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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" 
- - - - - - - - - - - - - 
 
¶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 
- - - - - - - - - - - - 
 
¶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 
- - - - - - - - - - - - - - 
 
¶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 
- - - - - - - - - - 
 
¶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 
- - - - - - - - - - - 
 
¶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