IMF Report, need for political settlement on docket
On the sidelines of the United Nations General Assembly opening sessions, governments that contribute to the Palestinian Authority (donor nations) along with the World Bank and the International Monetary Fund (IMF) will gather to decide on financial assistance for the PA for the coming year. The so-called Ad Hoc Liaison meeting is scheduled for Friday.
Expressing his sense of urgency for the peace process to move forward, UN Secretary General Ban Ki-moon warned in his opening speech that time could be running out for a resolution of the Israeli-Palestinian conflict.
"If we are serious about achieving a two-state solution, we must realize that the window of opportunity is closing fast,” he said.
After a gap of almost four years during which virtually no negotiations were carried on between Israel and the Palestinian Authority (PA), Secretary of State John Kerry began an intensive round of shuttle diplomacy earlier this year which, while not yet providing tangible results, has brought the parties back to the table for at least nine months of trying to bridge the ever present gaps. But while the talks continue under a veil of secrecy imposed by Kerry, the PA continues to face a financial crisis some say jeopardizes its very existence.
The acute crisis that has been building since 2010 is further complicated by a bleak economic outlook for the remainder of 2013 and 2014, the PA said in a new report called “Unlocking Statehood.” The report focuses the brunt of blame for the fiscal woes on Israel.
“Despite the vigorous reform efforts exercised by the Government, fiscal stability is unattainable without an end to the Israeli occupation and its prohibitive restrictions,” it reads in part.
The report says that growth in the West Bank and Gaza Strip has slowed, and Israel’s refusal to allow Palestinian development in Area C (the Oslo Accords designation for 60 percent of the West Bank that is under sole Israeli civil and security control that also includes the Jewish communities built on land Israel acquired in 1967) has also forced the economy to contract.
One of the biggest issues, according to the PA report, is unemployment. Overall joblessness stood at 20.6 percent, but unemployment among youth came to 29 percent in the West Bank and 52 percent in the Gaza Strip. Poverty in Gaza, which is controlled by the Islamist Hamas movement, runs rampant, while the rate is significantly lower in the Fatah-PA-controlled West Bank.
“Until 2000, there were 150,000 Palestinians working in Israel,” Bassem Khoury, the CEO of Pharmacare and a former Minister of Economy told The Media Line. “Since then there has been a complete blockade of labor into Israel. We’re trapped in a situation where there is one-way trade into Israel.”
The Palestinian economy is both dependent on Israel and dwarfed by Israel. Before the 1993 Oslo Accords, Israel’s per capital income was 11 times that of the PA. Today it is 23 times as large. The Paris Protocol, which governs the economic relations agreed to by Israel and the PA in the Oslo Accords, includes a customs union between the two entities, but according to Khoury, only benefits one side.
“Israel is having its cake and eating it too,” he said. “A true customs union benefits both sides, but in this case we are hostage to the matrix of control imposed by the Israelis.”
Khoury argued that the PA should either open the Palestinian economy to the Arab and Muslim worlds or remove all impediments to trade with Israel.
Israeli officials respond by saying that they have taken a series of new steps over the past few months in order to improve the Palestinian economy. Among those measures was the issuing of 5,000 additional work permits, bringing the total of legal Palestinian workers allowed into Israel each day to 35,000. Breadwinners who work in Israel provide money for their extended families, the Israelis said.
“We are trying to make it easier for Palestinian goods to cross Israel’s borders,” Ilana Stein, an Israeli foreign ministry spokeswoman told The Media Line. “The border crossings are now run by a borders authority rather than soldiers to make movement of supplies easier and more professional. It’s a way to make it easier for Palestinians to export to Israel and abroad.”
But Palestinian analysts charge that Israel continues to dominate the Palestinian economy.
“Israel’s control over the borders limits the Palestinian options and opportunities. We can't import from the countries we want to, for example", Nasser Abdul Karim, a professor of economic at Bir Zeit University told The Media Line. “Also, the lack of implementing the Paris Protocol negatively puts more obstacles in front of the Palestinian economy. The protocol states that there should be an open flow of goods between the Palestinian territories and Israel, but the annual difference between our imports from Israel and our exports to them is around $4 billion to Israel’s benefit. We’re highly exposed to the Israeli market.”
Karim also blamed the PA for inefficiency, echoing a charge by the international donor community.
The Ad Hoc meeting will deal with the aid from donor nations that has become a cornerstone of the Palestinian economy. Most economists say that without donor aid the PA would collapse, adding even more instability the region.
For that reason, the international community will continue to fund the PA, but not without input and scrutiny from those who contribute. The International Monetary Fund just issued a report in which certain fiscal practices of the PA were criticized, including an investment promotion law adopted by the Palestinian legislature.
Samir Hulileh, CEO of Padico Holding, the largest Palestinian holding company, took exemption with the IMF characterization of a series of tax exemptions as “overgenerous,” praising the companies that are investing in Palestinian ventures under present conditions. “These exemptions were only given to those companies that have chosen to invest in Palestine at a very critical time,” Hulileh told The Media Line. He said that, “Addressing these exemptions as overgenerous is unfortunate in light of the overall poor business environment and the uncertainty…in addition to the weak infrastructure and the Israeli restrictions that have a major effect on investment.”
Israel will be among participants at the Ad Hoc meeting, underscoring the fact that if the Palestinians are ever to have an independent state, both Israel and the PA will have to do more to make the Palestinian economy less dependent on the donor dollar.
Diana Atallah contributed to this report from Ramallah.