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Economy is vital

Raja Khalidi

If Israel pursues the path of confrontation, the price paid by the Palestinian economy can only mount.

A VIABLE Palestinian economy is a prerequisite for any meaningful two-state solution to the Middle East conflict, but that economy is barely functioning. Israel has withheld transfer of Palestinian import taxes, and most donors discontinued funding after the democratically elected Palestinian Legislative Council, dominated by Hamas, constituted a new government in March. With 160,000 civil servants on strike after six months without pay, there has been a breakdown of central government functions. Meanwhile, the Israel-Palestine economic and trade accords signed in 1993 appear to be increasingly irrelevant, if not moribund.

A new government of national unity could heal internal divisions and present a Palestinian position more acceptable to some donors — a hope echoed by Tony Blair last week. But if Israel is not convinced, donors will remain hesitant, and vital tax transfers to the Palestinian Authority are unlikely to resume soon.

Earlier this month in Stockholm, a donors' conference pledged new aid for 2006 of around $500 million or approximately half the annual average since 2001. If swiftly deployed, this assistance might stave off starvation and a shutdown of core social services, as well as injecting much-needed consumer purchasing power. But even with U.S.-sponsored plans for crossing points boasting state-of-the-art security to facilitate trade, it is unlikely to turn around the current economic deterioration. That, it seems, can only get worse.

Recent U.N. figures predict a drop in donor aid compared to last year of 30 per cent to 50 per cent, and hence a similar reduction in public expenditure, as well as increased restrictions on trade and flows of Palestinian labourers to Israel. In the most severe scenario, the Palestinian economy will shrink to levels not witnessed for a generation. From 2006 to 2008, losses in GDP could reach $5.4 billion, and 84 per cent of the jobs available last year will disappear. Even a full return of donor support and relaxation of mobility restrictions by 2008 will not protect the economy from long-lasting harm. —

© Guardian Newspapers Limited 2006

(Raja Khalidi is coordinator of assistance to the Palestinian people at the United Nations conference on trade and development in Geneva.)

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