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Palestinian Economic Woes – Leading to a Political Solution?

16 February 2003

By Yisrael Ne’eman

On Friday Israel’s Channel 2 reported a loss of an estimated $10 billion to the Palestinian economy over the past two and a half years of conflict.  The number seems high, being the Palestinian economy was worth a maximum of $2.5 billion per annum before the outbreak of violence.  With a paralyzed economy due to terrorism and the Israeli reoccupation of the West Bank cities and resulting curfews, one can estimate a $2 billion a year loss or a total of $5 billion since the Palestinian initiated violence broke out in September 2000.  Such a rough number can be given if one takes into consideration the Palestinian supposed GNP of $700 million for 2002 (as discussed a half year ago) and the fact that tourism and economic development were expected to bring in hundreds of millions more at the beginning of the 21st century.

According to the report, the food industries are the only ones still functioning and even here raw materials are held up for hours if not days (especially in terror ridden Nablus) as trucks are inspected at Israeli checkpoints.  Palestinian society is very sharply divided into rich and poor, even more so since Palestinian Authority Chairman Yasir Arafat initiated his violence undercutting and destroying the middle class.  Overall unemployment is estimated at 60%.  The rich may still live in style, but they too are complaining and in many cases are publicly blaming the Palestinian Authority while throwing in the obligatory condemnations of Israel.

We have heard this before – from the Hamas.  But that was last year when Israel first entered the refugee camps in search of terrorists and then continued to occupy all of the West Bank (except Jericho).  Both the Hamas and Palestinian economic elite cite PA corruption as a major enemy of the people while they differ on their levels of hostility towards Israel with the former seeking Israel’s destruction while the latter can be seen as seeking cooperation.  And the industrialists are willing to mention Arafat by name as the major culprit in the fiasco.

From the Israeli perspective this sounds promising, especially when Arafat announced yesterday that he intends to name a prime minister and begin reforms.  Israeli pressures against the PA and against terrorism seem to be bearing fruit.

But the game is much more complicated.  Newly re-elected PM Ariel Sharon will form the next government and would prefer to negotiate with the local Palestinian economic elites, whether it be in Nablus, Bethlehem or Hebron, thereby breaking down the PA into 7 – 8 enclaves. 

He does not want to deal with a united leadership under Arafat, a move played out by the failed Oslo Accords and still favored by Shimon Peres.  Sharon prefers to wield the economic carrot and military stick in each sector while encouraging an alternative leadership based on a non-militia leadership.  A bankrupt PA would be a first step towards fostering many local economic forces who could secure their own regional militia support and then individually come to a modus vivendi with Israel.

In their condemnations of Arafat the Palestinian economic elite has fired the first shot in their challenge to the PA, but whether Arafat implements the necessary reforms as demanded by the Quartet, Israel and many of his own people, remains to be seen.