PLANNING MINISTERS, ECONOMISTS CONSIDER WAYS TO BOLSTER SAGGING

PALESTINIAN ECONOMY, on JORDAN SEMINAR’s SECOND DAY

(Received from a UN Information Officer.)

AMMAN, 20 February -- The mix of ingredients for a viable Palestinian economy was the focus of the Seminar’s plenary this morning, with the Planning Minister from the Palestinian Authority, an Israeli economist, and the head of operations of the European Commission’s Technical Assistance Office among the panellists offering recipes for improving the dire economic situation in the Occupied Palestinian Territory.

The General Director of the Tel Aviv-based Macro Center for Political Economics, Roby Nathanson, said that there had been a window of opportunity after Oslo for economic development and cooperation between the two sides for a future Palestinian State, but the process had been derailed by the second intifada and, in 2006, by the election of Hamas.  Clearly, it was not possible to “rewind reality”, although he would prefer that from a purely professional economic point of view.  Instead, a strategic decision should be taken regarding economic relations between Israel and the Palestinian people.

One option was the continuation of conflict, which would have disastrous consequences for the Palestinians, and probably for the Israelis as well, he said.  The second option was to work towards a final status agreement based on the two-State solution.  It was not possible to go back to the regional cooperation envisaged in the Paris accord, but it was possible to talk about a separation of both economies, each with its own realities and environments.  How they could cooperate with each other efficiently could then be considered.

He said that that would be a friendly, rather than a hostile, separation of economies.  That friendly separation would enable Palestinians to achieve a dramatic change in their economic situation; it would grow the gross domestic product per capita, create new jobs and build a sustainable economy on four main foundations:  exports to Israel; exports to Arab markets; exports to western markets; and tourism.  In order for Palestinians to achieve dramatic change, Israel had to reduce impediments on the ground.

The European Union’s role in providing support to the Palestinian people through the Palestinian Authority, along with its support of the peace process, had had its ups and downs, said Roy Dickinson, Head of Operations of the European Commission Technical Assistance Office for the West Bank and Gaza Strip, East Jerusalem.  For some years, however, the European Commission had been the biggest single partner of the Palestinian Authority in financial terms, and it had recently launched a new mechanism, PEGASE, for that funding.

Mr. Dickinson acknowledged that the European Union’s support “faced a crisis” in 2006 when Hamas was elected because it no longer wished to deliver assistance to the Palestinian people through the Palestinian Authority.  Despite that, the European Commission and its member countries in 2007 contributed approximately $1.5 billion, most of which went directly to the Palestinian people.  But in the middle of 2007, the Commission felt the time was right to rethink the way it provided aid to the Palestinian people.  Thus, the new mechanism, PEGASE, was founded in 2008, following the Paris Donors’ Conference.

The Palestinian Authority’s Planning Minister, Samir Abdullah, had understood that people not happy with the Palestinian Authority had “punished it by electing Hamas”.  He said that good public administration was needed.  The main point now was to establish public confidence.  That was being done by establishing the rule of law and managing internal administration affairs in a fiscally responsible way, and augmenting institutional reforms.  The main component in governance was security sector reform, namely the delivery of a loyal and professional security force.  Starting in 2008, that force would be a leaner, more organized and more cost-effective structure.

The court and criminal justice infrastructure was also being upgraded, he noted, adding that it was no secret that “we have a paralysed judicial system and we have to fix this problem”.  After detailing other areas to be rehabilitated, he said that more than 60 per cent of the budget came from donors, which was unacceptable.

Other speakers this morning were Takeshi Naruse, Resident Representative, Japan International Cooperation Agency (JICA) Office in the West Bank and Gaza; and Nasser Shraideh, Secretary-General, Ministry of Planning and International Cooperation of Jordan.

Plenary II

Plenary II on the theme “Toward a viable Palestinian economy -- From dependence to rehabilitation, reform and economic recovery” opened the second day of the Seminar.  Areas to be discussed included:  the Palestinian Reform and Development Plan; proposals for stabilizing the Palestinian economy, including through international assistance mechanisms; establishing Israeli-Palestinian economic links; and creating conditions for private sector development.

SAMIR ABDULLAH, Minister for Planning, Palestinian Authority, Ramallah, drew attention to two major documents:  the medium-term economic framework, which was an approach linking policy and planning to budgeting; and the budgeting process itself, which concerned the allocation of financial resources based on the medium-term economic and fiscal framework, and national priorities.  It was a “bottom-up and practical” approach, which included all Government agencies, and it required the commitment of the Palestinian Authority as a whole.  It represented a change in terms of planning culture, meaning the approach involved translating national goals into sectoral ones.

Nevertheless, he said, a process of learning by doing would take a few years to materialize.  The process had begun in 2007 and it would take a few years for it to become part of the culture, part of the planning process.  He described, through a PowerPoint presentation, the national policy agenda, the first major goal of which was to establish safety and security, good governance, prosperity, and enhance quality of life.  Those goals, in turn, were translated into objectives according to the four sectors:  policies and projects down to the line ministries.

In order for the process to materialize, good public administration was required, he said.  People not happy with the Palestinian Authority had punished it by electing Hamas.  The main point now was to establish public confidence.  That was being done by establishing the rule of law and managing internal administration affairs in a fiscally responsible way, and augmenting institutional reforms.  The main component in governance was security sector reform, namely the delivery of a loyal and professional security force.  Starting in 2008, that force would be a leaner, more organized and more cost-effective structure.  The court and criminal justice infrastructure was also being upgraded.  It was no secret that “we have a paralysed judicial system and we have to fix this problem”.  After detailing other areas to be rehabilitated and developed, he said that more than 60 per cent of the budget came from donors, which was unacceptable.

ROBY NATHANSON, General Director, The Macro Center for Political Economics, Tel Aviv, took stock of economic relations between Palestinians and Israelis.  Following that agreement, the Paris principles were to govern Palestinian-Israeli economic relations during the interim period until a final status agreement was reached.  The idea of those protocols was to generate regional cooperation, such as the free movement of goods, services and labour, and a joint customs system, all of which had been very well defined in those protocols.

However, politics and the ensuing impediments had affected implementation of the Paris protocols, he said.  For example, there was the division of the West Bank into cantons, with limited movement inside the West Bank and restriction from the Jordan Valley.  There were the closed border crossings in Gaza into Israel and Egypt, and the isolation of East Jerusalem from the West Bank, also limiting trade and commerce.  Even under those circumstances and impediments, the Palestinian economy after the Oslo Accords had been on a steady growth path until 2000, as reflected in an increase of gross domestic product of 8 per cent annually, reaching $4.5 billion by 1999.  Also, the Palestinian employment situation had improved, unemployment had declined, and median wage earning had increased from 1996.

He said that, with the eruption of the second intifada in 2000, however, and subsequent border closings, the Palestinian economic situation deteriorated, and that situation intensified after the election of the Hamas Government in 2006.  The overall economic situation worsened, and direct aid was cut off to the Palestinian Authority.  The gross domestic product declined to between $3.5 billion and $4 billion and unemployment rose.

Before the second intifada, nearly 95 per cent of Palestinian exports went to Israel, which was an absorbing market for Palestinian products and most important for the Palestinian economy, he said.  Now, the Israeli market was less and less important for Palestinian exports, and that was suffocating Palestinian economic development.

He said that there had been a window of opportunity after Oslo for economic development and cooperation between the two sides for a future Palestinian State, but the process had been derailed by the second intifada and, in 2006, by the election of Hamas.  Clearly, it was not possible to “rewind reality”, although he would prefer that from a purely professional economic point of view.  Instead, a strategic decision should be taken regarding economic relations between Israel and the Palestinian people.

One option was the continuation of conflict, which would have disastrous consequences for the Palestinians, and probably for the Israelis as well, he said.  The second option was to work towards a final status agreement based on the two-State solution.  It was not possible to go back to the regional cooperation envisaged in the Paris accord, but it was possible to talk about a separation of both economies, each with its own realities and environments.  How they could cooperate with each other efficiently could then be considered.

Continuing, he said that that would be a friendly, rather than a hostile, separation of economies.  That friendly separation would enable Palestinians to achieve a dramatic change in their economic situation; it would grow the gross domestic product per capita, create new jobs and build a sustainable economy on four main foundations:  exports to Israel; exports to Arab markets; exports to western markets; and tourism.  In order for Palestinians to achieve dramatic change, Israel had to reduce impediments on the ground.

ROY DICKINSON, Head of Operations, European Commission Technical Assistance Office for the West Bank and Gaza Strip, East Jerusalem, recalling the European Commission’s launch in January of PEGASE (Mecanisme Palestino-Europeen de Gestion de l’Aide Socio-Economique) in support of the Palestinian people, said that the solidarity of the European people with the Palestinian people had been an extremely important aspect of European external policy for a long time.  Indeed, Europe had been a major player on both the political and economic fronts.

He said that the European Union’s role in providing support to the Palestinian people through the Palestinian Authority, along with its support of the peace process, had had its ups and downs.  For some years, however, the European Commission had been the biggest single partner of the Palestinian Authority in financial terms, and the European Union as a whole, including its member States, was by far the single biggest supporter of the Palestinian people through the Palestinian Authority.

This support faced a crisis in 2006 when Hamas was elected because the European Union no longer wished to deliver assistance to the Palestinian people through the Palestinian Authority, he said.  In 2006 and 2007, however, European solidarity with the Palestinian people was stronger than ever, and despite that it would not work with the Palestinian Authority, it nevertheless found ways of delivering more assistance to the Palestinian people than ever before.  In 2007, the European Commission and its member countries contributed approximately $1.5 billion, most of which went directly to the Palestinian people.

The mechanism for providing that assistance in 2006 and 2007, however, had not been the most efficient way of giving aid -- by avoiding the Government, oriented as it was towards the basic needs of the people, rather than to economic development, he said.  So, in the middle of 2007, the European Commission felt the time was right to rethink the way it provided assistance to the Palestinian people.  Thus, in 2008, following the Paris Donors’ Conference, after pledges of $7.7 billion, the European Union and its members wished to find new ways of developing a partnership with the Palestinian Authority and determining which priorities to fund.  That mechanism, now operational, was PEGASE.

He explained that, in 2008, the European Union wanted to deal with the Palestinian Authority just as it dealt with any Government in the region.  It would formally relaunch a joint action plan, whereby the Union and the Palestinian Authority set out a series of priorities concerning political dialogue, economic cooperation, and so forth.  Tomorrow, another area of cooperation was being resumed, namely trilateral cooperation between the European Commission, Israel and the Palestinian Authority on trade, when senior officials met in Brussels for the first time in years to discuss trade issues of common interest.

At the same time, no amount of financial assistance, and no amount of fiscal reform by the Palestinian Authority would remedy the situation in Gaza, he said.  Israel needed to be secure, and it was important that the Palestinian Authority deliver on its security agenda.  As that moved forward, it was important that Israel reciprocated in the movement and access agenda. Meanwhile, the European Union urged other donors to step up and help bridge the gap between expenditure and income for the Palestinian Authority.  Ultimately, however, it was the peace process and changes on the ground that would enable that economy to grow.

TAKESHI NARUSE, Resident Representative, Japan International Cooperation Agency (JICA) Office in the West Bank and Gaza, focused his remarks on community empowerment, regional development and platform for dialogues through comprehensive peacebuilding approaches.  He said it was not easy to find a development engine in the Palestinian Territory, owing to its harsh natural conditions and the Israeli occupation.  But it was essential to utilize its limited and fragile economic infrastructure as effectively as possible, and encourage community-based small-scale enterprises, by assisting the local governments and empowering local communities, which had been left out and marginalized.

In fact, he said, the politically and economically detached local community was “a cradle of vicious circle and endless violence”.  In order to encourage community empowerment, JICA planned a holistic approach, in combination with some important community-based interventions, identifying potentiality and preference of diverse communities to create a successful community model.  It chose Jericho and the Jordan River Valley as a target area for planning and implementing a series of technical cooperation activities on the ground.  The aim was to establish a democratic local governance system and improve social service levels to communities.

In 2005, he noted, JICA launched three technical cooperation projects and one master plan study project in the framework of the Jericho Development Program.  Those included a mother and child health improvement project, a solid waste management project, and a local government capacity-building project.  Another master plan study project on the coastal road in Gaza was planned, although that had been suspended because of the deterioration in security.

He said that those and other initiatives by JICA had gradually been recognized by the Palestinians, leaving tremendous impacts on the future views on both the Palestinian Government and the private sector.  Those had also drawn the attention of the Israelis.  It should be remembered that communities were the main actors of both stability and instability.  Approaching the community and its people in the area of basic human needs only was not sufficient.  Rather, JICA sought to motivate communities through comprehensive midterm and long-term development projects.

NASSER SHRAIDEH, Secretary-General, Ministry of Planning and International Cooperation, Jordan, highlighted the importance of supporting the Palestinian economy through regional cooperation.  As everyone knew, the situation in the Occupied Palestinian Territory had been deteriorating, and the Palestinian economy was facing many critical challenges.  During the course of the Seminar, many speakers had already addressed that, stressing that the persistence of the current situation would only magnify the suffering and socio-economic desperation.

He stressed the importance of innovative ideas now, such as the Japan initiative, which not only contributed to the development of regional partnerships, but to confidence-building among the countries of the region.  Such models also supported the founding of a self-reliant economy and were instrumental in attaining regional peace and stability.  Jordan, in light of its historical and demographic relations with Palestine, could be a gateway for efforts to achieve the plans for reforming and developing the Palestinian economy.

Following the presentations, a number of questions were asked about how to alleviate the dire economic situation given the present difficult and complex political circumstances.  Mr. NATHANSON said that the question of what to do in this interim period, pending liberation, was a most important question.  The aim should be to relieve the humanitarian situation of the Palestinians on the ground in the short-term and to generate some hope and economic activity and provide them with a better standard of living.  After achieving permanent status, and hopefully, a peace agreement, the rest should materialize.

Mr. ABDULLAH expressed concern that the Palestinian economy essentially had only one trading partner -- Israel, with more than 90 per cent of the exports and imports with that country.  Furthermore, Israeli practices made Palestinians a “reservoir for cheap labour”.  Even if relations returned to normal, that should not continue.  He preferred that the Palestinians had a “free hand” in trade policy with the world, while also benefiting from trade with the Israeli market.

Speaking for the European Commission, Mr. DICKINSON said that the Palestinian Authority’s Ministry of Finance had in place “more than adequate” financial controls.  The Commission had had some concerns previously, however, but it hoped to be able to normalize its budgetary support within a medium-term time span.  There were practical and political constraints to giving money to the Palestinian Authority, which everyone understood.

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