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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 
- - - - - - - - - - 
 
¶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 
- - - - - - - - 
 
¶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 
- - - - - - - - 
 
¶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 
- - - - - - - - - - - - - 
 
¶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 
- - - - - - - - 
 
¶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