"As is" reference - not a United Nations document
It is a privilege to welcome you all to this AHLC meeting in Madrid, a city that has played such a prominent part in the Middle East peace process. Let me thank Minister Moratinos, himself a household name in the Middle East, and the government of Spain, the current EU Presidency, for hosting us with such warmth and hospitality.
Let me also extend a special welcome to Prime Minister Salam Fayyad and the Israeli delegation.
Madrid is a timely setting for this AHLC meeting. In a sense, this is where it all started, when the Madrid conference nearly twenty years ago set the stage for today’s vision of a two-state solution in which Israel and Palestine will live side by side in peace and security.
Striving to deliver on this vision sums up our common endeavour. All around this table, we are aware of the hopes, fears and aspirations attached to this process.
It is worthwhile to recall the mission and the purpose of the AHLC: it is to maintain a unity of purpose among the donors supporting the Palestinian Authority, and it is to reinforce a bond of trust between the PA, Israel and the leading donors.
Final status issues are not on our AHLC-agenda. But as we have reminded ourselves repeatedly, our undertaking is more than a humanitarian effort. Our mission is to support the building of institutions of the future Palestinian state. Once that state is established, it is in everyone’s interest that it can prosper through established and well-functioning institutions from day one.
This is what the AHLC has been about from the outset – being a complementary track to the final status negotiations, which helps to facilitate the political process towards an independent Palestinian state alongside Israel.
So let us use this Madrid session of the AHLC to reaffirm the strategic focus that we agreed on some six months ago in New York.
At that meeting, we all agreed to welcome the Palestinian government programme for building the institutions of a Palestinian state within 24 months.
This plan, which focuses on continued assistance in support of sustainable economic development and robust state institutions, constitutes an important platform for donor coordination with the Palestinian Authority. The follow-up of this plan will also frame today’s discussions, as we take stock of what has already been implemented and what remains to be done.
There are some positive developments: The Palestinian economy is showing signs of improvement, as witnessed by the reduction in aid dependency, the growth rate in the West Bank and the shift towards a higher level of investment.
Over the last three years, the budget support provided to the PA has accounted for a decreasing share of GDP, from 28% in 2008 to an estimated 18% in 2010. Last year the economic growth in the West Bank was significant. Real GDP growth in the West Bank reached an impressive 8%. Economic activity in Gaza, however, still remains severely constrained by the continuing blockade.
Despite the uneven performance, we take note of some other key trends: As a result of the increased growth rate, there was a major increase in domestic public revenues, which in turn has reduced the projected need for external budget support for 2010 to USD 1.2 billion, down by at least USD 200 million.
This is exactly what international donors need to see, given the high aid levels of recent years, which are clearly unsustainable in the long run.
Let me take the opportunity to give credit where credit is due.
First, the Palestinian Authority has continued to build its solid track record in institution building and economic and security reforms. We urge the Fayyad Government to continue on the path of good governance, fiscal discipline and the rule of law, and to set clear priorities in order to achieve greater self-reliance and sustained private sector confidence.
Second, these gains have in large part been enabled by international donors that have kept their end of the bargain and delivered on their Paris pledges of 2007.
Now, Western and Arab donors alike must follow through and back up the Palestinian state-building project until its completion.
Predictable and regular aid disbursements continue to be essential, given the still precarious fiscal position of the Palestinian Authority. In spite of some donors’ first-quarter frontloading of their contributions this year, the outstanding need for direct budgetary support for the remainder of 2010 is projected at about USD 1 billion.
Third, Israel has helped to facilitate Palestinian economic growth in 2009 by easing some of the restrictions on movement and access in the West Bank.
The positive impact of this should encourage the Israeli authorities to lift restrictions on a larger scale and facilitate private and public investments throughout the occupied Palestinian territory, including in “Area C”. Paving the way for a business-friendly environment is key to tapping the potential of private investors in the Arab Gulf and the Palestinian diaspora.
However, the recent promising developments are inherently fragile and could rapidly be reversed.
In my view, there are three areas that threaten to undermine our collective efforts:
First, there is East Jerusalem and the loss of its former role as the economic engine of Palestinian society. As a final status issue, Jerusalem is addressed in other arenas than the AHLC. But the political predicament is compounded by the socio-economic crisis suffered by the city’s Palestinian residents, caused largely by the severing of East Jerusalem’s historical and economic ties with its West Bank hinterland.
Second, there is Gaza. The recent escalation of cross-border violence is a reminder that we cannot afford to be complacent about the precarious state of Gaza. The desperate living conditions and the dramatic de-development of the local economy that have followed in the wake of the economic blockade are politically counterproductive.
The need to reopen the crossings to allow for the unimpeded flow of humanitarian aid, commercial goods and – not least – people goes beyond the requirements of international law and human decency.
As a donor, I am struck by Prime Minister Fayyad’s estimate that the annual cost of the blockade in loss of revenue to the Palestinian Authority amounts to at least USD 500 million, an uncertain share of which today ends up in the hands of Gaza’s de facto authorities.
The resulting informal tunnel economy sustains the current political impasse, which is holding back efforts to reunify the West Bank and Gaza as indivisible parts of one territory, under one legitimate authority.
Last but not least, we have the peace process itself.
As I have stressed previously, we need a clear political horizon in order to mobilise and justify the high levels of donor aid that are still required to bring the state-building project to fruition. The ultimate aim of this undertaking is political, not humanitarian.
Finally, let me conclude by reiterating our support for the programme of the Fayyad Government. A key function of the plan is that it charts a steady course for the three-party cooperation of the AHLC, independent of the ebb and flow of the political-track peace efforts. However, bottom-up approaches alone can only go so far. Sooner or later, they must be reinforced by a top-down push if we are to finally arrive at our two-state solution.