A Genealogy of Oligarchy: Part III

*Photo courtesy of @snowscat

*Parts I and II of this series are available here and here.

Arafat Falls, Technocratic Cronyism Triumphs: Palestine in the New Millenium

The political and economic foundations laid down in Palestine in the 1990s—and detailed in part II of this series—have proven resilient and path dependent, as a survey of either the PA's senior ranks or the boards of top firms today might establish. Nevertheless, the 2000s and 2010s have not been without change. Most relevant to the contemporary West Bank were changes introduced at the highest heights of power.

Even prior to the outbreak of the Second Intifada in September of 2000, Yasser Arafat's standing in the eyes of the international community had begun to decline. This stemmed in large part from the crudeness of his corruption—as best epitomized in the Oasis Casino Project—and from frustrations with he and Muhammad Rashid’s handling of the PA budget and the Palestine Commercial Services Company (PCSC), respectively.

If already in the crosshairs, Arafat’s subsequent refusal to sign off on the Clinton/Barak initiative at Camp David—compounded by his unwillingness in snuffing out the violent uprising that broke out during the Second Intifada—sealed his fate. By 2003, the stewards of the peace process would all move against the very man they had just spent a decade promoting and protecting.

Politically, Arafat’s autocratic governing authorities were henceforth subjected to a multifront assault, both from within and without.

At a legal and institutional level, amendments introduced to Palestine’s Basic Law in 2003 and 2005 diminished the executive powers of the PA presidency considerably. This was achieved in part through the creation of the position of Prime Minister (PM). Though the President was vested with the authority to appoint the PM, it was the PM that was vested with the responsibility for forming a government. On account of the fact that Article 66 of the Basic Law stipulated any cabinet proposed by the PM win the approval of the Palestinian Legislative Council (PLC), the role of the PM functioned not only to divide the executive branch, but to entangle it in a wider web of institutional checks, too. This being the case, while Arafat might retain the freedom needed to appoint lackey Prime Ministers going forward—which he duly did by selecting acolytes like Ahmed Qurei, Nabeel Sha’ath, and Mahmoud Abbas—he nevertheless lost much of his dictatorial autonomy.

Financially, meanwhile, a mandatory restructuring of state-owned enterprises combined with the installation of new public financial management systems to systematically chip away at Arafat and Muhammad Rashid’s controls over the purse. Specific to the former, in 2000, Arafat was forced to sell assets of the Palestine Commercial Services Company (PCSC), disclose all of the company’s investments, and reconstitute the PCSC itself as a sovereign wealth fund-type entity. Rebranded the Palestine Investment Fund (PIF), what was once a vehicle steered by Arafat and Muhammad Rashid alone now became one overseen by an increasingly independent (and internationally chaperoned) Ministry of Finance. This independence, in turn, combined with a wider push aimed at depoliticizing the economic arms of the state to empower a new vanguard of Palestinian economists within the upper reaches of the PA, further undercutting Arafat’s control over public moneys.

In composition, the rising vanguard was in the mold of Chile’s Chicago boys and exemplified in the person of Salam Fayyad, who took over the Ministry of Finance in 2003. Fayyad was a long-time IMF man and long-time colleague of Stanley Fischer. Prior to his appointment (and dating all the way back to 1995), he had, in fact, been working on the oPt on behalf of the Fund.

Along with former and future World Bankers Fouad Bseiso and Amin Haddad (a PADICO man through and through), who together ran the Palestine Monetary Authority between 1994 and 2005, Fayyad helped carry out a technocratic reform putsch that jointly reined in Arafat’s patrimonialism and expedited the well-heeled, besuited kind of cronyism preferred in DC. Lest there was any ambiguity on the latter point, the capital-friendly nature of the putsch was actually constitutionalized through a bizarre 2003 amendment to the PA’s Basic Law, which established that “the economic system in Palestine shall be based on the principles of a free market economy.” Paired with 2005’s Public Debt Law, which set a maximum public debt level of 40%, the neoliberal character of depoliticized governance was rather naked.

Fayyad et al were aided in their efforts by the installation and/or strengthening of a constellation of new state/quasi state institutions meant to further reduce Arafat’s room to maneuver within the economic policy space. The administration of these new institutions—inclusive of the Palestine Investment Promotion Agency, Palestine Capital Market Authority (est. 2004), Palestine Industrial Estate and Free Zone Authority, and Private Sector Coordination Council—was typically assigned to diaspora members themselves or to sympathetic (and familialy-connected) policymakers like Maher Masri.

Through all these means, by the time Arafat was (in all likelihood) assassinated in 2005, his personal command of the Palestinian political economy had been greatly diminished. Shortly thereafter, the democratic principles that had only just been injected into it through the empowerment of the Palestine Legislative Council were lost as well.

Hamas and the Restoration of Autocracy

Palestine’s de-democratic turn was triggered by Hamas’ surprise victory in 2006’s PLC elections, an outcome which teased out precisely how conditional the international community’s support for popular agency in government truly was/is.

Beating a swift retreat from its preexisting freedom agenda, the US in particular began working immediately to reinstate a dictatorial Presidency and to equip new PA President Mahmoud Abbas with the resources he needed to put down Hamas and the newly formed government of Ismail Haniyeh. As part of this same effort, the US and its allies in the EU backed Abbas in bringing the purse back under the Presidency’s thumb: so to deprive Haniyeh’s Hamas-led government of access to public resources, the Ministry of Finance and the Palestine Investment Fund were each returned to a chain of command ending at the President’s office.

After months of tension and build-up, things eventually boiled over in December of 2006 when Fatah's (American-trained) troops attempted what amounted to a coup against the Hamas-led government. In the aftermath, the oPt would be fractured into two, with Hamas in control of the Gaza Strip and Fatah's Palestinian Authority in control of the West Bank.

At this point, PA President Mahmoud Abbas unilaterally disavowed the authority of the elected (Hamas-led) government and evoked emergency powers to appoint his own. His new government, based in Ramallah, was to be led by none other than the everybody’s favorite technocrat, then-Financial Minister Salam Fayyad.

Importantly, due to the splintering of Palestinian Legislative Council members between Gaza and the West Bank (and Israel’s incarceration of many of these elected officials), Abbas, Fayyad, and their Chicago boys were henceforth able to legislate through what amounted to executive edict. With the exception of the massive public sector hiring campaign Abbas initiated in order to shore up his legitimacy, they used these discretionary powers to further consolidate the reform momentum Fayyad had already established during Arafat’s last years in office. Governance in Fatah’s West Bank thereby moved towards a technocratic kind of authoritarianism. The diaspora and the business classes more generally would find the transition felicitous.

Palestine and the Neoliberal Full Monty: 2007-Present

Fayyad’s tenure as Prime Minister extended from 2007 until 2012.

Flanked by George Abed and Jihad al Wazir at the Palestine Monetary Authority; Bassem Khoury and Hassan Abu Libdeh at the Ministry of National Economy; and Maher Masri, now at the Palestine Capital Markets Authority, the Prime Minister’s wider governing strategy was delineated in the two major planning documents Palestinian officials had developed in collaboration with advisors dispatched from USAid, Britain’s Department for International Development, and the World Bank: The Palestine Recovery and Development Plan 2008-2010 and The National Development Plan 2011-2013: Establishing the State, Building Our Future.

Broadly speaking, these documents evinced the same occupation-blindness/market fundamentalism that had pervaded previous planning efforts, adopting the presupposition that Palestinian independence, freedom, and prosperity were best advanced by getting the country’s “own house in order.” Materially, getting one’s house in order reduced to establishing transparent budgeting procedures and business registration reforms; professionalizing the security forces; instituting proper banking regulations and investment incentives; advancing financial deepening through the expansion of leasing, credit and insurance markets; and committing the state to the punitive logic of fiscal restraint. Once the state and economy were thusly remade—and once the PA’s new domestic security apparatus had proved its bona fides to Israel by putting down unruly domestic elements—Fayyad and his allies assumed welfare gains would trickle into all the right places and Israel’s settler-colonial mission (as well as its decades long commitment to impeding Palestine’s struggle for nationhood and development) would cease by some unstated mechanism.

While this policy regime sent Palestine bounding towards political and developmental dead-ends, many of its elements—principally, fiscal consolidation, financialization, the rationalization of utilities, tax reform, public debt management strategies, and the expansion of mortgage and insurance markets—generated great opportunities for the state’s favorite businessmen.

Specific to fiscal consolidation, public sector salary freezes combined with a moratorium on new hires to pull the wage structure downward, increasing capital’s share of national income commensurately. The installation of 300,000 prepaid electricity meters in 2010¹, meanwhile—a policy designed to ensure cost recovery for the Palestine Electric Company (PEC) by cracking down on the poor’s delinquency in paying their bills—facilitated another upward flow of income, albeit one aimed directly at oligarch pockets.²

Banking and Finance

Banking reform also served to aid the diasporic business class, controlling the Palestinian financial sector as it largely does. (The Bank of Palestine, still directed by the Shawwa family, represents the biggest non-diaspora entity in this space).

Early into his tenure, Fayyad imposed higher mandatory loan to deposit ratios and introduced restrictions on bank’s ability to invest abroad. Each of these reforms lessened the sector’s capacity to funnel domestic savings outside the country in search of higher profits. Simultaneously, however, the institutionalization of credit registries furnished banks with the chance to exploit a consumer debt market about to boom by virtue of ongoing wage and employment crises.

To give some sense of scale for this emergent debt market, between 2008 and 2015, the credit extended to private residents by Palestinian commercial banks tripled. Though roughly half of of this growth is explained by an increase in bank lending to private businesses, the explosion of domestic credit still translated to a $1.5 billion expansion in the debts held by Palestinian households.

Since 2015, the aggregate debt held by private citizens and firms grew by another 50%, jumping from a baseline of $4.319 billion in 2015 to $6.627 billion as of March 2020. At the time of writing, data provided by the Palestine Monetary Authority shows that more than $3.27 billion of that total is borne by households and individuals. Mortgages and car loans represent a shade less than $690 million of this aggregate sum. This being the case, it can be posited that somewhere in the area of 75-80% household and individually-held debt is used just to sustain basic consumption. This claim is tentatively corroborated by survey data from 2014, which established that 35.4% of West Bank families needed debt financing in order to cover basic food purchases.

These billion dollar expansions clearly represented a boon for Palestine’s commercial banks. In addition, to the extent that a large percentage of the consumption being financed through credit (automobiles included) wound up allocated to imports—a market broadly controlled by two subsidiaries of APIC: the Palestine Automobile Company³ and the Unipal Trading Company⁴—the diaspora’s returns on credit growth are effectively double.

As mentioned, the banking sector was also to benefit from a change introduced to the PA's public debt management strategies.

Under Fayyad's direction first (though under his successors' as well), the PA has opted to finance growing portions of its annual budget gaps through locally-issued/short maturity loans, rather than through the borrowing arrangements it had previously set up with international institutional lenders. By virtue of these strange decisions, lending to the PA quickly came to constitute a major part of the local commercial banking business. As of the end of May 2020, the PA’s liabilities towards these actors exceeded $1.5 billion, with roughly $900 million of that total denominated in short maturity loans. As interest rates on the latter are typically set between 4 and 6.5%, returns are as significant as they are swift.

Staying within the broader topic of finance, Fayyad’s promotion of international development’s latest fad—financial inclusion, as operationalized through greater lending to small and medium-sized enterprises and microfinance—also functioned to boost the giants of the economy.

As part of this initiative, the US International Development Finance Corporation (IDFC, previously named the Overseas Private Investment Corporation, or OPIC) staked Bashar Masri—the rising patriarch of the Masri family—and his Siraj Palestine Fund I with $30 million in seed investment. The IDFC also extended significant revolving loan guaranties to the Bank of Jordan, Bank of Palestine, Cairo Amman Bank, Jordan Ahli Bank, National Bank, and Quds Bank so to incentivize their downstream lending to smaller (and higher risk) enterprises. As part of the same effort, the government of Italy offered many of these banks concessionary loans of non-insignificant sums.

If generating good public relations materiel, in practice, financial inclusion has done little in building a healthy business environment for small firms. To begin, regardless of the conditions external parties like the Italian government attempted to attach to lending arrangements, Palestine’s commercial banks frequently steered their microlending towards large assets like the Palestine Investment Fund’s Movenpik Hotel in Ramallah. On those occasions when they did lend to smaller firms and individuals, moreover, they often did so in a predatory manner. Giving some testament to this, the median APR on a microfinance loan in Palestine today is roughly 30%.

Finally, one need note that the generalized financialization of the economy overseen in these years redounded positively onto capital as well. First, as Adam Hanieh long ago discerned, the growth of equity trading facilitated by the Palestine Securities Exchange—which was itself sold to the Masris in 2010—has functioned to stitch together Palestine’s capitalist class to a degree never seen before. This unity consolidated their oligopolistic control over markets and advanced their capacity to act as a class for themselves. Second, due to their acquisition of many of the financial brokerage licenses that were issued by the Palestine Capital Market Authority in this period, the wider uptick in equity trading more immediately boosted elite interests, too. Third, many of these same actors benefited from the growth of the insurance industry, which also matured through financialization. By 2019, motor insurance premiums alone brought $204 million into the ten firms operating in the space.

Real Estate

Beyond banking and finance, Fayyad’s technocrats and the international community assisted the diaspora in capturing many of the gains derived from the West Bank's (selectively) frenzied real estate market.

At the macrolevel, this capture is attested to in the claims of Sabah Sabah, a real estate lawyer in the oPt who in reported to the Palestine Economic Policy Research Institute in 2013 that expatriates had come to make up 80% of all Palestinian property owners. It is also manifest in the many mega real estate developments built by the economic elite over the past two decades.

State/international support for elite-steered real estate ventures is best epitomized in the example of Rawabi, the largest development in the history of the oPt. A project of the Bayti Real Estate Investment Company—a consortium owned and controlled by Bashar Masri in partnership with the Qatari Sovereign Wealth Fund—Rawabi ultimately raised a brand new city from the ground along the outskirts of Ramallah (one, it should be said, that is eerily similar to Israel’s settlements in terms of aesthetics). Before being the subject of a sympathetic CBS News story, however, the Masri project had first hinged on the PA using eminent domain to clear the land desired for the project. Unsurprisingly, the existing property owners were paid below market rate for the trouble. In addition, Bayti Real Estate was also the recipient of a $5 million loan from USAid, an odd decision in view of the capital held by the firm's owners and in view of Aid's institutional mandate.

If Rawabi and similar ventures evince the gains directly realized through the West Bank's built environment, derivatives to real estate and construction—such as the mortgage industry—have proven equally propitious. The largest player in this relatively young market, the size of which has fluctuated around $500 million for the past few years, is the Palestine Mortgage and Housing Company, an asset of the same Bashar Masri mentioned above. (For a time, it looked like Sabih Masri and Hashim Shawwa might join him. Recruited as part of an IDFC and IFC-led initiative aiming at establishing a $500 million mortgage lending facility for the West Bank in the early 2010s, Masri's Cairo Amman Bank and Shawwa's Bank of Palestine (and the Palestine Investment Fund) had all stood to become major lenders. As of yet, however, their Affordable Mortgage and Loan Program (AMAL) has not come to full fruition.)

Industrial Estates

Last but not least, Fayyad’s renewal of enclave-based industrial promotion initiatives provided connected elites with yet another space for low-risk gain. Through the present day, enterprises operating in any one of the three special development zones regulated by the Palestine Industrial Estate and Free Zone Authority continue to be afforded a constellation of subsidies, tax abatements, and investment insurance. Like is the case with the Gaza Industrial Estate, the Masris have also managed to secure the contract for the co-development and management of one of these industrial zones (in Jericho), which it currently operates in partnership with the Japan International Cooperation Agency.

If Fayyad himself was ousted in 2012, economic policymaking over the past eight years has nevertheless followed the templates he laid down to a T.  

More recently steered by another technocrat of DC pedigree (Muhammad Mustafa), the economy continues to be dominated by banking, real estate, and import-centered commerce, and the conglomerates brought into being over the past twenty-five years persist as hegemons. As is discussed at length in Budgets and Balance Sheets, tax reforms instated in 2015 and 2016 under Rami Hamdallah further juiced the pot for high earners and corporations. The renewal of Paltel’s license as sole developer and operator of the telecommunications infrastructure in the West Bank, meanwhile, looked a great deal like the cronyist procurement processes of years past.

Broadly defined, then, the post-Arafat years can be said to have dissolved any meaningful distinction between the Palestinian state and an elite, internationally-embedded fraction of the country’s capitalist class.

Though this merger intensifies the cronyism that has prevailed since the inception of the Oslo process, the technocratic gloss it acquired under Fayyad's watch meant contemporary elite grifts have been spared condemnation on the part of the donor class and international community, for whom matters of corruption have always constituted more a procedural than a functional matter. The beneficiaries of the current regime talk the right talk, move in the right circles, and, importantly, endorse the chimera that the international community has promoted for the better part of thirty years: that the prosperity and sovereignty of the Palestinian people can in fact be achieved through the terms set up in Oslo and through the marginal, institutional gains the peace process allows.

The upshot of chasing of such chimera—socially, developmentally, and politically—have proven rather profoundly destructive, as is detailed in full in a separate article in this issue. Alas, given the balance of power locally, regionally, and internationally, it seems difficult to imagine that those responsible for leading Palestine down these fools' errands—Fatah and capital's returning sons—might be displaced.

Footnotes

1. See: Raja Khalidi et al, “Neoliberalism and the Contradictions of the Palestinian Authority’s State-Building Programme” in Mandy Turner and Omar Shweiki (eds.) Decolonizing the Palestinian Political Economy: De-development and Beyond.
2. At the time of writing, the Palestine Power Generation Company owns 65% of the PEC. Ownership of the Palestine Power Generation Company, meanwhile, is divvied up between the PIF (40.31%), PADICO (20%), Paltel (10%), Arab Bank (10%), APIC (4%), the Bank of Palestine (2.33%), and Gulf Steel Industries, a subsidiary of the UAE-based Arabtec Holdings. The Boards of Directors for the Palestine Power Generation Company and Palestine Electric Company together include Samer Khoury, Tareq al Aggad, Zuhair Osaily, Muhammad Mustafa, Bashar Masri, Jamal Hourani, Durgham Maree, and Azmi Bishara, accounting for most of the West Bank’s contemporary commercial cartel.
3. The Palestine Automobile Company is the sole local distributor for Hyundai and Fiat Chrysler (which includes Fiat, Fiat Professional, Alfa Romeo, Chrysler, Jeep, Dodge, and Ram).
4. Unipal is the sole local distributor for Philip Morris International, Procter & Gamble, Kellogg’s, KraftHeinz, Ferrero, XL Energy Drink, Americana, SC Johnson, and Siniora. On the retail side, APIC also owns the Bravo Supermarket chain.