The Israeli closures of the Palestinian territories, under the
guise of security, have constituted a succession of links along the
way towards the implementation of an economic policy aimed
primarily at direct separation between Israel and the territories.
Indeed, Israel has used the economy as an effective instrument
within the framework of future political settlements. The prime
victims of such measures, however, have been the Palestinian
economy, labor force and those sectors financially dependent on
Israel ¬industry, trade, agriculture, etc.
The most recent closure, which started on February 25, 1996, has
affected the investment climate and job creation opportunities. It
has also formed the basis for various scenarios regarding the
economic future of the territories. In light of the ongoing
discussion about such a future, a general consensus exists about
the necessity for opening the borders with Jordan and Egypt, as
these countries can become bridges to vast markets in North Africa
and the Gulf states for Palestinian products and work force. There
is also a call for opening the passages between the Gaza Strip and
the West Bank.
New Palestinian Thinking
This proposal indicates a qualitative change in Palestinian
thinking geared towards diminishing Israeli economic hegemony. It
is also a step in the right direction towards finding new ways for
sustainable Palestinian growth and greater economic stability in
the future. Naturally, the existing conditions entail a search for
the most suited scientific solution, and I believe that Keynes's
theory, "The General Theory of Employment, Interest and Money,"
would be the right theoretical introduction for the purpose.
Keynes advocates turning to what he calls "public goods," which in
our case can be infrastructural projects, such as electricity,
water and various waste matters. However, the most suitable
mechanism for the implementation of such a program would be a
distribution of the different projects of the infrastructure among
the donor countries, whereby each country would adopt one specific
project. For example, road construction in one district would be
given to Norway and that of a second district to France, and so on.
Such a mechanism will enhance follow-up and will impact favorably
on the economic situation. Once a project is carried out, the
Palestinians will realize the extent of the seriousness of the
donor countries and vice versa. In effect, public goods in Keynes's
theory - or the infrastructure - have the capacity to absorb a
large number of unemployed laborers. Indeed, as these have been
working in the construction sector in Israel, their absorption into
the same sector on the Palestinian side will not necessitate any
The other part of Keynes's theory relates to interest rates. The
huge number of banking institutions that have opened branches in
the Palestinian territories need to activate their role in the
developmental process, since capital constitutes one of the most
important factors of production. Periods of stagnation call for a
reduction in interest rates on loans for investment in order to
encourage investment. In this context, the Palestinian monetary
authorities should "consult" with the banks operating in Palestine,
to facilitate their functioning and relax the conditions relating
to legal reserve requirements.
Coordination among the various relevant ministries is imperative
for success, as the negative effects of a lack of coordination are
still being felt on the local scene. Undoubtedly, the adoption by
the Palestinian National Authority (PNA) of genuine contractionary
fiscal policy measures will prove an efficient means towards an
integrative economic stability. A gradual reduction should be
pursued until the real level of standard of living is reached,
leading, eventually, to the real economic situation compatible with
the Palestinian territories.
A Climate for Investment
In order to generate conditions conducive to economic stability and
the creation of a climate for investment, certain steps should be
contemplated in light of the continued Israeli closure and as a
long-term Palestinian strategy. The general standard of living in
all the Palestinian territories must be reconsidered, to allow for
the achievement of relative benefits and competitive privileges for
the Palestinian economy, within a global vision of an Arab
environment, i.e., of cooperation within the framework of what is
known as the Middle East. Currently, discrepancies in standard of
living do exist between Gaza and the West Bank, as well as in
salaries among administrative hierarchies within the same sector.
In addition, there must be a review of a certain mode of thinking
which attempts to use Israel as measure or model, unaware, albeit
unintentionally, that Palestinian consumption far exceeds the gross
national product (GNP).
This unique situation requires sacrifice in the short term.
However, a reduction in the standard of living does not necessarily
imply leveling with any of the neighboring Arab countries, but will
be compatible with the size of the Palestinian economic output, and
will diminish dependency and direct or indirect economic hegemony
from the exterior.
We should not forget that closure has negative repercussions on the
Israeli economy as well. That is why, after a few days of closure,
Israelis always reopen the crossings for the flow of goods in one
direction only, without adherence to the principles of reciprocity.
The daily need of the West Bank and Gaza in flour, for example,
amounts to 600 tons which represent 37 percent of the output of
Israeli mills. In addition, approximately one million liters of
milk enter the territories daily, as well as veal from kibbutzim.
It should be noted that such products cannot withstand long periods
of storage and suffer a daily loss in value. Thus, a knowledge of
Israeli economic conditions is essential for our dealings and
negotiations with the other party, as well as for the definition of
The PNA's Role
In short, I believe that the Occupation, within the framework of a
well-studied strategy, has worked towards an artificial improvement
in the economic condition. This has left the PNA with the onerous
task of grappling with the situation, and Israel is in the process
of creating various constraints and obstacles, most important of
which is the siege policy. Economic experiences worldwide, such as
that of North and South Vietnam, or Hong Kong and its projected
return to mainland China, can be valuable guidelines for us. In the
former, the standard of living in South Vietnam has dropped to the
North Vietnamese level, and in the latter, the high standard of
living in Hong Kong is going to drop to equal that of the low
Chinese level of living.
Finally, we should not forget that the Palestinian agricultural
sector can be considered an important economic reserve, both for
the provision and for the absorption of work force. It is a known
fact that a big percentage of Palestinian laborers have rural
roots, but have been lured by high wages to work in Israel. This
has resulted in the complete neglect of the agricultural sector.
Therefore, working out a general national plan for the
rehabilitation and the absorption of the work force into this
sector will achieve several aims, whether in employment, in the
utilization of agricultural lands or in the increase of the gross
domestic product (GDP).
Those working in this sector are invited to come up with new ideas
about the subject, given a common awareness of all the obstacles
which have been discussed in thousands of workshops. The continued
belief that the reopening of borders with Israel and working there
is the only way out of our crisis, leads in the wrong direction and
gives the Israeli side an added opportunity to further control our
political and economic future.
We should note that in light of the latest closure, the Israelis
have started giving Palestinians permits to work in settlements.
Such a phenomenon has important political implications. In
particular, the financial reasons that drove the Palestinian
laborers to work in these settlements in the first place, will
indirectly lead them to accept their role and to incorporate it
within their daily routine. And herein lie the far-reaching social
and political effects of a long-range Israeli political
The PNA, the relevant ministries and negotiators are faced with a
huge responsibility. Dealing with the Israeli side with short-term
reactions, allows Israel to implement its own plans and to
transform them into permanent policy. The involvement of the PNA,
during the interim period, in the economic activities is an
essential and valuable element in order to surmount the coming
economic difficulties. In addition, such an involvement can
constitute the legal justification for control over a reasonable
income per capita and average consumption compatible with the
economies of the countries in the region. This can help overcome
the short-term difficulties, including their acceptance by the
Consequently, our relationship with Israel should not proceed
further along the road dictated by its siege policy, but should be
replaced by gradual separation, accompanied by equal,
reciprocity-based economic relations. Such a change will contribute
towards the creation of balanced relations in the fledgling peace
bond of this new era.