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Meeting of the AHLC
Brussels, 13 April 2011

Opening Address by Foreign Minister Jonas Gahr Støre

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Excellencies, ladies and gentlemen,

It is a privilege to welcome you all to this meeting of the AHLC. Let me first thank EU High Representative Ashton for kindly hosting us here in Brussels. I would also like to extend a special welcome to Prime Minister Fayyad and the head of the Israeli delegation.

We have come together at a time of momentous developments across the Middle East and North Africa. The popular uprisings in the region are ushering in a period of great opportunity, but also of uncertainty about the broader political ramifications, including for the Arab-Israeli peace process.

Let us therefore at the outset reaffirm our long-standing commitment to the vision of an independent and sovereign state of Palestine living side by side with Israel in peace and security. We should leave no doubt that a two-state solution reached by direct negotiations remains the preferred and – for now – only way forward.

I say “for now” in view of the fast-approaching target dates for completion of the Fayyad Government’s two-year plan for Palestinian state-building, and for conclusion of the permanent status negotiations. Because beyond the respective August and September deadlines endorsed by the international community, it is hard to tell what the rules of the game will be in a region undergoing rapid and fundamental change.

Against this backdrop, let me make three main observations.

First, the Palestinian Authority is close to reaching the objectives of the state-building programme of the thirteenth Government in key sectors.

Already at the AHLC meeting last September, the World Bank deemed the Palestinian Authority to be well positioned for the establishment of a state at any point in the near future – provided that it could maintain its performance on institution-building and service delivery.

Since then, the Palestinian Authority has continued to strengthen its institutions, according to the World Bank. I note with particular interest its suggestion that the Palestinian Authority’s delivery of public services and implementation of reforms now compare favourably with those of many middle income countries.

What is more, according to the IMF, the reforms have come so far that not only is the public financial management system ready to support the functions of a state; it has even become a model for other developing countries.

Notably, the Palestinian Monetary Authority is now in a position to carry out the functions of a central bank. And the quality of Palestinian economic and financial statistics have been brought in line with international best practices, and compare favourably with IMF member countries that maintain high data standards.

Granted, challenges remain. But these are challenges familiar to many existing states. As the World Bank concludes, the Palestinian Authority’s achievements in key state functions posited by the OECD as strategically important for state-building bode well for the future.

As Chair of the AHLC, I would like to add that the three-party cooperation between the Palestinian Authority, Israel and international donors has been a resounding success in facilitating this development.

However, my second observation is this:

While the achievements of the thirteenth Government are undeniable, the next government may face an uphill battle. The impressive 9% growth of the Palestinian economy last year was mainly confined to the non-tradable sector and primarily donor driven, thus raising serious doubts about its sustainability.

Lower-than-expected donor aid in 2010 required the Palestinian Authority to resort to borrowing from commercial banks. This was the case even as the steady decline in budget deficits continued apace. Through effective financial reforms and prudent fiscal policies, the Fayyad Government has managed to cut the need for donor aid for recurrent spending almost by half – from USD 1.8 billion in 2008 to less than 1 billion in 2011.

Yet signs of donor fatigue appear to be mounting. By the end of the first quarter, the Palestinian Authority had received only USD 160 million in budget support. In view of the projected deficit of nearly USD 1 billion in 2011, the Palestinian Authority seems headed for a serious fiscal crisis later this year.

If the Palestinian Authority is living on borrowed time, it is for more fundamental reasons than flagging donor support. As pointed out in the UN report to this meeting, the Palestinian state-building agenda is rapidly approaching its limits in terms of what it can achieve within the political and physical space available to the Palestinian Authority.

Or as the World Bank puts it, ultimately, sustainable economic growth in the Palestinian Territory can only be underpinned by a vibrant private sector. And the latter will not rebound significantly while restrictions on access to natural resources and markets remain in place.

This, in part, concerns the need to facilitate the reintegration of the West Bank and Gaza as indivisible parts of the Palestinian Territory. To foster economic development and reduce unemployment, it is essential to remove restrictions on imports of investment and construction materials into Gaza. Barriers to trade between Gaza, the West Bank and Israel must be lifted.

Moreover, private-sector growth requires Palestinian access to East Jerusalem and Area C, issues not only of economic consequence, but also of a political nature.

Which leads me to my third point:

As stressed time and time again, the state-building track and the political negotiating track are interdependent, and you can only go so far on one without progress on the other.

In light of the protracted political stalemate, it should not come as a surprise to anyone that donor mobilisation is getting harder as the political horizon is fading. Donors have stated clearly that their support for the state-building project is political, not humanitarian. Ultimately, we will have to make sure that donors are part of the solution, not the problem. Sustaining a first-rate administration of self-rule under occupation is not what we bargained for.

This is why commitments of support beyond 2011 are likely to depend on real prospects of political progress. At the pledging conference scheduled for June in support of the next three-year Palestinian national development plan, the twin issues of economic and political sustainability are bound to take centre stage.

And this is but one more reason why all parties concerned must stand firm behind the stated goal of negotiating a framework agreement on permanent status and a subsequent comprehensive peace treaty. Two decades after Madrid, a real sense of urgency is overdue – and decisive action is hardly too much to ask for.

Finally, let me conclude with an aside about the Sudan.

In New York this autumn, the new state of South Sudan will join us at the General Assembly – and I would want to be the first to welcome the latest member of the United Nations. But I cannot help thinking that it would indeed be an historical irony if we at the same time fail to welcome a Palestinian state, which in terms of institution-building is far more advanced.

Thank you.

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