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| Volume IX, March 2002, Number 1 |
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| EXCERPT: The Palestinian Authority: Friend or Foe of Private Investors? |
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| Oussama Kanaan |
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Dr. Kanaan is a senior economist at the International Monetary Fund (IMF). The views expressed in this article are those of the author alone and do not necessarily represent those of the IMF. Please send comments to okanaan@aol.com.
Policy makers in the United States
are still reluctant to openly
acknowledge the full extent of the
damage suffered by the Palestinian economy since the onset of the border closures and internal blockade in September 2000. During 2001, per capita income in the West Bank and Gaza is estimated to have fallen by one third, the unemployment rate has tripled to over 30 percent, and the Palestinian Authority's (PA) budgetary revenue has collapsed due to the shrinkage in economic activity and the freeze by Israel in the transfer of tax revenue it collects on behalf of the PA. The donor community, notably Arab states and the European Union, was quick to provide some financial support for the PA budget and public investment, but it is now clear that this support provides only a temporary (albeit necessary) fix aimed at preventing an immediate financial crisis. At the same time, donors are well aware that in the longer run, the downward spiral of the Palestinian population's living standards cannot be reversed without a revival of private-sector investment, which in the past year has dried up in virtually all sectors in the West Bank and Gaza. Yet private investment will remain depressed as long as entrepreneurs continue to have little hope that the restrictions placed by the Israeli military on the movement of goods and people, both across external borders and within the Palestinian areas, will be removed any time soon.
Despite a general recognition of the need to directly address the root cause of the economic deterioration in the West Bank and Gaza, only timid efforts have so far been exerted by the international community to ensure a prompt lifting of the closures and blockade that are stifling private investment. In addition to the influence of the doctrine that such restrictions are necessary "for security reasons," donors' reluctance to exert the necessary pressures on the Israeli side can also in part be explained by the spread of an image that is getting increasing exposure in the media -- especially in the United States -- of a Palestinian authority that has done little to help the private sector, has worked against the free-market principles espoused by the donor community, and has no interest in improving the transparency and accountability of its fiscal and commercial operations. A message is thus subtly being imparted that, even if the closures and blockade are lifted, things would not be much better for the private sector, in view of its past experience with the PA. But how accurate is this image?
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