Palestinian bubble set to
burst By Jillian
Kestler-D'Amours
RAMALLAH, West Bank - It
will collapse, and the collapse will be harder
when it happens later, says Tareq Sadeq,
Palestinian economist and professor at Birzeit
University, about the financial bubble building up
in the Palestinian Authority government.
It will mean that people will lose their
homes. They will lose their cars. They will lose
their land sometimes because of the collapse of
the bubble. This will affect the whole economy and
will also reflect on the Palestinian Authority. So
this may be a collapse of the Palestinian
Authority itself, Sadeq tells IPS.
The PA
has announced it is facing a funding crisis; it is
now relying on donor aid to cover a US$1.1 billion
budget deficit and a cash shortfall of $500
million.
The Palestinian economy has
become more and more dependent
on wages, and salaries
for the whole economy, not just for the public
sector; around 70% of all employees are wage
employees. As a result, there is no production in
the Palestinian economy. People consume and
consume and there is nothing to produce, Sadeq
says.
The International Monetary Fund
(IMF) turned down an appeal from the Israeli
government in early July for a $1 billion loan to
fund the PA. The West Bank economy is almost
entirely upheld by international aid; in 2011,
donors promised the PA $1 billion in support, of
which $800 million was transferred.
The
whole economy is constrained to financial aid from
international donors, which creates more
vulnerability in the Palestinian economy, Sadeq
says.
Palestinian Prime Minister Salam
Fayyad has nevertheless pushed economic
development and investments in the private sector
as a means to secure Palestinian independence. To
date, most international economic bodies and
foreign governments have praised Fayyad's
approach, pointing to Palestinian gross domestic
product (GDP) growth rates as a measure of its
success.
Palestinian GDP grew 7.7% between
2008 and 2011. In its 2011-2013 development plan,
titled Establishing the State, Building our
Future, the Palestinian Authority (PA) estimated
the GDP would grow by 12% in 2013.
But a
World Bank report released on July 25 found that
the Palestinian economy is unsustainable.
The Palestinian Authority has made steady
progress in many areas towards establishing the
institutions required by a future state but the
economy is currently not strong enough to support
such a state, economist John Nasir, lead author of
the study titled "Towards Economic Sustainability
of a Future Palestinian State: Promoting Private
Sector-Led Growth", said in a statement announcing
the findings.
The report said that
removing Israeli restrictions on market access and
to natural resources is the necessary first step
in expanding the Palestinian private sector, and
that the PA must stem its reliance on foreign aid.
"This has been in our face ever since Oslo
started: you can see that the economy is not
sustainable," says Sam Bahour, a
Palestinian-American businessman. He says that in
his experience, the biggest obstacle to economic
development is Israeli control over Palestinian
human capital.
"If you go into the private
sector today and ask them what's your biggest
issue, it is that we can't find the people we
need. Israel controlling all the points of entry
and exit not only for goods but for people,
basically regulates the pace of our development
through the blockage of human resources," Bahour
tells IPS.
Israel and the Palestinian
leadership signed the Paris Protocol in April
1994, as part of the Oslo Accords, a 1993
political agreement that outlined relations and
responsibilities between the two parties and
created the Palestinian Authority. The Paris
Protocol set up a framework for economic relations
between Israel and the PA. Under the agreement,
Israel began collecting import taxes on goods and
transferring taxes to the PA on goods destined for
the occupied Palestinian territories.
In
turn, the PA was given authority to impose direct
and indirect taxes, build an industrial policy,
provide public sector jobs and establish a
monetary authority. Palestinian trade with other
countries was still handled through Israeli ports
or Israeli-controlled border crossings, however,
and continues to cause significant economic
losses.
According to Bahour, Israeli
control over the Palestinian market and the
resulting economic and social challenges
Palestinians now face have led to what he called
the Americanizing of the Palestinian population.
When the economy is hurting and the donor
involvement is basically dominating and driving
the economy and people are being indebted even
further, people become very individualistic and
are out to make the best for themselves, Bahour
says.
The unemployment rate in the West
Bank during the first quarter of 2012 was about
20%, data from the Palestinian Central Bureau of
Statistics (PCBS) found. The PCBS also found that
a quarter of Palestinians in the West Bank lived
below the poverty line in 2011, while almost 13%
of Palestinians lived in deep poverty, in a West
Bank Palestinian population of approximately 2.6
million.
According to economist Tareq
Sadeq, the Palestinian leadership needs to
acknowledge the realities of building an economy
under Israeli occupation and change its policies
in order to alleviate the financial burden many
Palestinian families now face.
"The gap is
growing. There is frustration in the street but
what matters for people now is that they don't
want to lose; they want to get their salaries and
they want to keep their homes and the things that
they bought," he says.
"The Palestinian
economy is under occupation. We have to think
about our own policies of development under
occupation and to think how to help people sustain
and stay in their lands and resist occupation."
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