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Saving the Palestinian economy

Mohammed Samhouri

WALTHAM, Massachusetts - The expected formation of a new Palestinian cabinet based on the Saudi-brokered power-sharing deal reached in Mecca between Hamas and Fatah in February may finally bring an end to Palestinian bitter political divisions and internecine violence that followed last year's stunning electoral rise of Hamas to power. It may also herald the beginning of a process that could potentially lead to a reversal of the year-long Israeli and Western economic and diplomatic boycott which have proven to be very costly for the Palestinians.

Such an outcome would certainly be a major break for the 4 million residents of the West Bank and Gaza who have over the past year been devastated by continued lack of life's basic needs and an unprecedented rise in the level of internal lawlessness and anarchy.

A more serious question, however, is whether a future Palestinian unity government that, at best of circumstances, would be operating under conditions similar to those existing on the eve of the January 2006 elections could, among other things, be able to revive the moribund Palestinian economy and effectively addresses the chronic problems of poverty and unemployment currently plaguing the Palestinian territories. On that front, there are grounds for doubt.

Under continued crisis conditions, dating back since the outbreak of the second intifada in September 2000, extensive damage has been done to the Palestinian economic structure to the point where a mere return to a pre-2006 state of affairs may no longer be sufficient to jump-start the deeply stagnant domestic economy. Two signs in particular are very disturbing in this regard, both for their adverse impact on the long-term stability of the Palestinian land, and, by extension, the stability of a region that already has more than its share of trouble.

First, there is the recent warning by the World Bank regarding the eroding capacity of the Palestinian economy to generate fast growth rates even under a less oppressive Israeli closure regime - a regime that has long been identified as the single most significant factor hindering Palestinian economic performance.

Second, there is the continued reporting by the International Monetary Fund on the increasingly unsustainable fiscal position of the Palestinian Authority even with the resumption of tax money transfers currently withheld by Israel - a situation that will ultimately call for harsh fiscal adjustment measures that, if implemented under pre-2006-like conditions, could risk igniting further political and social unrest.

Under such circumstances, and absent any significant change in the highly constrained operating environment in the Palestinian areas, a resumption of foreign aid alone, important as it may be for mitigating Palestinian mounting suffering, is not sufficient to arrest a further deterioration in economic conditions, or to prevent a potentially more pernicious recurrence of the crisis.

We already know this from past experience. Under continued conflict conditions that have prevailed since September 2000, and despite the doubling of foreign aid to an average of $1 billion annually between 2001 and 2005, the Palestinian economy was worse off on the eve of January 2006 elections than it was in 2000, with poverty, unemployment and personal income levels all registering constant deterioration.

With such a dismal performance record, returning back to pre-2006 conditions is not an economically viable option. That road, for all practical purposes, has already reached a dead-end.

What is now needed is a holistic approach to the Palestinian socioeconomic plight: one that views the current economic freefall in the Palestinian areas not merely as a post-Hamas phenomenon that can be dealt with either by ousting Hamas or changing it, but as an integral part of how things have developed in the West Bank and Gaza over the past dozen years.

The first step on such a new course, if it is destined to be followed, must be the realization by all parties, including the Palestinian side, of the high long-term cost of returning back to a nonviable "old" status quo, and the virtual impossibility of achieving any sort of economic recovery under continued conflict conditions. Once this crucial step is taken, then it becomes possible to design and implement a comprehensive package that should eventually provide the Palestinian economy with what has so far been grossly lacking for a sustained U-turn to recovery and growth to take hold: an adequate control over physical resources, effective policy tools for economic management and modern institutions to support the attainment of high growth rates.

Only in such a different environment will it become possible for the relatively small Palestinian economy to take advantage of some of its hidden - and so far largely under utilized - strengths: its human capital, its entrepreneurial capabilities, its rich diaspora, its proximity to the more advanced Israeli economy, its close ties with the neighbouring Arab economies and a world that has always shown a readiness to be a partner in peace.

For that possibility to be translated into reality, however, and for Palestine to be able to aim for a new "economic horizon," the root political causes of the current socioeconomic crisis in the West Bank and Gaza need to be tackled first, and fast. Absent any positive and serious noise on that front, we are likely to continue down the same slippery road: unable, or perhaps unwilling, to see the glaringly alarming signs along the way, heading yet again toward another costly dead-end.

* Dr Mohammed Samhouri is a senior fellow at the Crown Center for Middle East Studies at Brandeis University. This article is based on a much elaborated study by the author titled “Looking Beyond the Numbers: The Palestinian Socioeconomic Crisis of 2006” published in February 2007.

Source: Arabic Media Internet Network, 5 March 2007, www.amin.org

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hagalil.com 14-03-2007



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