World Bank 7 September 2004
Palestinians waiting in line at a checkpoint (Ronald de Hommel)
The World Bank released a paper warning that were the disengagement accompanied by the sealing of Gaza’s borders to labor and trade or by terminating supplies of water and electricity to Gaza, it would create worse hardship than is seen today. “Under such circumstances, the Plan’s assertion that Israel is no longer responsible for the population of Gaza will not resonate,” the paper noted. “Nor would donors appreciate the implication that they must bear the humanitarian consequences of this style of disengagement.”
The World Bank regarded the Israeli plan as having little impact on the Palestinian economy, as it will only ease internal movement restrictions, pointing out that Palestinian economic recovery depended on a radical easing of movement throughout the West Bank and Gaza Strip, opening Palestinian external borders to commodity trade and allowing a reasonable flow of labor to Israel.
The paper also noted that the Palestinian National Authority cannot always count on foreign aid or donor funding, as it cannot ensure a lasting impact. “As long as the web of Palestinian economic transactions remains shredded by closures, investors will stay away, and short-term gains will not be sustainable.”
SUMMARY
The deep economic crisis in the West Bank and Gaza threatens to impoverish and alienate a generation of young Palestinians. It is undermining the credibility of the Palestinian Authority (PA), increasing the popular appeal of militant factions, and threatening Israel’s security. Unless today’s impasse is broken soon, the PA could melt away, leaving Israel with a poor, embittered neighbor with whom dialogue could be much more difficult.
The Palestinian recession is among the worst in modern history. Average personal incomes have declined by more than a third since September 2000, and nearly a half of Palestinians now live below the poverty line.
Today’s economic crisis has been caused by restrictions on the movement of Palestinian people and goods, or ‘closures’, which the Government of Israel (GOI) regards as essential to protecting Israeli citizens from attacks by militants. Without a major reform of the closure regime, however, the Palestinian economy will not revive and Israel’s security gains may not be sustainable.
Of itself, Israel’s Disengagement Plan of June 6 will have very little impact on the Palestinian economy and Palestinian livelihoods, since it only proposes a limited easing of closure. A focus on this over-arching issue is essential if disengagement is to deliver long-term benefits.
Indeed, were it accompanied by the sealing of Gaza’s borders to labor and trade or by terminating supplies of water and electricity to Gaza, disengagement would create worse hardship than is seen today. This could forfeit the international goodwill that Israel’s initiative has created. Under such circumstances, the Plan’s assertion that Israel is no longer responsible for the population of Gaza will not resonate. Nor would donors appreciate the implication that they must bear the humanitarian consequences of this style of disengagement.
Disengagement will remove internal movement restrictions in Gaza and in part of the northern West Bank, but Palestinian economic recovery depends on a radical easing of internal closures throughout the West Bank, the opening of Palestinian external borders to commodity trade, and sustaining a reasonable flow of Palestinian labor into Israel.
Easing internal closures throughout the West Bank must be accompanied by a credible Palestinian security effort; as long as Palestinian violence persists, the case for dismantling closures will always be contestable. Over the coming year, though, the turmoil likely to attend the completion of the Separation Barrier will complicate efforts to free up movement within the West Bank.
Removing restrictions on the movement of cargo across borders is relatively simpler – technologies and administrative methods exist that permit the orderly flow of cargo and the maintenance of security. Introducing a new, efficient border cargo regime would make a major difference to Palestinian welfare and commercial prospects. The international community should focus on this key economic issue in its diplomatic dialogue with GOI.
An easing of closures alone, though, will not attract investors back to the Palestinian economy. A reinvigorated program of Palestinian reform, designed around measures that will create an investor-friendly business environment, is essential. There is no reason for the PA to delay implementation of such a program.
It is important to understand that additional donor money alone can not solve today’s economic problems. Donor disbursements of c. US$1 billion per annum (or US$310 per person) are already very high. Additional aid in today’s economy would help alleviate day-to-day hardship, but would have little lasting impact. As long as the web of Palestinian economic transactions remains shredded by closures, investors will stay away, and short-term gains will not be sustainable.
With a freeing-up of the constraints on economic activity and committed Palestinian reform, an additional major donor effort would make a difference – it would enable the Palestinian economy to turn the corner. An additional US$500 million per annum, on top of existing disbursements, could by 2006 spur a growth in real personal incomes of about 12% (and 20% in nominal terms), and could reduce unemployment to levels only slightly higher than prior to the intifada.
The alternative to this is stark. At the wrong end of the spectrum of possible outcomes is a Palestinian economy with unemployment levels of over 35% by 2006, and with poverty afflicting upwards of 55%, and 70% in Gaza. With the PA weakened as it is, the time to get things right is running out.
As for the settlement assets that Israel will leave behind, those in Gaza have considerable economic value, and in time can make a significant contribution – provided that Gaza’s borders are opened for trade. Prospects for economic recovery will be enhanced if the US and the EU give adequate preference to Palestinian products to help boost exports.
The manner in which the settlement assets will be transferred to the Palestinians remains a core issue. The PA should seize this opportunity to demonstrate transparency, equity and efficiency in receiving and disposing of the assets. The PA is advised to create a special agency for this purpose. The donors, through the Ad Hoc Liaison Committee, should provide the advice and assistance needed to ensure that the asset transfer process goes well and is acceptable to all parties.
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