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Unfulfilled Expectations: The Peace Process and the Palestinian Economy
A Round-Table Discussion

The first issue of the Palestine-Israel Journal in the winter of 1993 focused on Peace Economics, in the wake of the Oslo agreement of September 1993. The present round-table, which was held in Jerusalem on July 20, 1999, deals with the subject of Peace Economics Revisited, as in the years since Oslo many of the expectations it generated in the field of economics were not fulfilled. We asked four prominent economists what went wrong and where do we go from here.
The round-table was moderated by
Dr. Simcha Bahiri, a Tel Aviv-based economic consultant and author of several works on the economy of peace; and Leila Dabdoub, co-managing editor of the Journal, who stood in for Dr. Samir Hazboun. The participants, representing both the public and private sectors, were Mr. Dan Catarivas, deputy-director of the Israeli Ministry of Finance in charge of international affairs, who participated in all the Middle East summit conferences; Dr. Hassan Abu-Libdeh, who heads the Palestinian Central Bureau of Statistics and has been among the negotiators in both the bilateral and the multilateral tracks; Mr. Hani Abu-Dayyeh, a co-owner of the Near East Travel Agency (NET), who specializes in tourism and transportation and has also been involved in the negotiations; and Mr. David Brodet, who was director-general of the Israeli Ministry of Finance and participated in all the negotiations.

Simcha Bahiri: Our first issue of the Journal, which came out five years ago, dealt with peace economics. Now it is over five years since the Paris Accords. What went wrong? What can be done about it?

Hassan Abu-Libdeh: First of all, the Paris protocols had no chance of application on the ground. This is why they were not actualized. The reality differed from the expectations, and the lack of good faith in the development of the peace process presented a new reality.
Second, the Paris protocols made some very important assumptions - particularly that both parties would apply progress in the political track to the economic track. Thus confidence would grow on both sides as they benefited from the regulations pertaining to the economic sphere.
Of course, that did not work out. Therefore, the Paris protocols were the first victims of the strained relationship that was to develop - the first victims of the lack of Israeli-Palestinian dialogue and all the subsequent developments.
The third problem is that the Paris protocols assumed internal development within the Palestinian National Authority (PNA) and within the Palestinian administration that would enable them to meet the requirements and satisfy the potential, and this did not really take place.
What can be done? There is no specific remedy that could be introduced to fix the Paris protocols. The reality has changed dramatically. New terms of reference have developed. Renegotiations have to take place on the basis of agreements to allow for the Palestinian economy to move towards independence. One of the main results of the Oslo process in the last five years is that the Palestinian economy is now more dependent on the Israeli economy than it was in 1993. This led to a situation where many of the parameters of the Palestinian economy did not achieve an equal footing with the Israeli economy. There is no chance, in my opinion, to fix the Paris agreement. The only chance is to renegotiate the agreement as part of the final-status arrangements.

Dan Catarivas: I think that at this point we should look forward to the future and not back to the past. The basis of the economic agreement between us and the Palestinians today is enshrined in the Paris protocols, and this should now also be the basis for developing a new agreement in the permanent-status negotiations. We could probably spend hours analyzing the Paris agreement and what developed positively and negatively. The major question is whether there is a possibility of actually moving on two different agendas: economic and political.
Maybe we all thought in the beginning - Palestinians and Israelis - that the economic agenda could develop by itself uninfluenced by the political. We thought there was a good model that we could use to create an economic environment that would influence the political environment. We thought this was the underlying idea of the negotiators of the Paris agreement.
And again, the Paris protocols contain good and bad because the result of any negotiations is always a compromise. Unfortunately, we have to discuss whether there is an economic agenda that can develop separately from the political agenda. What happened is that the five years which should have created a positive climate in the country, were five years in which a negative climate was created. Now after such a period, instead of having more confidence we have less confidence. And so we have to seek a different concept.
The question is whether it is possible to have two separate agendas, economic and political. We are not here to discuss politics. We should discuss the economic aspect. I definitely believe there is still room for creating a better economic climate that will influence politics, but we have to remember that the political agenda will be dominant. And when I say political, I also mean security. The various economic formulas will have to adjust to the political and not the other way round.

Hani Abu-Dayyeh: If you want to make peace, it may be that you have to take a step backward before you can move forward. I think the idea that we can move forward from the Paris agreements is flawed because if you do not examine the reasons for our failures - and there are several reasons we can examine and correct - then I think maybe we are moving on with both our legs broken. So I disagree that the ultimate threshold from which to move forward is the Paris agreement.
Before we Palestinians accepted playing a role in the agreements, I did not want to participate in the negotiations because in some areas they are very vague. Vagueness is good if the political climate is right and if the political climate is not suitable, the vagueness always affects the weaker of the two sides. There was too much economics in the agreement and not much sovereignty for the Palestinians. I did not see a political climate in which we could move forward. I thought the results would be very limited indeed, and would be crippling unless the political climate was favorable.
I will relate to what happened with tourism, because tourism is the least political area in the field of economics. It is a beautiful area for coming together and moving forward. Within the Paris agreement, the most reciprocal area is that of tourism. But if there is no parity between the two sides and nothing to create an equal arena in which to play, it always works against us.
And what happened? On one side it was reciprocal, but then you Israelis imposed security issues, and the soul of the agreement - the freedom of movement - was destroyed. So all the possible benefits that could accrue from cooperation in tourism were negated by the imposition of strict security. And security, from the Israeli point of view, is almost like that of the Jewish extremists, and it is non-negotiable.
Tourism touches upon everything in a country. Try crossing into Bethlehem. I am not really sure that these unilateral security decisions can be taken without considering other factors which could afford long-term relations and security between the two peoples. When we went to Cairo, the heart and soul of the Cairo agreement was taken away - including tourism, which doesn't function in a vacuum.

David Brodet: I think there is some misunderstanding about the concept of what has been happening since Oslo, during the Paris agreement, during the last five years of the Interim Agreement. You took a position from the point of view of tourism, and you are right. Tourism is an apolitical issue, so we can enjoy a lot of success there theoretically. But you cannot separate even tourism from the political and economic environment and from the entire climate of the last five years. These actually go hand in hand.
First of all, if we focus on tourism, Israel was also negatively affected in the last five years, or the last three years, since 1996 and the terror acts that February. We have not recovered from that. So Israel also suffered somewhat from what was happening in the political arena.
And now we have come to the root of the problem. I am not defending the security people in Israel and saying that everything they did was perfect. But the security situation was really the root of the problem in the last three or four years. The spirit of Oslo was that, during the five years of the Interim Agreement, both sides would have the time and the mood to develop a dialogue people to people, and to create a new atmosphere that would be a corridor for the permanent status.
At the end of the day, this was a failure. Since Oslo, since the ceremony in Washington, it will be six years in September. And there has been some change in the last six years but not a major change in terms of real dialogue and spirit and mood. Perhaps in spite of all the bad blood that had been created, there was a dream, an expectation, a vision that could be fulfilled. We thought at that time - I am talking about most of the Israelis that supported peace - that after five years, after six years, we would be at a different threshold and in a different situation in terms of understanding the deep, basic people-to-people concept and philosophy.
Security issues arose in the beginning of 1994 and 1995, and in the beginning of 1996. I am speaking from the Israeli point of view now. And I am sure also from the Palestinian point of view there was real disappointment. And it came to the unique situation in which the Israeli prime minister was assassinated by an Israeli at a time when some observers believed that as many as 50 percent of the population was disgruntled about this kind of peace process. So this was a failure in these terms. Now, tourism and the flow of goods and the flow of workers, these are details, very important details because this makes up daily life and it is basic. But the real failure was that there was no major change in the hearts of the people on both sides.
I am very supportive of the peace process, but after the last five years, even now when Barak is saying to Clinton that it will take fifteen months, I am not so optimistic. This is a process that needs time, and the time it consumes is something we perhaps did not forecast or evaluate realistically. Maybe it was a product of wishful thinking or optimism.

Hani Abu-Dayyeh: What I thought I understood from the Israeli point of view was that, after the assassination of prime minister Rabin, there was so much outpouring of grief across the spectrum of Israeli society that the assassination would solidify the peace process because nobody on the Israeli side would dare to take away his legacy. But you all went exactly against that logic. I never understood why the Israelis voted against the legacy of a man they grieved for so much.

Hassan Abu-Libdeh: The last five years should have been five years of transition for both sides, not only for the Israelis but for the Palestinians as well. I think that what is wrong in the process is that somehow, within the circles of evaluators on the Israeli side, there hasn't been much attention paid to what has happened in the transition in Palestinian society. That is to say, the aftermath of this process has resulted for Palestinians in much more restrictions with regard to the freedom of movement, less university attendance, etc. People are
worse off than at the beginning of the peace process. The standard of living is coming down. Unemployment rates are going up. So while the negotiators from both sides were hoping that a beneficial transition would take place, it in fact brought the opposite. For the Palestinians, the devotees of peace disappeared as that situation deteriorated; for the Israelis, terror acts took place because the enemies of peace were doing exactly what they were supposed to be doing. So peace fell victim to the deterioration of the political situation and of the situation on the ground.

Leila Dabdoub: Moving forward in time, we have been hearing a lot recently about separation, especially from Barak. Clearly what is meant is physical and political separation. How will this impact on the economy? Should the two economies disengage or indeed can they disengage? In that context, is it your opinion that cooperation should exist between the two sides?

Hassan Abu-Libdeh: Yes, they should. Whether they can or not is a different question. We are now living in a world of economic blocs in which economic powers are getting together, and markets and market needs are influencing everything. One of the expectations of this process was to create a huge economic market for the whole region in which the Palestinian and Israeli economies would be only a part. But the thirty years of occupation resulted in a Palestinian economy which cannot survive, in my opinion, if a decision on overnight separation is taken. There are too many parameters tying the two economies together which make it almost impossible for them to separate physically, to really become two totally different economies of different forms, interests and dynamics.
We need the kind of autonomy that will allow the Palestinian economy to grow into its own shape and size so that it can survive the monopoly of the Israeli economy, and can integrate into the economy of the region.
Political separation is a must, of course. That is the natural result of the negotiations. But as far as the economic arrangements are concerned, I think the issue is much more sophisticated than just a mere political decision separating two economies. There have to be some arrangements that will allow for an equilibrium, protecting the new emerging economy from the huge effects of the Israeli economy on the region, and on the Palestinian areas, through all these years of occupation.
The last five years have resulted in a much weaker Palestinian economy due to several practices that have to do with monopolies created within the Palestinian side with the support, help and coordination of the Israeli side in many instances. Also many of the political transitional arrangements required have not materialized, which again resulted in more oppression affecting the Palestinian economy. I would assume that final status will bring about a model that will keep the two economies closely connected for a long time.

Dan Catarivas: Here again, from the Israeli point of view, there are various scenarios possible for the type of relationship that we can develop with the Palestinians. Each of these scenarios has positive and negative effects on both the Israeli and Palestinian economies. But what is really important is to have a dialogue trying to find the right equilibrium. It is definitely in the Israeli interest - although it is difficult to articulate - to have a strong Palestinian economy. The question is what type of arrangements will we have that will facilitate the development of the Palestinian economy.
I must say that the development of the Israeli economy is not unrelated to relations with the Palestinian economy, but the amount of influence that the Palestinian economy will have on the future development of the Israeli economy is relatively small. The development over the last couple of years of export-oriented Israeli industries, high-tech, information technology, etc., is unrelated, in the near future at least, to what will happen with the relations with the Palestinians.
Going even further, it is in our interest to see how the Palestinians can even benefit from the developments taking place in the Israeli economy. The basic issue is that we should have a neighbor which is self-sufficient and strong, which can eventually also become a market in the future and a partner for cooperation in the global market and in opening up new areas in countries in the Arab world, etc.
All those things are possible if we find the right balance. It is not good for us to have a weak economy next door. It has been said that the economy that will be most harmed by economic separation will probably be the Palestinian economy. Proportional to its size, the harm to the Palestinian economy will be much stronger than the harm to the Israeli economy if politics decide to go all the way and impose separation on the economic side. But again, it might be that some political factors will dictate the economic solution and maybe we cannot separate between politics and economics. The question is how we can find a solution where the two sides will not suffer, and will even benefit. That is what we have to find.
If we speak pure economics, everybody will tell you that everything indicates that the neighboring Palestinian economy can take advantage of the Israeli economy. We have to try to formulate more specific areas in which cooperation can really afford advantages to the Palestinian economy - labor, for instance. When talking about permanent status, we have to try to find a more permanent solution to the question of labor.
We know that, on the Israeli side, the foreign workers are not the ultimate solution. More and more people are talking about all the difficulties with foreign workers, in contrast to employing labor from a Palestinian neighbor that goes back home and does not involve the same costs and burdens on the Israeli economy.
And I am not sure that taking a very black-and-white formula of dependence and independence is the right way of going about all this. Maybe more of a sectoral approach is called for. In some areas there will be more and in some less cooperation, with a mixed system in which some economic areas will be more integrated and some will be less integrated, a mix that will enable the development of the two economies.

Hani Abu-Dayyeh: When Barak says he wants to opt for separation, I am not really sure what he means in the context of the reality we have on the ground. I am not really sure what such separation means and I cannot comment on what separation we are talking about. The Palestinians have opted for political separation.
I would like to stick to the area of tourism. Separation in tourism, in my opinion, is disastrous for both sides because there is no difference between the Palestinian
tourism product and the Israeli tourism product, except in ownership. Both of us sell the same package, and our history has encompassed the total geography of this land and cannot be separated. So if we are looking for a future in tourism, then any talk of separation is detrimental to both sides.

David Brodet: Talking pure economics, basically there are three models of possibilities for relations between the Israelis and the Palestinians. One can be separation, the second is what is called a free trade agreement, and the third is a customs union. For each model there is a pro and a con for the Israelis and the Palestinians.
There are professional economists who say that it may be good for the Palestinian economy to be fully separated from Israel because it would be the first time they will have the chance to build their institutional framework and have the sovereignty to deal with their economy. Then, if they utilize the time to build their economy, they will be more able to cooperate equally with the Israeli economy.
Second, a free trade agreement, of course, is something that came along with the thought of an open economy. This is a common development in many countries which have tried to open up their economy to cooperation. It gives each side the ability to build its own economic policy, but there is a lot of cooperation in trade.
Customs unions are part of globalization. In some areas, in Europe or even the United States, this means more than trade. It comes along with a free labor market, and in Europe lately, even a council of coordination or cooperation.
This is the pure economics point of view, but we cannot ignore the political. And the political situation is that economic separation will sharpen the delicate political issues on both sides - such as water, Jerusalem and borders.
To be more concrete, full economic separation means that you have to set an economic border. This includes customs checkpoints and tariffs where all trade has to be checked from one side to the other. It means that we would now have to raise the question of the border in Jerusalem as a very high priority - namely, where the checkpoint in Jerusalem will be, the Green Line or a kilometer from the Green Line or whatever. With a free trade area, as with separation, you also need a border, customs stations and everything related to these. Therefore, a customs union is the easier political and economic solution for the politicians with regard to the political issues. But I am not saying that a customs union is the best economic solution. The gap between the Israeli and Palestinian economies is such that it may be the best solution.
Consequently - and this is something I have been working on for the last year - we have to find a solution that will consist of combining the benefits of a customs union and the benefits of a free trade area. This is the third possibility. We called this EPS - Economic Permanent Status in a booklet we published last November [1998] - and it attempts to extract the priorities of both systems, leading to the best economic model, able to fit the political environment more smoothly than the other options.
Such a model can be digested more easily for the coming years in view of the delicate political issues lying ahead. The benefit of EPS, the combination of a customs union and a free trade area, is that the Palestinian economy can have an independent economic policy, which is very important for them as it goes along with political separation. But this also gives the Palestinians the benefits of a customs union - for example, tax transfer money which is very important for the Palestinian budget. So this model, in a nutshell, offers a realistic economic permanent status in terms of a combination of a customs union and a free trade area, along with political separation.

Simcha Bahiri: We move into the question of labor. In one of our articles, Prof. Ezra Sadan discussed labor and said that if things had been left alone, instead of the 50,000 Palestinians we have working in Israel, if you extrapolate from ten years ago, we would have had more than 150,000 Palestinian workers. And that extra 100,000 workers would have had a good effect on the Palestinian economy. But there is a lot of negative reaction to increased Palestinian labor within Israel.
A common market would imply the free movement
of labor. What do you speakers think about the effect on both economies of increasing or decreasing the number of Palestinian workers?

David Brodet: First of all, I agree with the projection that 150,000 Palestinian workers is a real number reflecting the need of the Israeli economy, on the one side, and Palestinian needs on the other.
The Israeli economy is actually now in a peak situation regarding workers from outside. We have 100,000 Palestinian workers - official and unofficial, legal and illegal - in addition to 200,000 foreign workers. At the peak in 1992, the number was 116,000 Palestinians and that number also included permitted and nonpermitted. But if we make the real extrapolation from 1992, the peak should be on the same parameter - about 150,000 - and we are below 150,000 because of the problem of tourism.
First of all, we have fallen behind because the Israeli economy is now in recession and the demand for workers is less than it was in the beginning of the 1990s. We hope that there will be some recovery in the coming years so there will be a greater demand for workers.
The second point is that, because of all the terror acts in the mid-1990s, Israel imported about 80,000 permitted and about 100,000 unpermitted foreign laborers, so the number is actually very close to 200,000. These people, of course, compete with Palestinian workers and I think this is good neither for the Israelis nor for the Palestinians.
I would prefer a situation in which foreign workers would number no more than 50,000, and the additional workers would be Palestinians. Also, the Israeli market will be changed so that, instead of 200,000 unemployed Israelis, some of them will also be poured into the labor market.

Simcha Bahiri: Can you also refer to what areas the Palestinian workers can work in within Israel?

David Brodet: Traditionally they work in agriculture and construction. And the foreign workers are also working in these two areas. We are not importing workers to work in industry for the time being. The Thais and Chinese are working specifically in agriculture, and the Rumanians and Portuguese are in construction. So there is a demand for labor in Israel, and it is related to the structure of the economy because the Israeli workers are moving more and more to high-tech and to more sophisticated branches and are leaving the semi-professional labor to foreign workers, part of whom are Palestinian and the rest Europeans and Asians. In any case, of course, I would prefer to give priority to the Palestinians over the foreign laborers, from the point of view of what would be best for Israel socially and economically.
To turn back the clock on this situation will be very difficult because to deport the 100,000 illegal foreign workers has now become very problematic. Foreign workers were good for the short term, but very bad for the long term. I am not in the government any longer, but I think the government should do more to change these priorities. I am not ignoring the fact that there are lots of difficulties in changing it in the short term. I am sure the new government will also prefer Palestinian labor, but they will face difficulties in changing the mix between foreign and Palestinian in the short run. It will take time. The only hope is that maybe the growth in the Israeli economy will result in a greater overall demand for labor so that Palestinians will be able to benefit in the near future, but it still will not be as it was in the early 1990s.

Hassan Abu-Libdeh: First of all, you should differentiate between looking at the issue of labor from the perspective of preference, and from the actual situation. Any final-status arrangement must include an arrangement for the flow of labor simply because the Palestinian economy has not been able to develop in such a way that it meets the need of absorbing the labor force of the Palestinian economy.
The Palestinian labor force grows by about six percent per year. The economy itself is not growing, and there are not enough jobs to absorb this growth. Therefore, a set of political arrangements for permanent status must include a component for stabilizing the Palestinian economy and society.
As regards labor, I do not think the Palestinians or the Israelis have that much to choose from. In real terms, the Israelis do not have the option to prefer having Palestinians working in Israel or not, although we Palestinians have wished for many years that we could really drift away from the Israeli economy, including separating the labor. Increasing labor in Israel is the only viable solution.
According to Palestinian statistics, our figures are even higher than those cited here, and if we look at projections and the growth in the Palestinian labor force, probably even more than 150,000 Palestinians should have been working in Israel right now. But 100,000 to 120,000 are now working - including illegal workers - according to our latest statistics. Mostly the Palestinians work in agriculture or construction. I think the high-tech industries, and so on, are closed to the Palestinians, and also to the other foreign workers.

Simcha Bahiri: What is the total number in Palestine itself?

Hassan Abu-Libdeh: The total labor force is just above 600,000. The unemployment rate for May [1999] is less than 9 percent on the West Bank and about 16 percent in Gaza. This means roughly about 400,000 Palestinians who are employed.
I think the Palestinian economy - and even the neighboring economies within the Arab world - will be unable to absorb that number of Palestinians if we opt for total separation between the two countries, including the export of labor and so on. So I think Israel has no choice but to rearrange economically so that enough Palestinians are absorbed into the Israeli economy in face of this huge growth in the labor force and the very minimal potential for growth in the job market within the Palestinian economy in the near future.
If the final status does not include arrangements that guarantee a certain minimal number of Palestinians working in Israel, then the Palestinian government-to-be will not be able to face the problem of continuous high unemployment rates. That will be a cause for further instability in the community, as regards possible arrangements leading to permanent peace between the two countries.
This, in my opinion, is a priority issue when it comes to the final-status negotiations because, over the last 30 years, we Palestinians could always pinpoint the Israelis as the cause of any problems relating to our huge unemployment. The Palestinian economy has been absorbed within the Israeli economy, and we did not really have the chance of developing the Palestinian economy in order to absorb all these workers. This issue is here to stay, and it will have to be tackled in the final-status negotiations.

Dan Catarivas: There should be provisions for the benefit of the two sides, and we should give more priority to the problem of the Palestinians. It will take time, but I think there could also be a change in the pattern of employment of Palestinians in Israel. This is something that, again, is related to the development of the Israeli economy.
But if we take the tourism industry, it is very labor-intensive. We will definitely see very positive changes in the tourism industry in the event of an advancement in the peace process. Maybe there will also be more employment opportunities in the Palestinian territories for the Palestinians themselves. Again, our economy has become much more a service economy, and that could also mean a changing pattern of employment. I see no reason why, when there is better confidence and trust between the two peoples and a process of real reconciliation, this would not also have a good effect on the employment pattern of Palestinians in Israel.

Hani Abu-Dayyeh: In tourism we are in a catch-22 situation. If we do not have the prerequisites to be able to build hotel rooms - which means some kind of stable and open system because tourists want to go all over the country - then Palestinian or foreign or international investors are hesitant about investing. We have seen this with regard to Bethlehem 2000 because of this perception of a lack of stability.
Therefore, the opportunities that were supposed to accrue as a result of the peace agreement have not done so. Most definitely tourism has potential, but it needs certain conditions to succeed, and security and politics must not be allowed to block the free flow of tourists.

Leila Dabdoub: Maybe we can wrap up with a word about the PNA's management of the economy since its inception. What is your own evaluation of it? Would you say donor money has been used to full potential? Has the emphasis been more on the development of the public or the private sector?

Hani Abu-Dayyeh: These are sensitive issues.

David Brodet: This is actually a glass which is both half-empty and half-full. The half-full is that there was a real attempt to create institutions. A new situation has developed over the last five years in which the Palestinians, through the PNA, have taken responsibility to fix priorities in economics in terms of the budget and so on, and to try to set economic policy. So some steps can be evaluated as an advance in terms of taking responsibility for their lives, and this was part of the targeted goals of the Interim period.
The half-empty glass is that, even though there were a lot of difficulties in terms of the closures and interruptions in the flow of labor and goods, I think the Palestinians could have done more in terms of the substance of their priorities - how to use the money, how to create and to encourage the private sector, how to build a market-oriented economy.
This was, for me, somewhat of a disappointment because I remember, during the long period of negotiation with the Palestinians, they assured us that they would have a very efficient public sector, a very market-oriented economy, and a good private sector. The Palestinian Diaspora would bring money and build and create and invest, etc. I am sure that they were very optimistic, but basically, the result of these years is not encouraging. I say this as a professional economist - not as an Israeli - working for the last 30 years trying to understand macroeconomic policy, trying to see what the public sector is and how to design economic policy. I think the situation that the Palestinians have created during the last five years is not hopeful in terms of development in the long term.
They had a good chance to do more, and I hope they will have a better chance to do so in the future. They have to understand what real macroeconomics is. Specifically, they are next door to the very developed Israeli economy, and they can benefit from that. When an economy of $4 billion stands next to an economy of $100 billion with relatively open borders, this is a real advantage, and you have the chance to derive all the benefits from this advantage.
You can realize an annual growth of about 7, 8 or 9 percent. This is something that can be easily achieved by the Palestinian economy, and I say that conservatively because, if I would be a planner of the PNA, I would even put a target of 10 percent in real terms. The Palestinians are now in a situation in which the GDP per capita is relatively low compared to the Israeli, so they have a chance to be more sophisticated and more developed than other countries in the area due to the fact that they have the possibility to export to an economy of $100 billion.

Hassan Abu-Libdeh: I agree with the theoretical part of your intervention. Yes, we did have a good chance of benefiting by being the neighbor of a great economy compared to our own. But of course, political realities make it almost impossible for us to do this, even had our economy done better. Political developments and restrictions have made it almost impossible for this very small economy to have a chance with an economy which is at least 25 times larger.
As a Palestinian, I am not very satisfied with our conduct in the last five years, partly because we expected more, and because with the political climate and the nature of the transition we were not able to live up to those expectations. After all, five years can be regarded as a very long period, but in reality it is a very short period for a country in a tough period of transition, for a system yet to be formed, for a type of government which is yet to emerge.
There was - and there still is - an internal transition taking place, moving from the era of a purely politically oriented system where the PLO was striving to realize its political aspirations, preferring political to economic issues, to a group of decision-makers trying to run a civic society that is in itself a transition.
The PNA could have done much better, but I think they had to go through the normal cycle of development, making a lot of mistakes. I think they were unable to comprehend the requirements for establishing an open economy, to cope with all the requirements and restrictions and conditions of the Paris protocols and with the economy of Israel. I think they have not fully managed to comprehend the potential level of power of having an economically sound system.
In the five years of transitional arrangements, we did achieve a certain progress which cannot be denied, but the progress could have been much better had we been a little more careful in terms of how we arranged our relationship with the Israelis and had we recognized the importance of the private sector and its role in promoting economic benefits for the people.
Donor money was not fully utilized for various reasons. Partially it has to do with all sorts of conditions that the donors themselves placed in terms of how and where to expend the money. That resulted in a lot of delays that made it sometimes impossible to spend the amounts of money that were committed. Also, the expenditure of some of the committed donor money required the agreement of the Israelis and the Palestinians. Often this did not take place, so that money ended up not being spent for a long time.
The PNA gave more priority to developing and promoting the public sector, sometimes at the expense of the private sector, and sometimes due to the fact that it did not really realize the potential of the private sector. We can justify to a great extent putting more emphasis on promoting the public sector because when the PNA was established, the unemployment rate was unprecedented in the Palestinian territories. In Gaza, at one stage, it reached 40 percent, and we are speaking of unemployment measured using the ILO (International Labor Organization) definition. Also in the West Bank, where there was more opportunity because of the huge open borders with Israel, it reached about 25 percent.
In my opinion, the public sector was artificially developed in order to provide employment, and now we have maybe 115,000 Palestinians employed in the Palestinian government, half of which is probably due to making jobs available to people that have to be absorbed.

Dan Catarivas: In brief, nobody is perfect. Our administration also has plenty of problems. Maybe the Palestinians could have learned from our mistakes and not committed the mistakes themselves. But perhaps everybody has to make their own mistakes and go through the process of learning. Every administration knows the mistakes, but commits them, and only after that learns the lesson. I hope the Palestinians will also learn in the same way.

Hani Abu-Dayyeh: No doubt we had some naiveté on our side. Expectations were much higher than dictated by reality. We always gloated that we built the Arab world and that we would have no problem, once given our own country, to put our own institutions in shape in no time. Maybe we have to make our own mistakes and learn from them.
There is no doubt that when the political situation deteriorated, there was a need to create stability and there was great public unrest which made it necessary to employ people. The problem right now is - and maybe this is the price - that if most of the institutions are overloaded with people who are not sufficiently qualified, vested interest has been created in a large public sector, it will be difficult to dismantle or to reduce this in the future. This is not conducive to efficient organization. It will be a problem to ensure the efficiency of the public sector. <

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