli-Palestinian negotiation.9

The Bank clearly has a point. International assistance was, for example, almost single-handedly responsible for providing the start-up costs of the PA and funding the creation of its ministries, communication systems, offices, and so on. Through the World Bank administered Holst Fund and other mechanisms, international donors provided substantial sums of budgetary support for the PA—around $184.3 million in 1994, for example, representing around 40% of total aid disbursements.10 Despite donors' disquiet about providing direct budgetary assistance in this way, the Holst Fund continued to supply a considerable proportion of the PA's administrative costs until 1997. As a result, the PA grew quickly into an administration with functioning ministries and its own domestic tax and banking systems—essential milestones on the path to eventual statehood and a central goal of the Oslo Accords.

Other worthwhile developments funded by foreign assistance included the establishment of a functioning security service in the West Bank and Gaza, regarded as a crucial element of transforming the PA into a genuine partner for peace. Through the mechanism of the United Nations Relief and Works Agency (UNRWA), donors like the EU, Japan and Saudi Arabia paid out $77 million in the early years of the peace process to cover the costs of police salaries, training and uniforms.11 In addition, as the peace process unfolded, donors made financial contributions to pay for training schemes for the Palestinian police force, contributing to a significant improvement in levels of professionalism and conduct.12 Though the efficacy of the police force in clamping down on militia groups active in the Occupied Territories can of course be questioned, the establishment of a functioning security sector nonetheless constituted a positive step in the right direction on the road to full implementation of the Oslo Accords.

Large chunks of international aid—approximately two-thirds of all disbursements between 1994 and 1998, for example—were spent on developing basic infrastructure and social services in the West Bank and Gaza.13 At one level, this served an important developmental purpose of responding to the basic needs of Palestinian society, thereby potentially broadening the ‘peace dividend’ and increasing levels of support for the peace process. Certainly, statistics testifying to donor agencies' achievements by 2000 are reasonably impressive: 264 km of new roads, 1,755 km of water pipes and 3,764 new classrooms; and an increase in the number of primary health care centres and hospital beds by 78% and 25% respectively.14 At another level, the development of major infrastructural projects—notably the Gaza Industrial Estate and Gaza airport, opened in 1998—served an important political purpose of ushering in important hallmarks of eventual Palestinian statehood.

Another significant aspect of addressing Palestinians' basic needs was job provision, which the disbursement of aid sought to facilitate in two main ways. Through providing direct financial assistance to the PA, foreign donations helped pay for a vast number of jobs in its bureaucracy, police and security sector in an environment where other employment opportunities were extremely limited. Outside the framework of the PA, international assistance also financed occasional job creation schemes. During the heightened economic crisis in the summer of 1996, for example, World Bank and the United Nations Development Programme (UNDP) funded projects in the Palestinian territories provided over 50,000 full time jobs.15 Though only sustainable in the short-term, such programmes went some way in reducing poverty levels for a few months at a time, which on the face of it should probably be seen as a Good Thing.

International aid as a Bad Thing

In other significant ways, however, international aid served to directly undermine the implementation of the Oslo Accords and ultimately to reduce popular support for the peace process. Particularly damaging to long-term prospects for peace was the role played by aid as a tool of patronage, intended to consolidate support for the PA and disempower potential political rivals. From the perspective of international donors, ‘aid for patronage’ was a necessary evil: a crucial measure to help strengthen the authority of the PA and develop its capability to implement agreements and stamp out opposition. The Israeli government itself concurred with this assessment. In the words of Martin Indyk, a former US ambassador to Israel, ‘The Israelis came to us and said, basically, “Arafat's job is to clean up Gaza. It's going to be a difficult job. He needs walking around money,” because the assumption was he would use it to get control of all of these terrorists who'd been operating in these areas for decades’.16

The donor community's acquiescence in the PA's provision of tens of thousands of jobs is testament to its willingness to provide some of this ‘walking around money’ to consolidate Arafat's political base. Funded by the international community via the Holst Fund, the PA quickly became directly responsible for the livelihoods of 120,000 upwardly mobile Palestinians, along with their dependents. Since these hangers-on typically numbered five or six people, Arafat's system of patronage in the 1990s arguably held over 600,000 Palestinians in its sway, totalling almost half the residents of the West Bank and Gaza.17 By 1998, 58 percent of the PA's expenditures were devoted to the salaries of its employees—over twice the world average for civil service expenditure.18

In the short-term perhaps, ‘aid for patronage’ did help the Palestinian territories to attain a certain level of political stability. As well as providing a reliable source of employment, it also served to heighten a sense of Palestinian loyalty to Arafat himself, whose personal approval rating remained consistently high during the 1990s. At the same time, however, this neo-patrimonial style of government soon started to reveal cracks that ultimately proved destabilising to the PA's authority. In the first place, patronage was inevitably a highly selective process, marginalising as many Palestinians as it integrated. A disproportionate number of jobs and influential posts went to members of Arafat's own political party, Fatah, many of whom had lived in exile during the 1980s; prominent ‘insiders’ who had been involved in the first intifada on the ground often found themselves excluded.19 The result, particularly in Gaza, was that many young men were persuaded to shift their allegiance away from the PA and towards political groupings fundamentally opposed to the peace process.

Another own-goal for the international community was its collaboration in the PA's strategy of utilising foreign aid to stifle the activities of organisations perceived as potential rivals or opponents. By convincing donors such as the EU that funding of non-governmental organisations (NGOs) should be distributed through PA ministries, Arafat was able to channel financial assistance to groups aligned to Fatah and to cut off support from charitable bodies and committees perceived as being aligned with opposition parties. In the mid 1990s, the PA's control over donor funds allowed it to withhold funding from several NGOs in this way, such as the Union of Palestinian Medical Relief Committees.20 Islamic-based NGOs were also deliberately targeted in the new funding environment. As nationalist and PA-sympathetic charities began to receive the lion's share of available resources, so many groups sympathetic to the Islamic opposition soon found their financial base stretched extremely thinly.21

The Oslo peace process itself was indirectly harmed by these funding tendencies in several key ways. The stifling of aid to non-Fatah orientated organisations contributed to a politically authoritarian atmosphere in which smaller factions were no longer able to function as independent political actors. Community associations, NGOs and committees found themselves under pressure to align themselves with the state in order to continue to procure funding, which undermined independence of action and longer-term processes of democratisation at grassroots levels.22 Consequently, political space in the Palestinian territories became increasingly less pluralistic, causing politics to be divided up into two main camps: Fatah and Hamas. Connected to this trend, the attempted suffocation of Islamic organisations across the board contributed to an atmosphere in which radical and moderate Islamic-based groups were increasingly lumped together as a homogenous entity.23 Over the course of the 1990s, this approach arguably enhanced the popularity of violent Islamist groups opposed to the Oslo process—through fuelling resentment amongst moderates, forcing them into the same political space as radicals and convincing increasing numbers of the necessity of a violent approach for the redress of their grievances.

Donors' preference to channel funds through the PA, along with their tendency to fund more efficient ‘mega’ NGOs over smaller local organisations, helped create an NGO sector, that in many ways was more accountable to Arafat and to Western donors than to the Palestinians themselves.24 With increased levels of funding directed at PA ministries, competition amongst charitable organisations became increasingly competitive. As a result, a minority of large, internationally supported NGOs acquired a disproportionate share of the limited funds available whilst smaller, older charities found themselves increasingly marginalised.25 The upshot of these shifts in NGO funding was probably negative for the everyday recipients of charitable programmes on the ground. As the emerging set of NGO elites adapted their proposals to match the goals of international donors, so the focus of their projects became less motivated by a genuine needs-based analysis of the local people they were working to support.

A final point worth making is that the injection of aid into the Palestinian territories over several years created a considerable level of dependency amongst its Palestinian recipients. By mid 2000, the UNRWA had taken on the task of supporting 608,862 registered refugees in the Gaza Strip and West Bank, who together had made nearly 3.5 million recorded visits to UNRWA funded health clinics and of whom over 200,000 were enrolled in UNRWA educational programmes.26 The ongoing dependency of such a large number of Palestinians on the UNRWA for basic services—as well as on international donors to provide short-term job creation schemes—unsurprisingly did little to contribute to an ethos of self-reliance or a base for sustainable economic development.

Aid's missed opportunities

Commentators of the Oslo peace process often refer to the maxim that the PLO leadership ‘never failed to miss an opportunity.’ A similar criticism might be levelled at the role of international aid during the 1990s, which frequently failed to use its potential clout to ensure that the implementation of the Oslo Accords was a broadly beneficial and popular process. Indeed, the feeble conditionalities attached to the disbursement of international aid meant that opportunities to enhance Oslo's impact and support were all too often missed.

Before delving into an analysis of these squandered opportunities, two main caveats are worth highlighting. The first is that the lack of conditionality attached to the aid structure during the Oslo process arguably had some useful outcomes. Notable amongst these is the fact that both the Israeli government and the PLO remained broadly supportive of the peace process until its demise in 2000, with only occasional episodes of outright disengagement. It is probably the case that the constancy of aid throughout the period made an important contribution to Oslo's longevity. Moreover, the steady flow of aid to the Occupied Territories also performed the important task of averting a humanitarian disaster in the context of severe economic hardship (though as discussed below, this was not without a dubious moral flip side as well).

The second caveat is that conditionality was in fact not wholly absent from the menu of international aid during Oslo. Some aid agencies did require a demanding level of transparency in the disbursement of assistance, which then significantly slowed down aid disbursements in some cases.27 There were also some attempts by some donors to make aid conditional on commitment to aspects of the peace process. Notable amongst these was the Tripartite Action Plan (TAP) on Revenues, Expenditures and Donor Funding for the PA of 1995 and 1996 in which donors warned that ‘their own continuing efforts would be contingent upon performance by Palestinians and Israelis in implementing the steps described in this action plan.’ On paper at least, these provisions gave donors some room to use aid as a lever in key areas such as PA civil service hiring, fiscal transparency and Israel's facilitation of movement between and within the West Bank and Gaza.28

Despite some positive steps, however, donors proved in practice to be overwhelmingly reluctant to tie financial disbursement to the implementation of specific clauses of the peace process. In the view of the World Bank, ‘conditionality was not likely to be a major, or effective, component of encouraging institutional development and policy reform’.29 Broadly speaking, this position derived from the international community's intense commitment to maintaining the peace process and their corresponding fear that aid conditionality could rock the boat too dangerously. Carrots, not sticks, were therefore, judged to be a more effective approach. In dealing with the PA, donors were unwilling to halt assistance to the territories when the Palestinian economy was in decline. With respect to the Israeli government, the US administration regarded it neither as effective, workable nor politically savvy at home to make its financial assistance conditional on performance.30 In addition, the lack of coordination and an overriding cohesive position on the subject amongst donors made a strategy of aid conditionality extremely difficult to implement.31

Consequently, when commitments did go unfulfilled, donors generally chose not to follow up their threats by withholding aid from the PA or the Israeli government. In hindsight, the inherent weakness of this approach has been widely recognised, including by those responsible at the time. Dennis Ross, for example, the former US Under Secretary of State for the Middle East and a principal negotiator during the Oslo process, has subsequently argued that a key failure of the US was to hold neither side accountable for reneging on its commitments.32 Whilst unprecedented levels of assistance continued to be channelled towards the PA and Israeli government, both sides were given a de facto blessing to engage in practices which ultimately contributed to Oslo's breakdown.

On the Palestinian side, the absence of aid conditionality was most conspicuous in its failure to curb the PA's entrenched corruption. As well as the pervasive use of patronage, this manifested itself through the establishment of several state-dominated monopolies, controlled by high-ranking members of the PA working in collaboration with Israeli suppliers.33 During the mid 1990s, as many as 25 monopolies were established over the import of basic commodities such as flour, cigarettes and petroleum.34 As has been widely reported, a certain proportion of funds raised through each monopoly was paid into accounts outside the PA treasury and under direct control of Arafat himself. In a famously damning article about the PA's financial misdemeanours, Hirst reported the figure in 1997 as being $17 out of $74 for every ton of cement sold.35

Viewed from a purely economic perspective, there is a strong case to be made for the argument that deliberately favouring certain investors was in fact necessary to stimulate growth in the turbulent atmosphere of the Palestinian territories. As Mushtaq Khan in particular points out, the PA's approach of providing rents to affluent entrepreneurs willing to invest in the Occupied Territories actually yielded a relatively favourable rate of economic growth during the Oslo years.36

However, the impact on the majority of everyday Palestinians—and on the breadth of Oslo's ‘peace dividend’—was far more detrimental. The PA's monopolistic bent had a particularly onerous impact on daily survival for many unemployed Palestinians, who suffered increasingly in the face of price-fixing of everyday goods and basic foodstuffs. The private sector also suffered under the PA's deliberate centralisation of the Palestinian economy. With the PA's ministries taking responsibility for the majority of large-scale peace projects during the 1990s, small and medium scale entrepreneurs found themselves excluded from the peace process' potential economic benefits. In the longer-term, the PA's pervasive corruption and economic centralisation also deterred some investors from investing in the Palestinian territories, despite ambitious plans for economic cooperation in 1993. Israeli investors, for example, were so put off investing in job creation projects such as the joint industrial parks that only the Gaza Industrial Estate received sufficient funding to begin operating before 2000.37

In terms of Israeli involvement in Oslo's implementation, it was aid's failure to limit the ongoing expansion of settlements in the West Bank that proved to be particularly damaging. Despite apparent commitments to the suspension of settlement expansion under the Oslo Accords—a crucial aspect in the view of the PLO and the majority of Palestinians—settlements continued to increase in size during the 1990s.38 Whilst the number of settlements in the West Bank and Gaza only increased marginally during the Oslo period, the increase in size of the original settlements was considerable. According to a report by Peace Now, the number of housing units in the settlements increased from 32,750 units in 1993 to 53,121 in 2001, representing a 62% increase during the Oslo process.39 During the same period, the number of settlers living in the West Bank roughly doubled, from 100,000 to over 200,000 inhabitants.40

The US government, as the largest donor to Israel, possessed by far the most clout to challenge Israeli policy in this area via aid conditionality. In an attempt to deliver on this responsibility, the Clinton administration's response was to withhold from its annual financial package the same amount that Israel had spent on Jewish settlements in the Occupied Territories during the preceding year. As an exercise in aid conditionality, however, these measures proved to be rather half-baked since withheld funds tended to be reallocated in a different form, such as security expenditure. In 1994, for example, Clinton's deduction of $311.8 million on settlements from 1995 loans was cancelled out by the authorisation of an additional $95.8 million for redeploying troops from Gaza and $240 million for military withdrawal from West Bank cities.41 Consequently, the amounts withheld proved to be relatively minor—just $775 million of $10 billion in US aid was withheld between 1993 and 1997, for example—and the settlement programme went ahead unimpeded.42 Whilst the US government clearly toyed with the tactic of aid conditionality then, the disconnect between rhetoric and practical action proved to be too great to make any tangible impact on Israeli policy in this significant area.

Aid's role in propping up an imbalanced and ambiguous peace agreement

The focus thus far on the relationship between international aid and the implementation of the Oslo Accords has disregarded the elephant standing in this article's living room: namely that the role of aid cannot be separated from the peace process whose wheels it is seeking to lubricate. Indeed, in the case of the Oslo peace process it cannot ultimately be ignored that foreign assistance propped up the implementation of a fundamentally flawed agreement, and one which proved to be incompatible with its goals of ushering in a ‘just, lasting and comprehensive’ peace.

As the work of several legal and political commentators has illustrated, the Oslo Accords were established on the basis of fundamentally unequal power relations between the Israeli government and the PLO.43 At a practical level, this imbalance manifested itself in the circumstances of the negotiations for and the signing of the Accords themselves. In terms of expertises available for both sides, for example, the Israeli team far surpassed their Palestinian counterparts. Representatives at the Oslo negotiations on the Israeli side were made up by a set of impressive legal heavyweights, led by Yoel Singer who had spent twenty years working in the legal department of the Israeli Defence Forces.44 This contrasted markedly with the PLO delegation, which did not even include its own legal team. Remarkably, the Palestinian representatives failed even to ensure that a legal advisor reviewed the agreements before they were signed.45

The Oslo Accords were thus inappropriately weighted for the purposes of delivering the benefits of peace to all but a small minority in the Palestinian territories. Particularly detrimental to the implementation process was the limited Palestinian control granted over two key areas: its economy and borders. In terms of the former, Oslo's legal framework for Palestinian economic activity, the Paris Protocol, did not contain the necessary provisions to permit the PA full economic sovereignty over its own territories and resources. Without its own currency, an independent trade policy, control over import taxes and autonomy over resources such as electricity and water, the PA was economically circumscribed from the outset.46 In terms of the latter, the Oslo agreement ensured that Israel retained control of the external borders of the Occupied Territories, as well as over the internal boundaries of the various spheres of the West Bank, on the grounds of protecting the security of Israeli civilians from terrorist attacks. The upshot was that Israel retained de facto control over the very lifeblood of the Palestinian economy—permission to move people and goods around between and within the Palestinian territories, and into Israel itself.

The consequences of this unbalanced agreement were profound, particularly in terms of its economic impact on the Palestinian people themselves. In the view of Sara Roy, Israel's control over both Palestinian borders and key factors of production such as land and water created an economy which ‘de-developed’ over the course of the 1990s. Especially significant was the Israeli government's policy of closure of the Occupied Territories borders throughout much of the 1990s. With Palestinians unable to travel into Israel to work, and with mobility within the West Bank severely hampered by its division into several distinct enclaves, unemployment rose to unprecedented levels and economic activity amongst small and medium business-people diminished.47

Alongside Oslo's harmful economic impact on the ground, its innate ambiguity over central issues provided room for ‘facts on the ground’ to be established during the interim phase itself. The postponement of settling the issue of borders, for example, allowed the Israeli government to sanction the creation of a series of bypass roads in the West Bank, which cut through the area from all directions. The result was the creation of a physical boundary between Palestinian controlled areas A and B, on the one hand, and the Israeli controlled area C, on the other, thereby making the creation of a contiguous Palestinian state more problematic in future years.

What, then, was the role played by aid in these more damaging aspects of the Oslo peace process? Clearly, international assistance cannot be held responsible for the flaws of the Oslo Accords themselves. Nevertheless, as oil to the wheels of the peace process, aid must take some of the responsibility for propping up an agreement that ultimately had some particularly harmful effects on the prospects for peace.

Practically speaking, the failures of international aid lie in three main areas. First, foreign assistance must take as much blame as credit for luring both sides into a peace agreement that was inherently imbalanced from the start. While a large degree of responsibility must lie with the power imbalance inherent within Oslo's negotiating forum, it is also the case that the promise of financial assistance for a bureaucratically weak PLO made certain fundamental concessions far easier for Arafat to swallow. Prior to the negotiations in 1993, for example, Palestinian negotiators had insisted that no agreement could be signed unless the principles of the permanent settlement were included within it. The shift represented by the Oslo Accords, whereby the PLO accepted that an interim peace process could begin without a prior agreement on final status issues, was clearly made more painless by the immediate benefits provided by aid.48 In the words of Nabil Shaath, a senior Palestinian negotiator at Oslo, aid was regarded by the PLO as one of the key ‘dividends of peace … including freedom, security, and economic prosperity … [the aid component] was critical to this process’.49 Viewed cynically, the PLO's goal of securing aid in order to guarantee its immediate future took priority over its longer-term political objectives, ultimately to the detriment of the peace process itself.

Second, the provision of aid allowed both the PA and the Israeli government to retain and even enhance economic and political benefits despite Oslo's more harmful characteristics. For the PA, the availability of foreign assistance allowed it to carry out its patronage regime despite—and indeed because of—low levels of economic activity and tax revenues in the Occupied Territories. With high levels of unemployment, the PA could afford to keep the wages of its employees low, thereby employing a larger number of Palestinians more cheaply and maintaining a wider web of influence.50 In a broader sense, the guarantee of funds to keep the system of patronage afloat reduced the incentive on the part of the PA to secure public consent through actively responding to the grievances of the people they served. In the longer-term, the tendency of political elites to disregard to the needs of the local people ultimately undermined the PA's national standing and fostered Palestinian anger against the peace process.

For Israeli, humanitarian assistance could be argued to have deferred part of the responsibility for responding to the economic crisis in the West Bank and Gaza to the international community, thereby absolving Israel of some of the financial responsibility for the plight of refugees and the unemployed. Consequently, the Israeli government found itself in the luxurious position of being able to stall the peace process for months at a time in view of its security concerns, without fear of the international criticism associated with worsening the plight of Palestinians through dragging its feet. As the NGO Christian Aid mused in a 2004 report, withdrawing aid from the territories could arguably have served to place Israel under heavy pressure to acquiesce in the peace process more readily in order to find a political solution to the impasse.51

Finally, the US administration's provision of huge amounts of aid to the Israeli government served to make its programme of settlement expansion more affordable than it otherwise would have been. Levels of US financial assistance to Israel during the 1990s far outstripped its donations to all other recipients: the annual US subsidy of $3 billion in military and economic grants was enhanced by an additional $1.5 to $2 billion in loan guarantees as well as other grants to fund causes such as Jewish refugee resettlement and American schools and hospitals.52 Since the Israeli government received these donations as direct, budgetary support without any restrictions and specific accounting measures, it retained a high level of freedom over where they were spent. It is therefore difficult to gauge how far Israel abided by stipulations from the US government that its funding could not be used to finance settlement expansion in the Occupied Territories. At the very least, however, the provision of such large amounts of aid served to free up Israeli government resources to be spent on other priority areas, including enlargement of the settlements.

The end of the Oslo peace process

In its intention to help ‘consolidate and encourage progress towards peace’, the Oslo peace process was widely believed to have failed by the end of the 1990s. Despite some important successes, the collapse of the implementation of the Oslo Accords and the onset of the second, Al Aqsa intifada seemed in many ways to make peace a far more distant prospect in 2000 than it had been a decade earlier.

Underlying Oslo's failure was its incapacity to preserve support for the peace process amongst everyday inhabitants of the West Bank and Gaza. Ultimately, this stemmed from an insufficient peace dividend that did little to improve the lives of everyday people in the face of closures, territorial bifurcation and rising unemployment. In the view of Palestinians themselves, 50% of Gazans and 42.9% of West Bankers said in a poll in 2000 that their standard of living had worsened since the beginning of the Oslo process.53

The unpopular fallout of the peace process on the ground led unsurprisingly to a reduction in levels of Palestinian support for the Oslo Accords themselves. By December 2000, only 39% of Palestinians in one poll supported the Oslo process.54 As well as a lack of improvements in standards of living, it was probably the issue of ongoing settlement expansion that turned such a large proportion of Palestinian public opinion against Oslo. Polls taken throughout the 1990s indicate a direct link between the expansion of settlements and support for the peace process. In 1995, for example, 81% of Palestinians opposed the continuation of negotiations if settlement expansion did not stop.55

The impact of developments during the 1990s also took their toll on the overall popular legitimacy of the PA. Within the context of deteriorating standards of living, high unemployment and few visible political gains, the majority of Palestinians excluded from Oslo's benefits became disillusioned with the PA's corruption and heightened prices for basic commodities.56 Indeed, there is a clear correlation between Palestinian public perceptions of the transparency of the PA and its declining approval ratings, as illustrated by Figure 1 taken from the World Bank's 2000 aid effectiveness report.57

Figure 1 Trends in public assessment of Palestinian institutions.

Declining levels of support for both the Oslo Accords and the PA directly harmed the prospects for a broadly accepted peace deal in several ways. On a broad scale, rather than popularising support for the implementation of the peace agreement, the culmination of the Oslo process witnessed increased levels of consent for a violent approach. A survey for the Jerusalem Media and Communication Centre Survey in 2002, for example, showed that 80.6% of Palestinians supported continuing the second intifada.58

At a localised level, the economic crisis in the Palestinian territories provoked individual acts of violence in the form of suicide bombings into Israel. Within the regressive atmosphere of the Occupied Territories, large numbers of unemployed, disaffected young men were highly susceptible to recruitment by groups such as Hamas and Islamic Jihad who explicitly advocated violence as a means to secure their objectives. Membership of these organisations offered opportunities for professional activism at a time of significant job scarcity, as well as providing a proactive means of gaining redress for political and economic grievances.59 The consequences of such developments on the implementation of the Oslo Accords were largely negative. Rising numbers of volunteers prepared to engage in acts of violence against Israel often placed the peace process under severe strain during the 1990s, not least through weakening the fragile peace constituency in Israel. The wave of suicide bombings in early 1996, for example, fatally wounded Shimon Peres' reputation and ensured that the hawkish Benjamin Netanyahu won the 1996 elections.

The unpopular dynamics of the Oslo period and widespread disillusionment with the PA also contributed to the overall popularity of Islamist groups by the end of the 1990s. In the view of several commentators, organisations such as Hamas only became serious political players in the economically regressive and politically stifling atmosphere of Oslo.60 In large part this was due to the highly effective social services of these groups, which were perceived as meeting local community needs far more effectively—and with less corruption—than social provision distributed through the PA. Hamas' support in particular was derived primarily from its social base, which it developed through a well-organised network providing education, healthcare, food and money to families in need irrespective of their political affiliation.61 As events have subsequently proved, these domestic surges in support for groups such as Hamas have resulted in a political atmosphere far less conducive to striking and maintaining a peace deal with the Israeli government than was the case in the early 1990s.

Lessons learnt and policy suggestions

The analysis made so far on the biggest ever experiment in post Cold War ‘peace-building through aid’ points to a number of potentially important lessons learnt and policy suggestions for the future, both for the Israeli/Palestinian case and for international peace processes more generally.

1. Aid can play a central role in oiling the wheels of a peace process, but donors must tread carefully

International aid can play an important role in persuading opposing groups to engage in a peace process throughout its various life stages: both through encouraging key players to come to the table in the first place and through helping to implement an agreement in the face of adversity. Pledges of foreign assistance must, however, be implemented extremely cautiously. Donors must make a concerted effort to prevent their aid from being used, directly or indirectly, to fund developments largely at odds with the peace process itself. In particular, aid should not be used to fund NGO projects that bypass the needs of local people in order to procure funding from Western donors; nor should it finance activities responsible for altering ‘facts on the ground’ which undermine both the peace settlement itself and public faith in its ability to deliver.

2. Aid can and should be used to help conflict affected states to develop functioning infrastructures and bureaucracies, and to stimulate the economy through the creation of jobs

Effective post-conflict reconstruction requires functioning government infrastructures and bureaucracies, and international assistance provides an important source of funding for the establishment of these vital organs. Donors should not shy away from funding the more politically sensitive but vitally important areas of state building such as building up the security apparatus, and diplomatically astute means of providing necessary resources should actively be sought.

Foreign aid is also an important source of funds for jobs in post-conflict societies, particularly through the state civil service and via job creation schemes to develop parts of the public infrastructure. However, efforts should be made to invest in programmes that encourage self-sufficiency, through encouraging and not suppressing small and medium-sized businesses for example, and donors should impose clear limits on the size of a government's bureaucracy.

In the early phases of post-conflict reconstruction, a certain level of budgetary support is likely to be necessary. However, once a country's domestic tax and banking systems have been established, levels of budgetary support should be reduced as rapidly as possible in order to stem dependency and to limit aid's propensity to be used in ways that ultimately undermine the peace process.

3. Aid should not be used as a tool for patronage

‘Aid for patronage’ may promote short-term political security but ultimately it inevitably excludes as many constituencies as it engages and reduces incentives on the part of the rulers to secure broad-based consent through meeting the needs of those they serve. Government jobs funded by international aid should be allocated on a transparent, meritocratic basis as far as possible, with quotas imposed in order to ensure representation from as broad a spectrum of political, religious and ethnic groupings as possible.

4. Aid should not be used as part of a divide and rule strategy to undermine political opponents of the signatories

Aid should not be drawn upon by political elites to stifle political opponents as part of a divide and rule strategy, or it runs the risk of isolating important constituencies, stifling the space for non-violent political expression and reducing support for the peace process in question. Rather than being used to isolate political opponents, financial assistance should be spread amongst non-violent political groupings representing as broad a spectrum of political positions as possible, thereby bringing the moderate majority into the fray and isolating those who choose to use violence to achieve political goals.

5. Aid conditionality should be used as a tool to help implement a peace agreement that is conducive to a popular peace on the ground

Aid conditionality should be used more actively by donors in order to increase the likelihood that signatories stick to the commitments they have made in a peace agreement. Whilst financial assistance provides an important incentive for an armed group to involve itself in peace negotiations in the first place, the threat of withholding what has been promised in return for compliance can also provide a necessary ‘stick’ when signatories are tempted to renege on their promises. Over serious matters of non-compliance, donors should not refrain from employing such threats for fear of jeopardising the process itself. An active process riddled with unfulfilled promises is ultimately likely to isolate local communities and erode trust in the peace process itself, thereby undermining its legitimacy in the longer-term.

6. Ultimately, aid cannot be separated from the peace process it is supporting

Since aid is no panacea for peace, its impact will always be determined by the ‘quality’ of the peace process with which it is intertwined. It is particularly crucial, therefore, for the peace agreement in question to extend the dividend of peace to people living in local communities as well as to political elites. Aid is inevitably a limited resource that cannot meet all the basic needs of those living in post-conflict societies. In order for it to contribute to a lasting peace it must therefore underpin an agreement which is itself broadly beneficial—taking into account and addressing political and economic grievances—and doing more than merely enriching political leaders. If an aid programme oils the wheels of a peace process that prolongs or deepens the suffering of people living in local communities, it is likely to prove counter-productive and detrimental to the prospects for peace in the longer-term. Particularly important in this regard is the extent to which a peace process avoids translating wartime power imbalances into the negotiation and implementation phases themselves. While no peace agreement will strike a perfectly egalitarian balance between the various sides involved, donors must be mindful of conspicuous disparities and strive to provide additional support to weaker parties in order to reduce their impact.

Conclusions

‘No peace stands a chance of lasting if it does not deliver real results to ordinary people’

Bill Clinton, 199862

Despite widespread optimism in 1993—internationally, regionally and in Israel and the Palestinian territories themselves—the Oslo peace process heralded few of the achievements to which it had originally aspired. Can international aid really be blamed for Oslo's demise? Did overseas financial assistance seriously contribute to declining levels of support for the PA and the peace process, to widespread consent for a violent response to political and economic grievances, and to the rising popularity of anti-Oslo political groupings?

Though clearly not the primary agent for this set of developments, international aid did play a crucial role in catalysing the Oslo process: in making it happen in the first place, in luring both sides into accepting its key provisions, in financing crucial aspects of its implementation, and in keeping both players onside until the end of 2000. Indeed, within the limits of the peace process itself, aid can certainly take some real credit for the progress Oslo made during its seven-year spell. In certain important ways—notably the establishment of the PA's bureaucratic institutions and the development of basic infrastructure and social services in the Occupied Territories—international assistance genuinely did promote ‘progress towards peace’.

Nevertheless, if international aid deserves to be praised for certain aspects of its involvement in the Oslo process, it must also be lambasted for the ways in which its involvement was far more destructive. Rather than helping to cement the PA's political support in the West Bank and Gaza, aid was used to selectively reward some constituencies and disenfranchise others. The result was an increasingly polarised and restricted political arena, in which support for the PA became dependent on the distribution of patronage rather than the development of genuine political consent. Community-based NGOs found themselves excluded by aid's one-dimensional funding approach, to the benefit of ‘mega’, Western-backed organisations but arguably to the detriment of local people whose own priorities were often overlooked.

Moreover, donors' feeble approach to conditionality meant that a crucial opportunity was missed to help preserve support for the peace process during the rolling out of the Accords themselves. Consequently, the pervasive use of monopolies in the Palestinian territories and the ongoing expansion of settlements significantly eroded the popular standing of both the PA and the peace process itself.

Ultimately though, Oslo's aid framework was merely a catalyst for the implementation of a peace agreement which was itself inherently flawed from the outset. As Bill Clinton himself remarked in 1998, no peace deal can be sustainable if it does not genuinely respond to the basic needs of everyday people. Viewed from this perspective, Oslo failed to deliver not on account of its aid provision, but due to the profound power imbalances it embodied and its inability to facilitate meaningful economic and political progress for the Palestinian people. Within the context of closure, territorial enclavisation and the establishment of detrimental ‘facts on the ground’—many of which were achieved in full accordance with Oslo's legal provisions—the ordinary people of the West Bank and Gaza lost faith in the peace process and the PA. Increasing numbers shifted their support to political groupings advocating violent means to achieve redress for grievances, which in the long run has made peace negotiations far more problematic. As lubrication for the wheels of Oslo's agreements, the international aid structure was part and parcel of this ultimately counter-productive process.

As the recommendations above suggested, international aid can be a useful tool in the embodiment of a peace agreement. However, it will always be a limited tool. The case of the Oslo Accords illustrates that ‘peace-building through aid’ is only possible when coupled with a peace process that overcomes power imbalances, makes unambiguous agreements and effects tangible progress in the lives of ordinary people. In the absence of an effective peace settlement and genuine political will for real change at local levels, aid's potential is therefore restricted—and indeed could be implicitly destructive.

Additional information

Notes on contributors

Chris Wake

At the time of writing, Chris Wake was Research Manager at Concordis International, an NGO conducting mediation and dialogue activities in support of the peace processes in Sudan. He has since started working for the UK civil service, where he plans to continue to work on promoting stability in conflict areas.

Notes

 1. The Oslo peace process was officially inaugurated with the signing of the Declaration of Principles (DoP) in September 1993 between the Palestine Liberation Organisation (PLO) and the Israeli government. The DoP set out a structure for future negotiations, which culminated in a series of agreements over the next seven years. The demise of the peace process was heralded by the failure of ‘final status’ negotiations at Camp David and Taba in 2000, and received final confirmation on 29 September 2000, with the outbreak of the second, Al Aqsa intifada.

 2. World Bank, Aid Effectiveness, 2.

 3. Ibid, ix.

 4. On average, US government grants to Israel during the Oslo peace process stood at $1,800 million in military grants and $1,200 million in economic grants. Mark, ‘Israel’, 12–13. Lasensky, ‘Chequebook Diplomacy’, 50.

 5. Parker, Resignation or Revolt?, xi. The PLO's weak political and economic position in 1993 following the end of the Cold War and Arafat's support for the ‘wrong side’ in the Gulf War meant that it stood to make abundant political and economic gains through embracing peace. Not only did embracing peace provide the PLO with much needed legitimacy in the eyes of the international community, it also provided considerable economic rewards through allowing the PLO to usurp the role of non-governmental organisations (NGOs) in the Occupied Territories and to gain a legitimised base for procuring funding. Parker, Resignation or Revolt?, 85.

 6. El–Khawas, ‘Post-Gulf War’, 170.

 7. Lasensky, ‘Chequebook Diplomacy’, 47.

 8. Brynen, A Very Political Economy, 109.

 9. World Bank, Aid Effectiveness, xx.

10. Hanafi and Tabar, ‘Donor Assistance’, 220.

11. Brynen, A Very Political Economy, 174.

12. Ibid., 176–177.

13. Ibid., 170.

14. World Bank, Aid Effectiveness, xiii; Brynen, A Very Political Economy, 170.

15. Brynen, A Very Political Economy, 183.

16. Brynen, ‘Donor Aid to Palestine’, 138.

17. Said, The End of the Peace Process, 300.

18. World Bank, Aid Effectiveness, xviii.

19. Parker, Resignation or Revolt?, 72.

20. Roy, Failing Peace, 158.

21. Milton-Edwards, Islamic Politics, 173.

22. Hanafi and Tabar, ‘Donor Assistance’, 231.

23. Roy, Failing Peace, 189.

24. Nabulsi, ‘The State Building Project’, 124.

25. Hanafi and Tabar, ‘Donor Assistance’, 226.

26. United Nations Relief and Works Agency, ‘UNRWA in Figures.’

27. Brynen, A Very Political Economy, 133.

28. Ibid., 107.

29. World Bank, Aid Effectiveness, xx.

30. Brynen, ‘Donor Aid to Palestine’, 133.

31. Lasensky, ‘Chequebook Diplomacy’, 56.

32. Roberts, ‘Hard Lessons from Oslo’, 22.

33. Samara, ‘Globalisation’, 24.

34. Roy, Failing Peace, 206.

35. Hirst, ‘Shameless in Gaza’.

36. In Khan's view, the granting of monopolies to potential Palestinian investors was integral to the growth of the Palestinian economy during the 1990s. He argues that since the status of the Palestinian territories remained so uncertain over the course of the Oslo process, it was necessary for the PA to offer direct inducements to new investors. In the absence of any real resources, the PA attracted wealthy entrepreneurs by offering them monopolies or substantial market power in key sectors such as telecommunications. Khan, ‘Evaluating the Emerging Palestinian State’, 38. Partly as a result, economic growth in terms of gross domestic product was remarkably high during the 1990s, with a mean average of 8.3% growth between 1994 and 1999 (Ibid., 14–15).

37. Bouillon, The Peace Business, 88.

38. Though not explicitly mentioned in the Oslo Accords, the commitment of both sides to avoid any actions which would prejudice ‘final-status’ issues is argued by legal commentators such as Bell to include a commitment to a suspension of settlement activity. Bell, Peace Agreements, 251.

39. Said, The End of the Peace Process, 379.

40. Christian Aid, Facts on the Ground, 9.

41. Zunes, ‘The Strategic Functions of US Aid’.

42. Judt, ‘Israel: The Alternative’.

43. See, for example, Bell, Peace Agreements, Klieman, Constructive Ambiguity in Middle East Peace-Making, Shlaim, The Iron Wall; and Shehadeh, From Occupation to Interim Accords.

44. Shlaim, The Iron Wall, 516.

45. Klieman, Constructive Ambiguity, 158.

46. Rubenberg, Palestinians, 64.

47. Roy, ‘De-Development Revisited’, 68–70.

48. Shlaim, The Iron Wall, 519.

49. Lasensky, ‘Chequebook Diplomacy’, 45.

50. Roy, Failing Peace, 207.

51. Christian Aid, Facts on the Ground, 51.

52. Mark, ‘Israel’, 4, 14. Alongside government grants, private, philanthropic donations from American charities and individuals amounted to around $1 billion each year during the Oslo peace process. Mark, ‘Israel’, 1.

53. Bishara, Palestine/Israel, 121.

54. Roberts, ‘Hard Lessons from Oslo’, 19.

55. Ibid., 21.

56. Parker, Resignation or Revolt?, 6.

57. World Bank, Aid Effectiveness, 71.

58. Roberts, ‘Hard Lessons from Oslo’, 22.

59. Roy, Failing Peace, 145; Bouillon, The Peace Business, 144–5.

60. See, for example, Roy, Failing Peace; Milton Edwards, Islamic Politics in Palestine; and Bouillon, The Peace Business.

61. Roy, Failing Peace, 92, 145; Milton-Edwards, Islamic Politics in Palestine, 212.

62. Bill Clinton, BBC News. “Cash boost for Arafat,” 30 November 1998. Available at http://news.bbc.co.uk/2/hi/americas/225096.stm; INTERNET