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December 6, 2000

Palestinian Economy in Ruins, U.N. Says


JERUSALEM, Dec. 5 - Two months of violence have devastated the economy of the West Bank and Gaza, according to a new report issued by the United Nations.

Israeli restrictions on Palestinian goods and workers - which Israel says it has imposed both as a security measure and as diplomatic pressure - have cost the Palestinians more than $500 million in lost wages and sales since violence erupted in the region in late September, erasing 10 percent of the year's projected gross domestic product, the report says.

Unemployment has tripled, leaving more than a million Palestinians - a third of the population - with no regular household incomes, the United Nations says.

"Three years of progress have been wiped out in two months of conflict," said Terje Rod Larsen, the United Nations special coordinator for the Middle East, who presented the report in Gaza on Monday to foreign diplomats and aid donors.

Mr. Larsen, a Norwegian diplomat who helped broker the 1993 Oslo peace agreement, urged Israel to lift its two-month-long clampdown on the movement of Palestinian goods and workers to Israel and between Gaza and the West Bank. "Palestinian living conditions are falling fast, and safety nets are wearing thin," he said.

The violence has also taken a serious economic toll on Israel.

Israeli economists have lopped a full percentage point off their growth estimates for the country for the year, a billion-dollar correction. Tourism has vanished. Farmers and contractors who depend on Palestinian workers are demanding bail-out aid. Even the vibrant high-tech sector is feeling the pinch, with venture capitalists scaling back spending.

"The economic forecast for the next few months is dismal," said Nehemia Strassler, an Israeli economic columnist. "We have an external blow from the intifada, causing a reduction in economic activity, a loss of production, a decrease in investments, a drop in private consumption and an increase in unemployment."

Even so, forecasts show the $100 billion Israeli economy growing by more than 4 percent, propelling per capita income past $18,000 - the highest in the Mediterranean after France and Italy. And the Clinton administration is seeking to supplement Israel's annual $2.9 billion aid package with an additional $450 million this year.

For the Palestinian economy, just one-twentieth the size of Israel's high-tech juggernaut, the impact has been far more devastating. Normal economic activity has been slashed in half. The estimated $388 million drop in local economic output, plus $117 million in the lost wages of 110,000 workers who had jobs in Israel, are two and a half times greater than the total foreign aid received by Palestinians from all sources - $183 million - in the first half of the year, the United Nations noted.

"This is catastrophic," said Salam Fayyad, the representative of the International Monetary Fund in the Palestinian territories. "It is undoubtedly the worst shock the Palestinian economy has suffered since Oslo."

The European Union has released emergency aid to help pay Palestinian Authority employees, and Persian Gulf businessmen have donated more than $20 million for a special Palestinian unemployment fund. Over the long term, Arab governments have pledged $693 million in new economic aid to the Palestinians, with most of it coming from Saudi Arabia ($250 million), Kuwait ($150 million) and the United Arab Emirates ($150 million). And the United States continues to provide more than $75 million annually to the Palestinians under a long-term aid commitment, though most of the programs it underwrites have been paralyzed for the last two months.

None of that assistance, however, will keep the Palestinian poverty rate from climbing drastically this quarter, with nearly half of the population living on $2 a day or less, according to the United Nations.

In its economic impact estimates, the United Nations did not include what its report said was tens of millions of dollars of damage to Palestinian "buildings, infrastructure and vehicles, due mainly to the Israeli Army's use of heavy weapons, including rockets, tank shells and high- caliber automatic weapons." In the first six weeks of the conflict, the United Nations report said, Israeli attacks resulted in the partial or total destruction of 431 private homes, 13 public buildings, 10 factories, and 14 religious buildings.

The Israeli Army has said its attacks on Palestinian homes and public buildings have been limited to sites harboring snipers or to offices connected to organizations it accuses of complicity in armed violence or terrorism.

The United Nations report also chastised Israel for reducing tax transfer payments to the Palestinians during the last two months.

Under economic arrangements negotiated as a corollary to the Oslo peace accord, the Palestinians are entitled to customs duties, sales taxes and other levies on goods bought and sold within their own autonomous territory. The Israelis, who control the seaports and border crossings used for Palestinian commerce, collect the import taxes themselves, and transfer the payments monthly to the Palestinian treasury. Most sales taxes are also collected by Israeli authorities, and transferred later to the Palestinians.

Until recently, those payments averaged more than $50 million a month - enough to meet the entire Palestinian government payroll, from doctors and schoolteachers to bureaucrats and policemen.

In the seven weeks from early October through the end of November, official sources say, the transfers came to no more than $8 million, as Israel reduced and delayed the payments for political and bureaucratic reasons. The Palestinians had amassed unpaid debts and failed to provide all the invoices and other paperwork needed for reimbursement, Israeli officials said.

Prime Minister Ehud Barak is currently relaxing controls on Palestinian exports and imports in what he terms a gesture of good will during the Muslim holy month of Ramadan. Under intense pressure from the powerful Israeli agricultural lobby, he is considering plans to re-admit some 15,000 Palestinian day laborers.

But Mr. Barak remains opposed to a return to the situation before the outbreak of violence two months ago, favoring continued restrictions on Palestinian goods and workers.

Some Israeli Finance and Foreign Ministry officials have questioned this separation strategy. Their skepticism was reinforced from an unexpected quarter on Monday, when Ami Ayalon, the former chief of Israel's intelligence service, attacked what he called humiliating security restrictions Israel is imposing on Palestinians, and heaped scorn on proposals to ban Palestinian trucks from Israeli roads.

"Economic separation and fences aren't the best model in the Middle East reality," Mr. Ayalon said in a widely discussed speech. "We should bear in mind that whatever we decide to do will have an impact on us, and that there's a limit to power and to the degree of pain we can inflict on each other without a boomerang effect."

Sanctions Suffocating Gaza's Fragile Economy

By Lee Hockstader, Washington Post Foreign Service Wednesday, December 6, 2000; Page A01

GAZA CITY -- A stroll through the teeming streets of Gaza City shows the Palestinian economic meltdown unfolding like a nightmare.

At the Andalus electronics store, the only action at midday is the overheated melodrama playing on a half-dozen color televisions. "Normally, I'd sell 50 TVs in a month," said Yusef Zaada, the dejected owner. "In November, I sold maybe one or two."

Up a flight of nearby stairs is Hatim Abu Shaban's general contracting office, which has fallen silent in recent weeks. Before the Palestinian uprising began in late September, Abu Shaban employed 125 workers building two new schools. Now the projects have stalled, the workers have been laid off, and the payroll has dwindled to a few watchmen at the idled job sites.

"Everything's stopped--no materials, no money," said Abu Shaban, who doubles as an independent Palestinian legislator. "If it keeps on like this for much longer, the economy won't be zero; it will be 50 percent less than zero."

As the two-month-old uprising grinds on, Israel's stranglehold on the fragile Palestinian economy is crippling thousands of small businesses, wiping out tens of thousands of jobs, impoverishing families across the West Bank and Gaza Strip and risking a humanitarian crisis, according to international economists and aid workers.

By tightening its barbed-wire blockade of Gaza and the 1.1 million Palestinians who live there, and of scattered towns and cities across the West Bank, the Israeli government has choked off most trade and traffic in the territories administered by Yasser Arafat's Palestinian Authority, preventing supplies, raw materials, workers and money from reaching their destinations.

Israel, which also has suffered economically from the uprising, does not dispute the effect of the sanctions, but it denies the goal is to bleed the Palestinian economy. The main reason for blocking workers and commerce from entering Israel is security, officials say.

"We don't trust the Palestinians today, we don't trust the Palestinian Authority today," said Shlomo Dror, spokesman for the Israeli army in occupied areas of the West Bank and Gaza. "It's very hard for us to allow Palestinians to come to work in Israel, because how can you be sure that they're not going to participate in any violence? What if someone lost their children [in clashes with Israeli soldiers]? You don't know the feeling in the family. The feelings of hatred against Israel right now are very great, and so the risk is very big."

In addition, some damage has been self-inflicted. In the early weeks of the uprising, Palestinians themselves closed the main commercial crossing between Israel and Gaza. Also in October, rioting Palestinians torched several Israeli-owned factories near the West Bank town of Tulkarm, eliminating jobs for the Palestinians who worked there.

For the most part, though, it is Israeli actions that have eliminated Palestinian jobs and ruined Palestinian businesses. For instance, Israel has crushed much of the Palestinian construction trade here by blocking supplies of cement from reaching Gaza, which used 3,000 tons daily before the crisis. For most of October and November, Israel also barred textiles and fabrics from entering Gaza, prompting dozens of small sewing factories, many of them subcontractors for Israeli firms, to dismiss their workers and close their doors.

The Israeli sanctions have taken their toll with a severity and suddenness that have staggered Palestinians and international aid agencies alike. The effects have been devastating throughout Palestinian areas of Gaza and the West Bank, but particularly in Gaza, which is hemmed in by an Israeli cordon.

Just 10 weeks ago, on the cusp of the deadliest outbreak of violence here in years, the Palestinian economy was well into its third year of recovery and growth. Gaza and the West Bank were not exactly thriving, but it was easy to spot signs of hope: Unemployment and poverty rates had fallen steadily, and the buzz of commerce was discernible in shops, markets, restaurants, hotels and among investors. Now Israel's economic siege has halted the flow of trade, services and workers, bringing fledgling Palestinian businesses to a standstill.

"This is something that happens in most places in the world over three years or three decades," said Salem Ajluni, chief economist for the U.N. agency dealing with the Middle East peace process. "It doesn't happen in three months."

In a report released Tuesday by the United Nations, based partly on a recent study by the World Bank, a barrage of fresh statistics outlined the dimensions of the collapse:

  • Unemployment has nearly quadrupled, soaring from about 70,000 jobless workers before the outbreak of violence to about 260,000. About two in five Palestinian workers are idle, including 100,000 who are barred from reaching what until October had been steady day jobs in Israel.

  • The poverty rate among Palestinians--defined as income of less than $2.10 a day--has jumped by 50 percent since late September. Nearly 1 million of the 3 million Palestinians in Gaza and the West Bank live below the poverty line, up from a fifth before the violence erupted. If the fighting continues, as widely predicted, poverty will continue expanding rapidly in the coming months, economists say.

  • Since the outbreak of violence, income losses to Palestinians are estimated at well over $500 million--nearly $9 million a day. That figure does not include the loss of hundreds of acres of Palestinian orchards that have been bulldozed by the Israeli army or the destruction of Palestinian buildings, homes, infrastructure and property.

"Here, the problem is really man-made and artificial," said Giuseppe Calandruccio, a U.N. World Food Program official in Gaza. "It's not really the war that's disrupted activity. It's not a natural disaster. The crisis is imposed by one of the parties."

By and large, Palestinians are not going hungry because of the crisis--not yet, at least. Prices for fish, eggs, chicken and other locally produced staples are low. Large Palestinian families--10 children or more is not unusual in Gaza--provide a safety net that protects most people from homelessness and severe hunger. But as living standards plummet, international aid agencies report tens of thousands of new Palestinian "hardship cases"--families so poor they need help procuring flour, cooking oil and other basics.

To feed newly impoverished Palestinians, the World Food Program last month sent word to wealthy donor countries that it needed $3.9 million in additional funding. The request was met with silence.

"Donors say they're here to fund the peace process, not the Palestinian people per se," said one aid official, who spoke on condition of anonymity. "Now there's no peace process, so there's less enthusiasm about giving money."

In this atmosphere, middle-class and professional Palestinians are dispirited. Some are locals who opened businesses in the last few years; others had returned to the West Bank and Gaza from Arab countries and the United States to try their hand in what was starting to look like a reasonably stable economy.

In the West Bank city of Ramallah, Sam Bahour, an American-born and -educated developer of Palestinian descent, is scaling back plans for the shopping mall he is building less than a mile from a junction where Palestinian rioters clash with Israeli troops practically every day. Bahour's original plan was for a grand opening this summer for the mall's 35 shops and supermarket. Now, he says, he is months behind schedule and will be lucky to open the supermarket alone by next fall.

In Gaza City, the Sakala sweets shop is faring no better. Sakala should be bustling during the current Muslim holy month of Ramadan, when sales ordinarily soar for the gooey pastries that are de rigueur for the evening feast. But not this year.

"I'm selling 40, maybe 50 percent less than last year during Ramadan," said Maher Sakala, the owner's brother, who manned the counter. "You can't have Ramadan without sweets, but these days people are buying only the cheapest ones, and in smaller quantities. That's all they can afford."

Some Israelis, convinced the Palestinians cannot be defeated by conventional military means, are urging that the economic pressure on the West Bank and Gaza be intensified. Among them is former prime minister Binyamin Netanyahu, who is widely expected to run again for Israel's top elected office in elections next year. He has suggested he would bring the Palestinians to their knees by squeezing their economy further.

But many Israelis doubt that economic weapons are any more effective than conventional ones. And Palestinians say that tougher Israeli sanctions might even be counterproductive.

"Economic frustration actually fuels the uprising because it makes people feel hopeless," said Abu Shaban, the Palestinian contractor. "People stop thinking about the economy or their futures, and when people are this disappointed they start acting without thinking. That's why they go to the front line and throw stones and get themselves shot."

(c) 2000 The Washington Post

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