The first issue of the Palestine-Israel Journalin 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 byDr. 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 theJournal, 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; andMr. 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.