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Introduction
PALESTINE BUILDING THE FOUNDATIONS FOR ECONOMIC GROWTH
INTORDUCTION
Israel’s violations of the Interim Agreement, its frequent closure of the Palestinian territories, and the other impediments it has placed on trade and on the movement of people, have seriously undermined the Palestinian economy. The welfare of the Palestinian population has deteriorated markedly since the peace process was initiated. The economy has been trapped in a vicious cycle of stagnation and decline. Unemployment and poverty have increased and, between 1994-1996, real GDP per capita fell by 10-15%. During the same period, GNP per capita dropped by 15-20%. This situation has placed enormous new burdens on the Palestinian National Authority as it struggles to overcome the adverse legacy of occupation.
Role of PECDAR
To meet this challenge, the Authority is implementing a far-reaching program for the reconstruction and development of the national economy. PECDAR, the principal Palestinian development agency, is spearheading the management of an ambitious investment program in the public and private sectors. Its impact has already been felt in most of the cities and villages of the West Bank and the Gaza Strip. As I pointed out in the most recent PECDAR Activity Report, we have now implemented 1,335 projects, at a cost of US$ 441 million (US$148 of which is for infrastructure). This includes large-scale initiatives, such as US$ 20 million Salah El Din Road; and smaller projects in water and sewage, school building, and the construction and upgrading of clinics. PECDAR has also launched a major program of micro-projects to create employment.
1996 Paris Conference
At the January 1996 Paris conference on assistance to the Palestinians, the PNA presented a development strategy based on the principles of the free market, the encouragement of Arab and foreign investment, and the enhancement of exports. The approach was grounded on the understanding that the private sector must provide the engine for economic growth. The role of government should be limited to creating the appropriate investment climate by providing a positive and predictable legal, institutional, and political framework.
The paper, prepared with the support of the World Bank, proposed an Investment Program for 1996-1998 of US$1.32 billion. Donors at the Conference agreed to provide almost 50% of the US$551.9 earmarked for 1996-97. The US$ 845 million required for 1997-98 included high priority projects in infrastructure, social development, private enterprise development and institution building.
Future Directions
The PNA recognizes that the previous two-year time horizon is too short to undertake effective development planning. The Authority has, therefore, decided to develop a three-year program -- based on the Investment Program for 1996-1998 -- containing national and sectoral objectives and strategies, as well as project proposals. The program, presented to donors in December 1997, was drawn-up following a careful review of the current economic situation and of the PNA’s priorities for investment; as well as the commitment and disbursement of donor funds in each of the priority sectors (see Annex B). Palestine: Building the Foundation for Economic Growth describes the policy framework for this work, as well as providing a summary and sectoral breakdown of the program (Annex C).
Modifications have, of course, been made to the original Investment Program to take account of new needs and priorities. It focuses on short-term goals designed to lay a firm foundation to achieve the Authority’s longer-term development objectives. The total cost of the 1998 program is now US$ 889,240 million. This, we believe, is realistic both in terms of the implementation capacity of the PNA and the potential availability of resources from the donor community.
Political Assumptions
In planning for the future, we have assumed that the peace process will achieve significant progress in the coming weeks and months; leading to a comprehensive peace settlement. During the implementation of the program, we anticipate that -- as agreed -- Israel will re-deploy its forces from “Area C”. By the end of the period, after concluding the Final Status Negotiations, Palestinian sovereignty will extend over the West Bank and the Gaza Strip.
To this end, it is assumed, in accordance with the Hebron Agreement of January 1997, that Israel will at last comply with the provisions of the Interim Agreement concerning the Final Status Negotiations. These much delayed negotiations are now ten months behind the Hebron deadline because of Israel’s provocative and irresponsible decision to proceed with building new settlements; and its continuing failure to implement the Interim Agreement.
The Final Status Negotiations will, inter alia, address and resolve the following issues:
Jerusalem: We are confident that, with good will on both sides, it will be possible to reach an agreement on Jerusalem. The relevant UN resolutions, which provide the foundation for such a compromise, foresee that Jerusalem will be part of the Palestinian territory, after a return to the pre-1967 borders. This is essential not just by right or for political and religious considerations but also for economic reasons. Jerusalem, already a magnet for tourists and visitors, is a significant regional financial and enterprise center; and, as part of Palestine, will provide an enormous boost to our ambitions to become an important trading nation. The City, it has been estimated, will add some 20% to Palestine’s GDP.
The Settlements: The settlements violate two cardinal principles of international humanitarian law: the prohibition on the transfer of civilians to the occupied territory; and the prohibition on permanent changes which do not benefit the local population. We anticipate that the negotiations will reach an acceptable compromise on this issue. In the meantime the development of such settlements -- which is a grave breach of the Interim Agreement -- should stop forthwith. The alternative is for Palestine to inherit a fragmented and balkanized society and economy. Building a dynamic national economy will be difficult enough; it becomes quite impossible if planners have to contend with a state-within-a-state. We do not wish to become a bantustan, nor to see such arrangements in our country.
The Return of Palestinian Refugees: We anticipate that the Refugee Working Group will make progress concerning the right to return of Palestinian refugees; and, where appropriate, the provision of compensation. The active assistance of the international community will be necessary to support the Israeli and Palestinian authorities to resolve these issues. This will allow us to take full advantage of skills, resources, and dynamism of our compatriots currently in the neighboring countries and beyond. They are a precious economic resource as well as an important responsibility.
The Borders of Palestine & Israel: The negotiations must make it possible for the PNA to exercise effective control over the well defined and secure borders of Palestine, including its sea and airports. This is essential if we are effectively to encourage trade and strengthen our participation in the global economy. Otherwise, we will forever be subject to dictate and control from outside.
Water Resources: The right of Palestine to exercise full sovereignty over the water resources in its territory must be confirmed in the Final Status Negotiations. It is essential that we should secure access to at least the 70-80 million cubic metres a year required for our social and economic development. Water is the very life-blood of our agriculture and our industry -- without it, the Palestinian economy will wither and our people will continue to suffer.
Palestine: Building the Foundation for Economic Growth makes one fundamental assumption: that the Palestinian National Authority should take responsibility for the development needs of all its people; including the population of Jerusalem and those refugee who will return to their homeland. To achieve this, however, we must have a reliable perspective on the future level of donor support. This is the challenge, which faces the international community.
I would like to take this opportunity to thank my colleagues in PECDAR -- especially Basil Awartani, Na’el Mousa and Rowan Faqih, from the Economics and Policy Department, and Teddy Khawaja, from our Computer Department -- for their valuable input into the preparation and production of this document. I must also thank Tim Sheehy who helped with the editing.
Dr. Mohammed Shtayyeh,
Managing Director, PECDAR
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