POMED Notes: Palestine: Economic Challenges and Political Implications

On Tuesday, the Carnegie Endowment for International Peace hosted a discussion titled hearing Palestine: Economic Challenges and Political Implications. The Palestinian economy made significant advances in recent years under Prime Minister Salam Fayyad’s institution building program, yet questions remain regarding the sustainability of such progress in light of the ongoing, and seemingly long-lasting, diplomatic stalemate with Israel. The discussion featured Robert Danin, Eni Enrico Mattei Fello, Council on Foreign Relations; Oussama Kanaan, mission chief for Syria, the West Bank and Gaza, International Monetary Fund; Firas Raad, acting head of mission, office of the Quartet representative Tony Blair. The panelists were moderated by Marwan Muasher, vice president for studies, Carnegie Endowment.

For the full text of the hearing, continue reading below or click here for PDF version.

Oussama Kanaan began the discussion by reminding the audience that to understand the current economic situation of Palestine one needs to consider the last 5 years. Kanaan asserted that the economy improved, but shrank in the recent months. In 2007, the Prime Minister of the Palestinian National Authority (PNA) Salem Fayyad developed an economic strategy, endorsed by the IMF, which targeted improved security, promoted good governance and favor economic growth. Fayyad committed to undertake the reforms at the Donor’s Conference forPalestineState inParis in 2007, where he received strong support from the international community. The three year plan brought some success: the growth increased and the living standard of Palestinians improved significantly. However, some grave issues remain, including unemployment that reached 22% inGaza. Kanaan blamed the donors for not committing to there promises in 2007. The results proved better than expected, as the economic growth between 2007 and 2010 was 8 percent instead of the expected 4. However, growth has recently slowed due to increased restrictions on movement for people and goods, with regional disparities becoming an economic burden.

Firad Raad highlighted the unemployment issue, as it reached 45 percent of the youth inGaza, and 25 percent in theWest Bank, “it is a tremendous task to tackle for the government,” said Raad. Continuing, Raad stated that 2007 was a critical year for Palestinian as Prime Minister Fayyad released its economic initiative that has improved the economy and governance inPalestine despite theIsrael occupations. During the last years Palestinians increasingly went to work inIsrael for unskilled jobs, but Raad believes that model was not sustainable since the higher salaries inIsrael created an income disparity between those who commuted and those who remain inGaza. Raad recommended thatIsrael stop the restrictions on foreign investments toPalestine, and support incomes that contribute to sustain a strong growth Raad argued that Palestinian should have a better access to finance which would ease to get Moorgate for buying accommodations, while also reserving foreign investments to host industries. Raad reminded the audience that 80 percent of the aid goes toIsrael so the panelist recommended developing local production to keep incomes in the Palestinian territories. Raad said that trade should be facilitate to give the opportunities for Palestinian to export overseas. For instance, agricultural products could reach the European market in winter.Palestine also represented an important tourism potential that should be developed.

Robert Danin stressed a virtuous circle based on good governance, economic growth, and enforcing security, as it contributes to build a bottom up dynamic for strengthening institutions. These positive outcomes will lead to better condition forIsrael and the Palestinian Authorities to negotiate the current conflict. However, once the economy downsizes, the political construction is challenged and it harmed the peace process. Danin said that negotiation is not enough but the three sides of the triangle has to be emphases and are self-reinforcing: governance, security and economy. Currently, if Palestinians want an end of the occupations they should clarify their strategies as they did in 2007 with the economic initiative. Conversely, the economic and political situation is volatile in the region so the international community should show a strong support to the peace process.

The Q&A began with a question on the local organizations in Palestine. Kanan said that the number of local NGOs increased and that they have helped to shape and structure the economy. Danin addressed the economic agenda by stressing the development of a private sector that associates with policies which facilitate exports, adding that an economic agenda has to be integrated to a rule of law agenda. Danin added that he believes aid should be maintained, and occupations should not be an excuse for preventing donors to pursue their foreign assistance, otherwise it could lead to a finance crisis. To the question to what U.S can do to help Palestine, Danin noticed that at the beginning of the mandate President Barack Obama positively addressed the security and orders challenges, but failed to discuss diplomacy and policy issues. TheU.S. diplomacy will not focus on the Israel/Palestine conflict in the coming year, and takes a back seat to other issues likeLibya,Egypt, and more recentlySyria. Raad said that Arab countries are not giving enough to the Palestinians, as they do not want to be the “bank of theIsrael occupation.”

Marwan Muasher concluded on the impact of the Arab Spring onPalestine. He believed that the Palestinian people have reacted by expressing there will to limit divisions on the political scene. They call for the unity ofGaza and theWest Bank and between the Hamas and the Fatah. However, the leaders of the territories and of the parties do not want this unity.