Ghassan Khatib
Bitterlemons (Opinion)
March 25, 2008 - 5:56pm

While economists are puzzling over the global financial crisis that started in the US and is most dramatically illustrated by the fall in the value of the US dollar, the effect in this region is massively and disproportionately felt. Most countries in the region either have their currencies directly tied to the dollar or are heavily invested in economic relations with the US.

The Palestinians are quite possibly most negatively affected from the turbulence. Although neighboring countries such as Israel, Jordan and Egypt are also suffering, they all have their own state and currency and thus the economic and monetary tools to deal with the crisis. The Palestinian government has no such tools to respond with and the Palestinian economy, moreover, is heavily dependant on foreign aid, most of which comes in dollars.

The Palestinian Authority, furthermore, is in such a poor state that it cannot even consider any subsidy measures to mitigate the effect on the lowest income sector of society, which has already been suffering dramatically as a result of the practices of the occupation, including the restriction on movement and confiscation of land.

The global crisis affects the whole spectrum of Palestinian society. The Palestinian government, the private sector and non-governmental organizations are all feeling the pinch though to different extents. The government, which is the biggest employer in the country and is responsible for channeling money not only for wages but also to ensure that basic services and development projects reach those in need, is less and less able to fulfill these obligations.

The effect of that goes beyond the immediate economic and humanitarian consequences. The crisis will also affect the PA and its constituent parties politically. One of the political platforms of the current leadership of the PA is that its political positions, as opposed to those of the radical Islamic opposition, will leave it better equipped to fulfill its economic and humanitarian obligations. This platform, already suffering from Israeli intransigence in the peace process, is being undermined further by the global economic crisis.

The NGO sector, which in the Palestinian case carries a heavy burden in terms of services, including health and education as well as development, is the sector most harmed by the economic turbulence. NGOs--including almost all big universities and more than half of all major hospitals in addition to hundreds of development and service organizations--earn their income in dollars and Jordanian dinars, both linked and thus equally devalued, while their expenses are in Israeli shekels. This has been creating huge deficits that are threatening some of these institutions with possible collapse.

The private sector is facing similar problems, this time for a combination of factors. One is the devaluation of the currencies used here, but there is also the sharp increase in the price of the means of production. The most obvious example is in the construction sector where the Contractors Association recently declared that the prices of basic materials for construction in the last year increased by an average of 20 percent. Add to this the sharp increase in the price of oil that is affecting both producers and consumers, and the private sector faces a gloomy outlook.

The link between the economic and political situations in any given context has been oft noted. In our case, further economic deterioration will reflect badly on the prospects for the peace process. Studies from across the world show a clear link between economic deterioration and radicalization, and here, where economic deterioration is mostly caused by Israel's policies vis-a-vis its occupation of Palestinian land, the link is even stronger.

These conclusions are also borne out in Israel, in spite of that country being better equipped to deal with economic crises. Recent polls there have shown that support for right wing extremists is growing in the poorer sectors of society. It is among these strata of society that most of the racism and hatred toward Palestinians is concentrated. The bigger the poor sector in Israel, the greater the backing for those who oppose the peace process and support the use of force against Palestinians.


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