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Financing Palestinian Refugee Compensation

Source: Worshop Papers

by Rex Brynen, McGill University

A just and lasting resolution of the refugee issue is likely to require some material redress for those Palestinians displaced and dispossessed in 1948 and 1967. To date, examination of this has largely focused on United Nations General Assembly Resolution 194, on the legal case for refugee compensation, or on the scale of Palestinian property losses in 1948, and hence the magnitude of any compensation or restitution scheme. Much less attention has been devoted to how any future compensation system for Palestinian refugees might be financed. This reticence is understandable on both sides: efforts to examine resource availability may appear premature, and could even be seen as an attempt to limit future Palestinian claims or establish a prior expectation of Israeli commitments.

This paper, although exploring the financing of refugee compensation, has neither of these negative intentions. Rather, it is written in the view that preliminary reflection on resource generation may facilitate future fund-raising, and anticipate otherwise unpleasant surprises. To the extent that resource constraints exist, the purpose here is not to accept them as etched in stone, but rather to encourage innovative thinking about how greater resources might be mobilized. Resource scarcity, or the adoption of certain mechanisms of resource mobilization, might also have implication for the modalities of, and time frame for, refugee compensation payments.

Specifically, three areas of resources are identified and discussed herein: Israel, whether in the form of the restitution of refugee properties, cash payments, or capital resources in the West Bank and Gaza; contributions from Arab donors; and contributions from international donors. It is argued that, on one hand, that the ability and willingness of Arab and international donors to finance a compensation scheme has often been overestimated. On the other hand, the restitution of former refugee property, however morally appealing, is politically and practically unfeasible. As a result, the major portion of any compensation scheme will necessarily take the form of financial and capital resources contributed by Israel.


Property Restitution
In many ways, the most obvious response to Palestinian dispossession is the return of properties seized by the Israeli Custodian of Absentee Properties after 1948, as well as other Palestinian-owned lands and buildings for which prior Palestinian title can be shown. This is the process assumed by United Nations General Assembly Resolution 194 (III), which calls for the right of Palestinians "to return to their homes," and which extends compensation only to those unwilling to do so. More recently, BADIL and other Palestinian activists and NGOs have launched a campaign to advance the cause of restitution, both through analysis of the Palestinian and comparative cases, and by drawing greater public attention to this issue:

    We, the undersigned, believe that Palestinians, of whom two-thirds are refugees, also have the right of restitution, including the return of the rightful owners to their property as well as restitution for other material and non-material losses. Resolution 194, which recognizes the right of refugees to restitution, has been reaffirmed one hundred and ten times by the United Nations. Further, as recently as November 1998, the UN General Assembly reaffirmed in Resolution 52/644 the principle, based on the Universal Declaration of Human Rights and international law, that Palestinian refugees are entitled to all revenues from their property.

    We appeal to all fair-minded people, governments, parliamentarians, human rights groups and particularly Jewish organizations, to recognize, support and call for restitution of Palestinians through the restoration of homes and properties to their rightful owners as well as restitution for other material and non-material losses. While restitution can never fully make amends for all losses, suffering, and crimes against humanity, restitution establishes a precedent which should prevent the repetition of such catastrophes in the future. 1

From a Palestinian perspective, restitution would not only address the property rights/claims of refugees, but also represent a form of moral acknowledgement by Israel of responsibility for the original dispossession of the refugees. The case for restitution is further buttressed by a growing number of examples of populations regaining lost or stolen property after its seizure in political or military conflicts. Holocaust property claims, the return of expropriated properties in former communist regimes, and aboriginal land claims settlements are among the most prominent examples.

Property restitution is also the model adopted by the international community in the case of refugees from the conflict in Bosnia. Specifically, Annex 7 of the Dayton Accords calls for property to be returned to the original owners, or compensation paid where this is not possible. This process occurs under the auspices of the Commission for Real Property Claims (CRPC) of Displaced Persons and Refugees, which extends to claimants a series of possible options: 2

  1. Retaining their rights and reoccupying their property as soon as possible.
  2. Retaining their rights without reoccupying their property or tenancy but instead seeking a rental income therefrom.
  3. Exchanging their rights on a voluntary basis and under terms to be decided between the parties to the exchange. (The exchange could be permanent or temporary and could apply to either property or tenancy rights.)
  4. Turning over their property to the Commission and seeking compensation in a form to be determined at a later date by the Commission.

The Dayton Accord also called for the establishment "Refugees and Displaced Persons Property Fund," to be financed through the purchase, sale, lease and mortgage of property which is the subject of claims before the CRPC. The agreement also held out the possibility that the Fund could be replenished by "contributions by states or international or nongovernmental organizations"-although, to date, donors have been unwilling to directly finance compensation in this way.

The Bosnian case also shows the enormous difficulties of mass restitution of refugee property. As of December 1997, the CRPC had received 70,000 claims, but-due to the complex and labor-intensive nature of the task-had processed only 6,000. International funding for the CRPC has thus far been inadequate. Most important of all, despite desires to return to their homes, most refugees have been reluctant to return to properties located in areas now controlled by a rival ethnic group. Indeed, only 6% or so of all refugee returns have been across the inter-entity boundaries in Bosnia.

In the Palestinian case the practical challenges of restitution would be even greater. In contrast to the few years that have elapsed in Bosnia, Palestinian property claims are a half century old. Land title records are sometimes imperfect, particularly for rural properties, and this is further aggravated by the difficulty of determining past usufructory rights in cases of former musha' (collective) agricultural land holdings. The amount of land involved is enormous, potentially encompassing (if former state lands under the Mandate are included) the overwhelming bulk of the current state of Israel.

However, even if these practical challenges could be overcome, the political barriers to a restitution-based approach to Palestinian refugee claims are clearly insurmountable. This is not to say that claims for restitution have no foundation: given the inherent rights of refugees, the confiscatory nature of Israeli land and property legislation after 1948, and increasingly successful efforts of other populations elsewhere around the world to reclaim dispossessed properties, the moral basis for Palestinian claims is a powerful one. However, there is absolutely no constituency within Israel (or, more accurately, within Israel's Jewish community) for such an approach, and it is impossible to imagine any present or future Israeli government entertaining Palestinian efforts to reclaim specific properties on the basis of original ownership. Indeed, the overwhelming majority of Israelis would probably favor favor stalemate in the peace process than allowing the large-scale restitution of specific property, especially if this were combined with the right of return of Palestinian refugees and other property-owners.
A more politically feasible alternative-partly inspired by the Bosnian case-would be to utilize some or all of the rental income from former Palestinian properties (especially those presently leased to individuals by the state or Jewish National Fund) as a source for general monetary compensation for the refugees. This would not involve the return of actual property title to the original owners. It would, however, have some symbolic and moral value, linking general refugee compensation to at least some of the properties seized from refugees. This symbolic value would be heightened if the current legal and customary practices which prevent non-Jews from renting such lands were to be lifted or alleviated.

If the return of specific refugee properties is not feasible, and if Israel is to assume some or all of the costs of compensating refugees, then the obvious alternative is cash payments. The Harvard-based Joint Working Group on Israeli-Palestinian Relations, in a paper written by Joseph Alpher and Khalil Shikaki, suggested that individual compensation to Palestinians, largely financed by Israel, might total $15-20 billion. 3 Rashid Khalidi suggests that reparations might total some $40 billion (if based on per capita payments of around $20,000), or several times this amount is based on the current value of both material and non-material losses. 4 Shlomo Gazit has suggested that Israel might assume a substantial portion of a refugee compensation scheme totaling $7-10 billion, on condition that: 5

  1. The compensation was part of a bilateral political agreement, stating clearly that Israel's decision was ex gratis.
  2. Israel's share in compensation was clearly limited in scope, and was made conditional upon the wealthy industrial countries and the rich Arab oil-producing countries participating in financing a "package" for refugee rehabilitation.

How much resources might Israel be expected to contribute, under optimal circumstances? This is an enormously difficult figure to calculate. It can be assumed, however, that any such contributions would be spread over several years, in order to make them more politically and financially manageable. Table 1 examines various levels of Israeli compensation commitments relative to the size (1999) of the Israeli population, economy, and government expenditure, on the assumption that these amounts are raised over ten years. 6 It also examines the magnitude of these compensation levels relative to the original 1948 refugee population (here taken to be 750,000), as well as the current UNRWA-registered refugee population (3.6 million).

Looked at purely from an economic perspective, a figure of $5 billion does seem plausible as a lower margin: as a proportion of GNP, it is below the current level of official development assistance (ODA) mobilization in most of the Scandinavian countries. It also represents the equivalent of less than two years of current annual US assistance to Israel. In the draft 1999 Israeli budget, the Israel Land Authority was to contribute some $291 million to state coffers, or almost $3 billion over ten years. 7 The value of settler houses (excluding land) and infrastructure in the West Bank and Gaza might also comprise part of the Israeli contribution. Arzt suggests some 100,000 settlers could leave the territories, making some 20,000 housing units available. 8 These might have an approximate value of $1 billion, depending on market values and what was included in the calculation. 9 On the other hand, some proposals call for Israel to annex those areas of the West Bank containing 70% or more of the settler population-thus leaving only 5-10,000 housing units in Palestinian areas, worth perhaps $250-500 million.

Table 1: Relative Burden of Israeli Contributions to Palestian Refugee Compensation (spread over a ten-year period)

total amount $1 billion $5 billion $10 billion $25 billion $50 billion $100 billion
annual amount $100 million $200 million $ 1 billion $2.5 billion $5 billion $10 billion
per Israeli (annual) $16.67 $83.33 $166.67 $416.67 $833.33 $1,666.67
% GNP 0.12% 0.59% 1.18% 2.95% 5.91% 11.81%
% government expenditure 0.19% 0.95% 1.91% 4.77% 9.54% 19.08%
% defense expenditure 1.19% 5.95% 11.90% 29.76% 59.52% 119.05%
per UNRWA- registered refugee $277.78 $1,388.89 $2,777.78 $6,944.44 $13,888.89 $27,777.78
per original 1948 refugee $1,333.33 $6,666.67 $13,333.33 $33,333.33 $66,666.67 $133,333.33

A total of $10 billion represents, relative to GNP, about the same level of generosity evident in the current Saudi and Kuwaiti foreign aid programs, and only slightly more than Denmark's ratio of ODA/GNP, and might also be considered economically feasible. A total ten year contribution of $25 billion, on the other hand, is equivalent to more than one-quarter of the entire Israeli defense budget, and can only be considered the extreme upper boundary of what is economically possible.

That these levels of resources are economically feasible, however, does not mean that they are politically feasible. While the conclusion of a permanent Palestinian-Israeli peace might be thought to produce a peace dividend by reducing military expenditures and freeing up new resources for economic support of the peace process, the loss of Israel's territorial buffer in the West Bank (and perhaps on the Golan) will create new short-term pressures for increased military expenditures. Israel would also face other costs in withdrawing from the territories, including possible hundreds of millions of dollars in compensation payments to former settlers. Thus, financing for refugee compensation would likely have to compete with a number of other (and politically more popular) peace-related claims on the Israeli treasury.

Much may depend on the way that a compensation regime is "packaged" and sold to the Israeli public. In their paper on the refugee issue, Alpher and Shikaki revealed a major difference between the Palestinian preference for significant individual (and perhaps claims-based) compensation, and an Israeli preference for collective compensation to the Palestinian state and possibly host countries. 10 The language and approach utilized by Khalidi and Gazit illustrates another, related, tension. For Khalidi, payments are "reparations," intended to acknowledge moral responsibility as well as to compensate refugees for specific losses. Gazit, on the other hand, underscores a widespread Israeli view that Israeli should not, through a compensation scheme, admit to any moral responsibility or financial liability for the refugee problem. On the Palestinian side, linking compensation and admission of moral guilt serves to enhance the political efficacy of compensation, especially in a context where the full right of return to 1948 areas is unlikely to be realized. Conversely, the mobilization of Israeli resources is inversely linked to the moral dimension of compensation: the more that compensation looks like reparations, the less likely it becomes that Israel (and the Israeli public) will provide the required resources. As Gazit also notes, the failure to address the issue of Jewish refugee claims may further aggravate the domestic political difficulties of mobilizing Israeli financial resources for Palestinian refugee compensation.

International Assistance
A number of authors have argued that, given that Israel alone cannot be expected to assume the cost of refugee compensation. According to Donna Arzt:
    Because the estimated value of total compensation might be in the range of tens of billions of 1990 US dollars, it is much beyond the capability of any one country such as Israel to pay.... Realistically, given the minimal likelihood of ever resolving the causation question, compensation must be paid out of a combined pool created as part of the final peace settlement and contributed to on an international basis by Arab states, western industrialized governments, international institutions, private benefactors, and Israel. 11

Similarly, Peretz argues that "these [compensation] amounts are far larger than any single country can provide. Therefore an international compensation pool will have to be established to raise the necessary funds" 12

Benchmark figures for the potential availability of aid from Arab and international donors might be estimated by reference to funding for UNRWA, the post-1993 aid effort in the West Bank and Gaza, and the most recent Palestinian Development Plan (PDP). UNRWA has, of course, faced a growing squeeze between static resources and a growing refugee population. In 1997, it received a total of $297 million in donor contributions. In the case of international aid to the West Bank and Gaza, donor pledged some $4.2 billion for the period 1994-98, and actually disbursed some $2.6 billion of this. A further $3 billion or so has been pledged for the next five years of development efforts. Finally, the most recent Palestinian Development Plan (1999-2003) list some $247.5 million in refugee camp projects for which the PA hopes to secure donor funding in the next four years. 13

Arab Donors

Arab donors have been identified by a number of authors as a possible source for Palestinian refugee compensation on two major grounds: first, because of a linkage between Palestinian and Jewish refugee compensation; and second, because Israel cannot shoulder the burden for refugee claims, while oil-rich Arab states ought to do so as part of their broader contribution to the peace process.

Linking Palestinian and Jewish Claims
With regard to the first of these ground, Don Peretz has suggested that a linkage between Palestinian and Jewish refugee claims ought to be made on practical grounds: 14

    When compensation does become an agenda item in the negotiations dealing with refugees, it seems that the most feasible solution will be a trade-off based on the current de facto situation. For example, former Jewish property now in Arab areas such as Iraq, Egypt, and the future Palestine entity will become the property of each Arab party to the conflict, and former Arab property in Israel will retain the status it has acquired since 1948. Thus compensation is unlikely to consist of large amounts of cash or promissory obligations that can be used for development. Rather, it will be in the form of property that has already been absorbed into the economy of the host countries, such as Jewish housing in Damascus that has been taken over by Palestinians, property in Baghdad that is now owned by the government or Iraqi citizens, and property left behind by Jewish settlers in the West Bank and Gaza that will become part of the infrastructure and housing stock of the Palestine entity.

Such a proposal, however, essentially requires that those Arab states that seized Jewish property after 1948 be full partners in the resolution of the refugee issue, by compensating Palestinians out of those property seizures. Yet to ask this is to make the peace process dependent on the goodwill of, for example, Iraq or Libya-an unlikely and undesirable prospect .

In addition to the argument of practicality advanced by Peretz, others have linked Palestinian and Jewish refugee compensation on moral grounds. Typically, this sort of position argues that since Israel provided for the care and development of Jews fleeing Arab lands, and since Arab states bear responsibility for war with Israel and the flight of Palestinians from their homes, it is the Arab states which ought to assume financial responsibility for Palestinian refugees. As former Prime Minister Benjamin Netanyahu's office noted in a background paper on the subject: 15

    When discussing these questions, the rights of Jewish refugees from Arab countries must also be given their due consideration. In the years immediately following Israel's independence, nearly 600,000 Jews from North Africa and the Middle East (approximately as many as the number of Palestinian refugees who left Israel in 1948) arrived in the new state, as a direct result of official and popular anti-Semitic actions against them. Israel received them as returning countrymen, granted them citizenship and helped them begin new and productive lives. There is currently no visible sign of their being "refugees," since they have long since been absorbed into Israeli society. Nevertheless, they still have substantial claims against those countries which forced them to flee, often penniless, and these must be addressed in any comprehensive resolution of the refugee problem....

    ...between 1948 and 1986, $10.88 billion (in 1986 dollars) were spent on transport and primary absorption, housing, the creation of employment opportunities, rural settlement, and educational expenses involved in absorbing the over 580,000 immigrants who have come to Israel from Arab countries (health and welfare expenses are not included as it was not possible to calculate these). This is in sharp contrast to the amounts that the Islamic countries have contributed in aid for the Palestinian Arab refugees over the years.

Once again, it is difficult to see how previous actions or inaction by Iraq, Libya, Egypt, Yemen or other Arab countries toward their former Jewish citizenry can in any way be seen as a Palestinian responsibility, nor why resolution of the refugee issue between Israel and the Palestinians ought to be made contingent on the goodwill of other regional states. Moreover-while the potential domestic political weight of Sephardic lobby groups on Israel's future refugee position should not be underestimated-there is good reason to believe that this particular political obstacle is sometimes deliberately cultivated to hamper progress on the refugee issue. As one Jerusalem Post article-approvingly redistributed by the Prime Minister's Office in May 1999-noted:

A campaign has been launched to identify and quantify lost Jewish property in Arab countries, both as a means to close the historic chapter on Sephardi life in those countries and to counter Arab claims for restitution for property in pre-state Palestine .... [italics added]

    If claims to Arab property are raised, then obviously Israel will have to counter them with claims to property that is immeasurably greater," said David Bar-Illan, director of policy planning and head of communications for Prime Minister Binyamin Netanyahu, adding that it is impossible to calculate the value of the property abandoned in the Arab countries.

    Amram Attias, chairman of the Sephardi Federation's committee of Jews from Arab lands, said his organization "would like to demand from the government of Israel and negotiators that they put our demands against their demands: If they are asking for a mosque, we are asking for a synagogue; if they are asking for a school, we are asking also for a school. "It's not to try to get any money, we have no hope, no expectation that we are going to get any money. The question is a moral issue, and that moral issue has not been recognized." 16

Tellingly, while the issue is often raised to counter impending Palestinian claims, Israel has yet to vigorously pursue Jewish refugee claims against the government of Egypt during the past two decades of peace between the countries.

It remains to be seen, of course, whether this linkage will also be raised by the new government of Prime Minister Ehud Barak. Certainly, as final status negotiations begin, there are likely to be mounting domestic pressures to do so. Yet, if the refugee issue is to be resolved, it is desirable that he issues of compensation to Jewish refugees from Arab countries and Palestinian refugees should not be linked in any final status agreement. One possible response to this dilemma might be for the parties might well pledge to work together to secure appropriate compensation for all those displaced by the Arab-Israeli conflict (that is to say, including Jews from Arab lands)-thus transforming this potential obstacle into a grounds for positive agreement. This might be coupled to a broader joint declarative statement in which the parties recognize, and profoundly regret, that forced displacement of civilian populations occurred during the conflict; and agree that forced displacement of civilian populations in times of conflict constitutes an unacceptable practice, in violation of both human rights and international law.

Arab Resources and Burden-Sharing
The second argument for an Arab role in a refugee compensation scheme is, as noted earlier, one of burden-sharing. In this view, the Arabs states have failed to do their fair share in providing for the refugees or supporting the peace process, and the Gulf States in particular have substantial resources that could be allocated in this regard. Another variation of this view is advanced by Arzt, who suggests that this might be used as an incentive to secure Arab participation in refugee resettlement: "Contributions by Arab states could be inversely linked to their willingness to absorb refugees..." 17 She also suggests that post-peace reductions in Arab defense expenditure might free up additional resources for refugee compensation.

In response, the primary refugee-receiving states-Jordan, Syria and Lebanon-can argue that they have have made major contributions to the support of refugees. This is especially true of Jordan and Syria, which for more than fifty years have extended public services to their large refugee populations. Both Lebanon and Jordan can also point to the domestic and regional political (and military) challenges that they have faced as a direct or indirect consequence of hosting large refugee populations.

The Gulf states have also made major contributions to Palestinians. This included aid host governments; to the PLO, and hence the broad range of pre-1982 services it maintained for refugees in Lebanon; to the Palestinian-Jordanian Joint Committee in the 1970s and 1980s; and to various Palestinian charitable organizations. The Gulf states have not, until recently, been major contributors to UNRWA. Traditionally, this arose from the position that the refugee crisis had been caused by Israeli action, and that resolution of the refugee issue was an international responsibility. Since the onset of the current peace process, and in the context of UNRWA's growing financial crisis, somewhat greater Arab funding for the organization has been forthcoming. While total Gulf contributions totaled only $8.5 million of the $297 million received by the Agency from donors in 1997, this must be seen in light of the relatively small size of Arab economies. Measured as a proportion of donor GNP, the contributions of Kuwait, Saudi Arabia and the UAE were between two and ten times more generous than those of the United States, and Kuwait was-in relative terms-by far the most generous UNRWA donor in 1997. 18 By contrast, Israel provided only $28,000 to the Agency in that same year.

A similar picture emerges from an analysis of Arab support for the Palestinian-Israeli peace process. Again, far from shirking their burden, Arab states have, in view of their relatively small economies, ranked among the most generous donors to the West Bank and Gaza, disbursing some $219 million between 1994 and 1998. During the same period, Israel disbursed some $17.6 million, and other (predominately Western) donors the remaining $2.3 billion. 19 Relative to GNP, Arab countries have proven between three and fifty times more generous than the US. 20

Moreover, in contemplating all of these figures, the current poor economic state of almost all of the Arab states must be kept in mind. Economic performance in the region as a whole is weak. With oil prices at a historic low, the petroleum-exporting states face growing budget deficits, and little prospect of short-term growth. True, a post-peace agreement regional reduction in military spending might free up additional resources in support of the refugees. However, with continuing tensions in the Gulf, civil conflict in Algeria, Sudan and elsewhere, and a current war on the African side of the Red Sea, it is unlikely that Palestinian-Israeli peace would result in a major short-term reduction in military expenditures. The image of an oil-rich Gulf with abundant financial resources is a dated one, with little grounding in contemporary economic realities.

At best, therefore, the wealthier Arab states might be minority contributors to a much larger compensation fund, and in approximate proprtion to their current support for the Palestinian Authority and UNRWA. The generation of Arab contributions towards any refugee compensation scheme also faces a formidable political obstacle: the certain reluctance of Arab states to finance anything that resembles compensation to Palestinians for Israeli actions in 1948. This might be assuaged, of course, by calling compensation something other than compensation-say support for refugee repatriation and reintegration, or perhaps contributions to a larger regional economic development fund. Arab donors would likely be especially willing to provide support for the repatriation of refugees to Palestine from their present host countries, as well as contribute to easing their transition to non-refugee status. It might also be possible for Gulf donors to assume a leading role in assisting Lebanon, Syria and Jordan in maintaining services-formerly provided by UNRWA-to any refugees who elect to remain in these host countries.

Western Donors
The international community might also be expected to make a financial contribution towards an agreed resolution of the refugee issue, including compensation. Western countries currently provide most of the $297 million (1997) contributed to UNRWA, and since 1994 have disbursed an average of $461 million per year in aid to the West Bank and Gaza. In 1997, Lebanon and Jordan together received some $900 million per year in aid from Western and Arab donors.

Do current levels of Western assistance to the region-mobilized to support the current fragile peace peace process-represent an approximate upper limit on the resources that might be available to support final status arrangements? Or might additional resources be found?

In 1998 Western development assistance increased in real terms for the first time in many years. As Western governments bring debts and deficits under control, the retrenchment of aid budgets may now gradually be reversed. And the US has certainly shown its willingness to provide substantial (if now declining) assistance to Israel, while pledges of American aid to the Palestinians increased significantly from $100 million per year in 1994-98 to around $180 million per year in the wake of the 1998 Wye Memorandum. Indeed, participants at the 1998 Warwick conference on refugees suggested that reductions in US aid to Israel might be redirected towards financing a resolution of the refugee issue.

In broader terms, however, Western aid budgets remain very overstretched. >From 1992 to 1997, total Western development assistance aid fell by 21 per cent in real terms. 21 Palestinians already receive more assistance per capita than any developing country in the world: around $225 per person per year, compared to an average of $12.72 for the South as a whole. In many western aid agencies, and especially within humanitarian assistance divisions, the claims of relatively well-off Palestinian refugees may be looked about with a rather jaundiced eye given the needs of far more desperate populations around the world: despite its obvious budget pressures, UNRWA receives around $78 per registered refugee, compared to only $55 per UNHCR "person of concern." 22 In the blunt words of one aid official, the cost of increasing support for Palestinian refugees is more dead children in the Congo. 23 With the recent the war in Kosovo, the West also faces massive new humanitarian relief and reconstruction costs in the Balkans. These may well equal or exceed any increases in the total availability of Western aid. Finally, with regard to the reallocation of US aid in particular, it is difficult to imagine strong congressional support for shifting former aid to Israel to the Palestinians. Indeed, while Israel has accepted in theory a gradual reduction in US aid, in practice it requested a major short-term increases in assistance to finance the redeployments called for in the Wye Memorandum). In short, there are likely to be serious constraints on the availability of donor resources.

The willingness of Western donors to finance a portion of Palestinian refugee compensation will depend not only on budgetary circumstances, but also on how such assistance is packaged. In this regard, there are several important considerations that ought to be kept in mind in designing a compensation scheme:

  • At present, support for UNRWA has a well-established budget niche within most donor agencies. With the termination of UNRWA, these funds will become available for new purposes, including far needier refugees in other parts of the world. Consequently, the eventual termination of UNRWA may lead to a shifting of donor support to other areas. This can be minimized if UNRWA has a role to play in supporting compensation, repatriation, and refugee development. It can also be minimized if the wind-down arrangements for UNRWA include a specific, time-limited commitments by donors to shift former UNRWA-earmarked funds into other refugee-related initiatives. In this case, the donor's eagerness to relieve themselves of the continuing burden of UNRWA might be used as an incentive to attract their transitional financial support for the refugee component of final status arrangements.
  • At the same time, while former UNRWA funding represents an important potential source of the refugee component of a peace agreement, it should also be frankly noted that, in the long term, the termination of the agency will undoubtedly involve a long-term net reduction in the level of external resources allocated for refugees. The PA and host governments-which will bear the continuing cost of extending public services to former refugees-are well aware of this, and hence can be strongly expected to advance their own collective claims for "compensation." Any assistance to governments, of course, will inevitably come out of the same finite envelope of donor resources.
  • Very few donors will explicitly finance "compensation," an activity that falls outside the mandate of most development agencies. Similarly, cash transfers to a compensation fund for Palestinian refugees are unlikely to win legislative support in most donor countries. On the other hand, refugee repatriation and development activities would have an easier time attracting donor resources. This is particular ly true if organized in a way that provides donors with suitable guarantees of efficiency, transparency and accountability. This latter dimension suggests another reason why UNRWA, in partnership with the Palestinian Authority and others, might have an important role to play in this regard.
  • Donors in general are highly reluctant to finance multilateral funds of any sort, preferring instead to conduct bilateral assistance programs, which offer greater political visibility and economic leverage. Rather than designing a regional refugee fund, this fact suggests that effort should be focused on developing a coordinated array of individual repatriation and development initiatives that donors can finance on a bilateral basis. However, while such a mechanism is likely to prove more attractive to international donors, it would be less effective as a way of harnessing Israeli and Arab contributions for the purposes of refugee compensation.
  • It is important to recognize that post-agreement refugee development initiatives are unlikely to represent a major new infusion of resources, but rather a relabeling or retargeting of existing programs. Indeed, since approximately 41% of the current population of the West Bank and Gaza are refugees, and since Gaza has tended to win a slightly disproportionate share of aid (on the basis of both poverty and the presence of the PA), donors could today announce more than $2 billion in apparent assistance to refugees over the past five years, simply on the implicit basis that around half of their current West Bank/Gaza assistance (and all of their funding for UNRWA) benefits refugees. In short, the ability of the donor community to generate apparently new commitments out of smoke, mirrors, and existing aid should not be underestimated.

Calculating External Support for Compensation
Given the preceding discussion regarding Arab and western donor support for a possible compensation scheme, what overall conclusions can be drawn about the availability of external support for the refugee component of permanent status arrangements? In Table 2, calculations are presented for two time-frames (five and ten years), and under two sets of assumptions (optimistic and pessimistic). These can be said to represent the range of what might be forthcoming from Arab and international donors.

  • For the first five years, the optimistic scenario assumes that donors maintain their current approximate average of $500 million per year in development assistance is directed towards the West Bank and Gaza, and $900 million per year for Jordan, Syria and Lebanon. Of this amount, 20% of existing assistance is earmarked for refugee-related programs. This would generate some $1.4 over five years. Thereafter, development assistance to the region is assumed to fall by 25%. In addition, a total of $100 million per year in new funds are generated specifically for the refugee issue during the first five years of permanent status arrangements, generating a total of $500 million .
  • The optimistic scenario also assumes that UNRWA is wound down at a constant rate over five years, from a peak budget of $350 million. Former UNRWA funding is reallocated to refugee projects, thus generating some $875 million over five years. In practice, the actual savings may be less than this: not only will their material costs involved in any transfer of services to the Palestinians state and host governments, but in addition UNRWA may face significant staff indemnity payments (arising, under current contracts, from the termination of UN employment status). Thereafter, it is assumed that $175 million per year from the former UNRWA budget are earmarked for refugee-specific purposes for five additional years thereafter.

These calculations produce a maximum of $2.8 billion for the refugee dimension of the peace process in the first five years after a final status agreement, and $4.7 billion over ten years (Table 2). However, as noted earlier, host states will likely want to claim a proportion of these resources for themselves, in compensation for assuming services previously provided by UNRWA. Table 2 assumes that around half of all external resources are thus split between Palestine and host countries to alleviate the budgetary burden of assuming service provision for refugees. There thus remains a maximum of around $1.4 billion over five years, and $2.4 billion over ten years, to be targeted directly at the refugees.

Table 2: Possible Arab and International Support for Resolution of the Regugee Issue ($ millions)

  5 years (optimistic) 10 years (optimistic) 5 years (pessimistic) 10 years (pessimistic)
earmarking of existing aid $1,400 $2,450 $1400 $2450
UNRWA termination $875 $1,750 $875 $875
new assistance $500 $500 $0 $0
total $2,775 $4,700 $2275 $3325
transitional support for PA $695 $1,175 $570 $835
transition support for other hosts $695 $1,175 $570 $835
amount remaining for refugees $1,385 $2,350 $1135 $1655

These resources would be almost entirely biased in favor of repatriation and socioeconomic development programs, and to a lesser extent budgetary support for the provision of social services. One unpublished report by a multi-year Israeli-Palestinian study group, organized by the Institute for Social and Economic Policy in the Middle East at Harvard University, suggested that the repatriation and absorption costs of 500,000 returning refugees might total $1.6 to $4.8 billion, excluding any compensation amounts. 24 Even if these estimates are considered high, it is clear that little or no monies would be available for cash compensation payments to refugees out of international donor funds, although repatriation, reintegration and development programs might all be politically packaged as part of a refugee compensation scheme.

It should also be noted that UNRWA would, in the absence of peace, be expected to spend approximately $3.5 billion on refugees over ten years. While Arab and international donors will undoubtedly provide resources that could be allocated tosupport refugee repatriation and development, they may not provide any long-term net increase in external support for refugees in the wake of a peace agreement.

Finally, and most importantly, it should be emphasized that these are optimistic assumptions. More pessimistic assumptions might suggest that no new resources would be available for the refugee issue beyond current aid levels, and that no former-UNRWA monies would be made available past the first five years of an agreement. With these conditions, the amount available for refugees (rather than host governments) drops to $1.1 billion in the first five years, and a total of $1.6 billion over ten years.

What overall conclusions can be drawn from this brief-and admittedly highly speculative- discussion of the financing of refugee compensation?

First, the amount of funds available for compensation may heavily depend on the design of a compensation regime. Ideally, such a fund should be designed in such a way that, from a Palestinian perspective, it appears to constitute reparations for past Israeli violations, while from and Israeli, Arab and international perspective it has the form of an international refugee development initiative rather than a compensation fund. The treatment of Jewish claims against Arab states, while not logically linked to Palestinian property claims, are likely to become entwined within the Israeli political debate over the compensation issue, and may have significant impact on the willingness and political ability of and Israeli government to allocate resources to the refugees.

Second, there appear to be significant constraints on the total amounts that might be available. The various scenarios here suggest a range of $6.7 billion to $27.3 billion is economically sustainable given the size of the Israeli economy and the availability of official development assistance from Arab and international donors. Whether this level of resources is politically sustainable is, as suggested earlier, an entirely different question. Variation in the "plausible" figures presented above is largely a function of Israeli willingness to generate the necessary financial resources. To the extent that such willingness exists, the amounts available for compensation (as well as repatriation and development) might be significant. If Israel is unwilling to generate the needed resources, there will simply not be adequate funds available for compensation. The same holds true if Israel insists, implicitly or explicitly, on linking its contributions to the scale of Arab and international donations. Given current economic realities and urgent demand for ODA elsewhere in the world, there is little scope for substantial expansion of commitments on the donor side.

* * *

Finally, and also by way of conclusion, what are the author's own view on the likelihood of the various scenarios presented herein? At the moment, under present economic and political circumstances, I'm inclined to pessimism: I suspect that Israeli willingness to allocated resources to compensation will fall at the very lowest end of the range presented here (that is, between $1 billion and $5 billion), and that over ten years international donors are likely to earmark $2 billion or less for (post-UNRWA) refugee-specific purposes.

These amounts are clearly inadequate to meet the needs of refugee repatriation and compensation, a fact underscored by the distributional projections suggested in Appendix 1. The resulting crisis of expectations could prove to be a substantial stumbling block in final status negotiations. All of this points to an urgent need for action.

Among international donors, there needs to be serious discussion now-and not after a final status agreement is concluded-on financing a resolution of the refugee issue, and specifically on the maintenance of refugee-specific funding when UNRWA is eventually terminated. To date, discussion of these topics has been inhibited by immediate preoccupation with UNRWA's serious financial problems, the tendency of many regional parties to steer away from official discussion of sensitive final status topics (in the context of the Refugee Working Group and elsewhere), by the reluctance of international organizations to face the question of future refugee absorption in Palestine, and by the understandable concern of refugees that the negotiating process will fail to address their full rights and aspirations.

Within Israel, the refugee issue needs to be further aired, in an effort to build some degree of public recognition (and acceptance) that future compensation payments to Palestinian refugees are both justified and in the interest of both Israel and the Palestinians. Greater public understanding of the origins of the refugee problem might facilitate this. Similarly, the political and strategic necessity of finally resolving the refugee issue must be underscored. Creative efforts must also be undertaken to prevent the question of Jewish refugee claims against Arab states becoming a future political obstacle. Direct discussions between Palestinian and Sephardic Jewish groups, for example, might yield agreement on basic principles and the inherent rights of refugees.

Appendix 1: Distributing Individual Compensation
The purpose of this paper was to discuss the very substantial challenges that face any effort to mobilize resources for Palestinian refugee compensation, rather than to discuss the distributional modalities of any compensation regime.

Nevertheless, it is interesting to sketch out in a little more detail the distributional implications of different levels of resource allocation for the level of individual refugee compensation. The following schema should not be considered as a well thought-through plan, but rather an illustrative model. It is based on the following assumptions:

  • A ten year time frame, and a total refugee population of 3.6 million persons, of whom 10% are first-generation refugees.
  • The repatriation of 750,000 refugees over that period, with returning refugees receiving a $750 repatriation package, financed by international donors. This is considered part of individual compensation package. Development assistance to refugees or assistance to host governments, however, is not considered part of individual compensation, due to its much more diffuse and indirect character.
  • Other than the repatriation package, returnees and non-returnees receive similar levels of compensation, largely paid for by Israel. Half of all compensation resources are paid to first generation refugees, distributed evenly on a per capita basis. All remaining funds are paid to second and subsequent generation refugees on an equal per capita basis.

Table 3 : Distributing Refugee Compensation

  $1 billion $2 billion $5 billion $10 billion $25 billion

first generation refugees



$1,530.56 $2,746.53 $6,913.19 $13,857.64 $34,604.17


$780.56 $1,996.53 $6,163.19 $13,107.64 $33,854.17

subsequent generation refugees



$875.45 $1,070.87 $1,740.51 $2,856.58 $6,190.85


$125.45 $320.87 $990.51 $2,106.58 $5,440.85


1 BADIL, Petition Campaign for the Palestinian Right to Restitution.

2 Commission for Real Property Claims of Displaced Persons and Refugees, Press Communiqué , 11 June 1996; General Framework Agreement ("Dayton Accord"), Annex 7.

3 Joseph Alpher and Khalil Shikaki, The Palestinian Refugee Problem and the Right of Return , Weatherhead Center for International affairs Paper 98-7 (Cambridge: Harvard University, May 1998), p. 14.

4 Rashid Khalidi, "Toward a Solution," in Palestinian Refugees: Their Problem and Future (Washington DC: Center for Policy Analysis on Palestine, October 1994), p. 24.

5 Shlomo Gazit, The Palestinian Refugee Problem (Tel Aviv: Jaffee Center for Strategic Studies, 1995), p. 21-22.

6 An estimated GDP of $84.7 billion (1999) and estimated population of 6.1 million (1999) have been taken from data provided by the Israeli Ministry of Finance at http://www.mof.gov.il/hachnasot/bud99/tables.htm#t7 Estimated government expenditure of $52.4 billion and defense expenditure of $8.4 billion have been taken from the 1999 draft budget, at http://www.mof.gov.il/budget99_e/part110.htm . A current exchange rate of NIS1 = $0.2438 has been used for conversions.

7 1999 draft state budget, at http://www.mof.gov.il/budget99_e/part110a.htm

8 Donna Arzt, Refugees Into Citizens: Palestinians and the End of the Arab-Israeli Conflict (New York: Council on Foreign Relations Press, 1997), p. 98, 170 n38.

9 This rough calculation is based on 20,000 houses at $50,000 each.

10 Alpher and Shikaki, The Palestinian Refugee Problem and the Right of Return, p. 31.

11 Arzt, Refugees Into Citizens , p. 98.

12 Don Peretz, "The Question of Compensation," in Palestinian Refugees: Their Problem and Future (Washington DC: Center for Policy Analysis on Palestine, October 1994), p20.

13 Palestinian Authority, Palestinian Development Plan 1999-2003 (January 1999).

14 Don Peretz, Palestinians, Refugees, and the Middle East Peace Process (Washington DC: United States Institute of Peace, 1993), p. 92.

15 Prime Minister's Office, Background Papers: The Refugee Issue (as of July 1999).

16 Jerusalem Post , 5 May 1999, reprinted in The Prime Minister's Report , 11 May 1999.

17 Arzt, Refugees into Citizens , p. 98.

18 UNRWA, Contributions to UNRWA in Cash and in Kind by Governments and the European Community , 1 January 1997 - 31 December 1997; Rex Brynen, "UNRWA Donor Generosity Index," FOFOGNET Digest , 31 December 1998.

19 Data from Palestinian Authority, Ministry of Planning and International Cooperation.

20 Rex Brynen, A Verp Political Economy: Peacebuilding and Foreign Aid in Palestine (forthcoming), chapter 3.

21 Calculated from Development Assistance Committee, Organization for Economic Cooperation and Development, News Release , 10 June 1999.

22 UNHCR, "UNHCR in Numbers (July 1997)" at http://www.unhcr.ch/un&ref/numbers/numbers.htm; UNRWA, Report of the Commissioner-General of the United Nations Relief and Works Agency for Palestine Refugees in the Near East , 1 July 1996-30 June 1997 (A/52/13), para. 8.

23 Interview with senior Western aid official, June 1997.

24 George Borjas and Dani Rodrik, Project on Palestinian Refugees: Summary Report , Institute for Social and Economic Policy in the Middle East, Harvard University (unpublished, May 1998). In Bosnia, the external financing requirements for refugee reintegration were estimated at $520 million for 1998 alone. The Bosnian authorities have suggested that much larger amounts will eventually be needed-c $8-10,000 per person, or some $3-4 billion total. Reconstruction and Return Task Force, Report , March 1998. To date, international donors have provided only a fraction of this.

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