The Palestinian economy has been badly battered by the political instablity caused by the signing of the Declaration of Principles.

The Israeli policy of periodically sealing the borders of Gaza and the West Bank, in response to Islatnist attacks, has kept the economy depressed since September 1993.

This year the depression deepend, as Israel imposed a blanket closure for more than three months in response to the series of suicide bombings in February and March.

Desperate to end the economy’s dependence on Israel. the Palestinian National Authority (PNA) is currently trying to expand economic ties with its Arab neighbours.

Despite the transfer of power in West Bank towns and much of Gaza to the PNA, the Palestinian economy remains. almost completely reliant on links with Israel. Wage payments received by Palestinians working in Israel accounted for about 25 per cent of gross national product (GNP) in Gaza and the West Bank in 1992. In addition, the West Bank and Gaza are dependent on trade with the Jewish state. In 1992, Israel accounted for about 85 per cent of the total commodity imports of Gaza and the West Bank and took about 83 per cent of its exports.

The policy of sealing the borders of Gaza and the West Bank also formed part of the Israeli prime minister’s long-term vision of a permanent separation between Israelis and Palestinians. Since 1992, more than 150,000 foreign workers from East Asia and Eastern Europe have entered Israel as permanent replacements for Palestinian workers.

Rabin’s policy has had a devastating impact on the Palestinian economy. The number of Palestinians working daily inside Israel has dropped from an average of 116,000 in 1992 to about 25,000 in 1995.

This year the situation worsened further.

Following the series of suicide bombings

earlier this year, Rabin’s successor Shimon Peres sealed the borders completely for three months. No Palestinians were permitted to work inside Israel and the domestic economy ground to a halt as manufacturers were prevented from exporting their goods and were unable to import raw materials. Which remained uncollected at Israeli ports.

Unemployment has soared and it is estimated that about 50- 60 per cent of the workfomce in Gaza and 40 per cent in the West Bank is currently jobless.

Closures have also prevented the PNA generating its own revenues and paying its running costs. It has lost tax transfers from Israel levied on Palestinians working in the Jewish state, while the suspension of trade has prevented the PNA collecting import duties

Budget shortfall

Hopes that the PNA’s budget deficit could be eradicated by the end of 1997 have now evaporated. The PNAs budget shortfall for this year is now forccast to be about $126 million, $57 million more than predicted at the start of the year. Unless the clolsure policy eases significantly, the PNA will be running a deficit for the foreseeable future. Donor funds will have to be used too plug the funds requiring the diversion of funds from urgently needed development projects. This is in addition to the siphoning of donor aid to emergency short-term employment schemes set up to lessen the impact of the closures in Gaza and the West Bank Israel’s closure policies have flown in the face of its commitment to closer integration between the Palestinian and Israeli economies, which was enshrined in the Paris Protocol on Economic Relations signed by the two sides in April 1994.

‘The protocol has not been kept,’ says Samir Huleileh, undersecretary at the PNA Economy & Trade Ministry. ‘There is a new status quo. The new Israeli security concerns have to be taken into account.’

Even during period of relaxed border restrictions, Palestinians complain that Israel has been unwilling to give them unfettered access to their markets. ‘The Israeli government has been protecting its own industries from competing markets,’ PNA Planning & International Co-operation Minister Nabil Shaath said in a speech in London in July. Research carried out by the Ramallah-based Palestine Economic Policy Research Institute (MAS) also suggests that Israel is underpaying the PNA by more than $100 million a year by failing to pass on import duties on goods destined for Gaza and the West Bank that are imported through Israeli agents. As MAS points out, this sum is equivalent to the entire annual aid to the Palestinians from the US and the EU and almost twice as much as the income tax currently collected by the PNA in Gaza and the West Bank.

The election of Benjamin Netanyahu’s right-wing government in May has generated expectations of an end to the policy of separation and renewed attempts by Israel to integrate the Palestinian labour force into the Israeli economy. ‘The new government is potentially better for the Palestinian economy,’ says Huleileh. ‘It has said that other foreign workers should be replaced by Palestinians.’ These expectations seemed to be confirmed in mid-August when the Israeli Interior Ministry said that it was preparing to expel 100,000 foreigners whose work permits had expired.

However, it may be wishful thinking by Palestinians to believe that there will be a return to the policies of the last Likud administration which permitted up to 150,000 Palestinians to work inside Israel.

By their own admission, the hardships caused by closures have resulted in a backlash against Islamist groups among the residents of Gaza and the West Bank one of the unstated aims of the closure policies. ‘Hamas lost a lot of support after the bombings in February and March,’ says Khaled Abdul-Shafi, Gaza officer for the UN Development Programme (UNDP).

People don’t want any more military action against Israel because of the closures.’

Uncertainty

The Israeli military establishment is still reluctant to allow more Palestinian workers into Israel. In mid-August, Israeli Chief of Staff Lieutenant General Amnon Shahak said: ‘There is a feeling among them (the Palestinians) of uncertainty and this is causing anger and tension.. Therefore this would be a less appropriate time to increase the number of those entering. I fear that the permits would be exploited by terrorist elements.’

The debilitating impact of closures has prompted the PNA to step up its efforts to try and reduce the economy’s dependence on Israel by boosting trade links with Jordan and Egypt. ‘In February, we couldn’t even get any basic items through Israel.’

says Huleileh. ‘That’s when we stepped up diversification.’

The policy has borne some fruits.

Fifty trucks now travel back-to-back between both the West Bank and Jordan and Gaza and Egypt each day, more than twice the number a year ago. In the first six months of this year, Gaza and the West Bank imported goods worth $136 million from outside Israel, compared to $184 million in the whole of 1995.

Progress perhaps, but the future performance of the Palestinian economy will remain dependent on Israel for’ the foreseeable future. ‘It is impossible to plan the economy,’ says Arab Bank’s regional representative Shukri Bishara. ‘There has to be free movement of goods and labour through Israel. These are the key issues.’