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FINANCIAL CRISIS: Israel needs to relax restrictions on trade and movement while donors must provide adequate aid, writes Isabel Kershner
AS the Palestinian Authority marks the 19th anniversary this month of the signing of the Oslo Accords -- the agreement with Israel that brought it into existence -- the authority is facing a financial crisis that experts say could threaten its future operations and stability.
The International Monetary Fund said last year that the Western-backed authority had built the institutions and sound fiscal policies for running the economy of a future state.
Oussama Kanaan, the fund's mission chief for the West Bank and Gaza, said in an interview that on that count, nothing had changed.
But there is no state in sight and the Oslo Accords, which were meant as interim arrangements giving the Palestinians limited self-rule, have stretched on for nearly two decades, perpetuating what critics say are conditions that are now limiting economic development.
The authority needs US$400 million (RM122 million) in immediate assistance to cover a gap in its 2012 budget and has been confronted with growing public outrage over austerity measures and steep price increases driven largely by outside forces.
Beyond that, though, to build a sustained economic recovery, reduce unemployment and support the authority's reforms, Kanaan said, it is essential that the restrictions that Israel places on Palestinian trade and movement be eased and that donors provide adequate aid. Otherwise, he warned, "The gains made in recent years in institution-building and reforms would unravel and, ultimately, the Palestinian Authority would not be able to operate."
Kanaan, who was speaking by telephone from Washington, based his assessment on the results of a recent fact-finding trip he led to the Palestinian territories.
A report on those findings will be presented on Sunday at a donors' conference at the United Nations.
The report will state that the West Bank-based Palestinian Authority faces "serious risks", including an inability to make essential payments, like salaries, with all the implications that has for stability.
The authority employs about 180,000 Palestinians, among them the security forces. Those employees, in turn, support relatives estimated to include about a quarter of the population of the Palestinian territories, including the Gaza Strip, which is run by Hamas.
In June, July and August, the authority was unable to pay its employees their full salaries on time.
Over the last two years, the West Bank has experienced an economic slowdown, with real gross domestic product growth declining to about five per cent from an annual average rate of nine per cent in 2008-10, the study found. Unemployment has reached 19 per cent in the West Bank and as much as 30 per cent in Gaza.
The authority's severe financing difficulties over the past 20 months have led to a substantial rise in domestic payment arrears and debt to commercial banks.
Although the authority has reduced its reliance on international aid after economic reforms -- to US$1.1 billion in 2010 from US$1.8 billion in 2008 -- the amount received since then has not been sufficient to fulfil requirements.
Much of the shortfall is due to a drop in aid from Arab countries, Kanaan said. In both 2008 and 2009, Arab donors disbursed US$500 million, but last year and so far this year, the amount dropped to more like US$200 million.
The Palestinian Authority is reeling under the pressure. Shaken by days of popular protests over fuel price increases and the rising cost of living, the government hastily backtracked this week on some of the austerity measures it had taken, like a raise in taxes.
Much of the anger has been directed against Salam Fayyad, the prime minister of the authority. "We are doing the best we can, and we have been all along," Fayyad said after announcing the steps aimed at calming the protests.
Some Palestinians in the West Bank have called for a review of the Oslo Accords and changes to its economic annex. Critics argue that the accords allow Israel to continue its occupation of areas captured in the 1967 Middle East war while divesting itself of responsibility for the welfare of the population.
There is always concern in Israel that discontent with the Palestinian Authority can easily be channelled against Israel.
Prime Minister Benjamin Netanyahu instructed the Israeli Treasury last week to advance to the Palestinians 250 million shekels, or more than US$60 million, in the monthly tax clearance that Israel collects on behalf of the Palestinian Authority.
An Israeli official said some of the roadblocks and other restrictions cited by the IMF as undermining the economy were essential to address Israel's security concerns. The official said Israel had removed many of the roadblocks and other obstacles in the West Bank that were introduced after the violent Palestinian uprising broke out in 2000, and under international pressure, it significantly eased import restrictions on consumer goods from Israel to Gaza. The Israeli official also hinted at bad Palestinian management.
But Kanaan argued that more could be done and that what was needed was to restart peace negotiations between the parties that would lead to a fundamental change in the Israeli-Palestinian economic relationship. For example, he said, allowing the operation of an airport in the West Bank or a seaport in Gaza would give Palestinians easier access to outside markets.
Crucially, he added, Palestinian economic activity and investment should be allowed in Area C, the portion of the West Bank where Israel retains full civil and military control under the Oslo Accords and which covers 60 per cent of the West Bank territory.
Any Palestinian economic initiatives there have to be coordinated with Israel; the Palestinians say that permission is rarely given. NYT