The Real Disaster is the checkpoints

Qalandiyah checkpoint. Nigel Roberts, the World Bank representative in Israel/Palestine, is convinced Western societies would break down if confronted with an “economic disaster of such proportions.”

When the director general of the Palestinian Finance Ministry, Ataf Alaune, returned to his office on April 21, a few hours after the army pulled out of Ramallah, he found that in addition to the hard disks in his computers, the soldiers had taken all the books, reports, and research studies that were in his library. Only one document, 133 pages long, remained. Dated March 18, 2002, it was titled “15 Months: Intifada, Closures, and the Palestinian Economic Crisis – an Assessment” and was prepared by the World Bank.

The document was prepared because in the second half of 2001, the donor countries to the Palestinian Authority already wanted an estimate the damage done to the economy during the first months of the intifada, so they could adjust their allotments to the PA for rehabilitation. The initial assessments were that the situation would stabilize and improve, so there were expectations for a quick report. Instead, because of the deterioration in the security situation and the tightening of the closures and sieges on all the Palestinian communities in the West Bank and Gaza, the study grew into a working plan, based on three scenarios:

 1. A continuation of the closures and the restrictions on freedom of
movement for commodities and people

 2. Political rapprochement that would lead to an end to the hostilities
and a lifting of the closure

 3. A pessimistic scenario, in which the military hostilities would grow even more intense and there would be even more severe disruptions of freedom of movement for goods and people.

Each scenario has a ceiling on the money that would be available – from $2.1 to $2.7 billion. A fourth scenario, “the authority collapses,” is depicted separately from the other three. That scenario would require a total change in the mode of aid to the Palestinians, from rehabilitation to emergency humanitarian aid, which, in the absence of governing institutions, would be reduced.

The report was completed in mid-March, two weeks before the Park Hotel bombing and the military operation in Ramallah and six other Palestinian cities in the West Bank. Palestinian and foreign economists and researchers worked on it, and it was written by two senior World Bank officials, Sebastien Dessus and Nigel Roberts, who has been the World Bank’s representative in the country for the past 11 months.

The silent destruction.
In a conversation with Ha’aretz on March 27, Roberts still hoped that the optimistic scenario of political rapprochement and calm was possible. But the next day, on the night of the Seder, 29 people were killed in the Park Hotel massacre and on March 29, the IDF began Operation Defensive Shield that lasted a month. On May 9, in another interview with Ha’aretz, Roberts said the sieges on the Palestinian towns, then being tightened further, would require the donor countries to consider giving $2 billion instead of the
$1.7 billion that was earmarked in case of the “pessimistic scenario.” In the same interview, Roberts reiterated four axioms that had become clear during the preparation and writing of the report:

 1. The ongoing damage to the Palestinian economy from the sieges and closures is much more than the physical damage created by the military operations, including Operation Defensive Shield. In the first 15 months of the intifada, from October 2000 to December 2001, the physical damage to infrastructure and Palestinian institutions was an estimated $503 million. Last week, an estimate of $360 million was published, referring to the physical damage resulting from the military actions in March and April this year. But in the first 15 months of the intifada, at least $2.4 billion in damage was done to the economy, in terms of lost gross national revenues because of the mounting restrictions on freedom of movement imposed by Israel on the Palestinians in, and out, of the territories. Roberts, who is British, and usually careful with his words, calls the closure policies “the silent destruction.”

 2. The Palestinian public has proved to be very resilient when challenged by the shocks caused by the economic disaster. Palestinian handling of the enormous economic and social difficulties is characterized by intra-community support, family involvement, and mutual help to a degree that is not known in developed, Western countries. Roberts is convinced that developed Western societies would have collapsed if confronted with “an economic disaster of such proportions.”

 3. During all the months of the intifada, major institutions in the Palestinian Authority function “impressively,” and dealt well with the challenges posed. “That’s the untold story in the tale of this intifada,” says Roberts. He says that despite what Palestinians themselves – let alone Israelis and the rest of the world – may believe, the PA, as a complex of institutions providing services to its constituencies, not only did not collapse but rose to the occasion in a number of areas. He makes special note of the education, health and finance ministries as well as the Public Works Ministry and the city halls, which he regards as part of the decision-making
structure for initiatives during the crisis.

 4. The fourth axiom, which Roberts repeated in both meetings with Ha’aretz, does not derive directly from the report on the damage caused by the closures, but rather from a “working paper” published by the World Bank in May 2001 called “Government and the Business Environment in the West Bank and Gaza.” That paper’s researchers discovered that, as opposed to what is commonly believed, the level of corruption (meaning informal payments to government officials) in the PA territories is much less than in neighboring countries and in other developing countries, where similar studies were done at the same time. Progress toward transparency and accountability, often under international pressure but also as a result of domestic Palestinian criticism, could reduce the anxiety level of those Palestinians worried by the phenomenon of corruption, which in large part is based on the lack of laws guaranteeing equality to all citizens.

Make-work jobs.
The World Bank report opens with the definition of “closure” as “a term referring to the restriction placed by Israel on the free movement of Palestinian goods and labor across borders and within the West Bank and Gaza. Israel asserts that closure is a response to Palestinian violence. Closure has come to dominate much of Palestinian life over the past 15 months.”

The Palestinians, the report says, have been required to carry IDF-issued authorizations for travel since 1993 (actually, since 1991 – A.H.). Since October 2000, most of such authorizations for travel into Israel were canceled, Palestinian freedom of movement for goods and people into Egypt and Jordan was drastically reduced, and internal closures and sieges around various Palestinian towns and villages were tightened through physical blockades. Checkpoints are manned, backed up by tanks and armored personnel carriers, to reduce to a minimum any movement of people and merchandise inside the Palestinian territories, between village to village, city to village or village to city.

Closures cause a chain reaction of damage that ultimately harms all of Palestinian society. The loss of tens of thousands of jobs inside Israel meant a drop in purchasing power inside the territories that leads to a further shrinking of productive economic activity, and a wave of domestic unemployment paralyzes any possible investment. Thus, in the beginning of 2002, the average real income was 30 percent lower than in 1994, on the eve of the establishment of the Palestinian Authority. The number of poor, defined as those living on $2 a day or less, grew from 600,000 (in a population of some 3 million) to 1.5 million by the end of 2001. Roberts believes that after the April military operation, three-quarters of the Palestinian population in the territories is now living under that $2 a day poverty line.

The gross domestic product dropped 6-7 percent in 2000, as a result of the dramatic drop in economic activity in the last quarter of that year. In 2001, the GDP dropped another 21 percent. Gross national revenues fell 11.7 percent in 200l and another 18.7 percent in 2001. That comes to $2.4 billion, compared to a gross domestic product of $5.4 billion in 1999.

There are large gaps in food prices in the West Bank, depending on where the food is purchased, because of limitations on freedom of movement and the internal closures. In areas where food is produced, prices have fallen drastically, since the goods can’t reach the markets. In non-agricultural areas, especially the cities, prices have risen dramatically, because of the shortages in supplies. In Gaza, prices have lowered because of a drop in demand, as a result of shrinking household income and purchasing power.

Israel takes a cut.
The decline in PA revenues, because of the shrinking economic activity, was made even worse since December 2000 when Israel ceased transferring to the PA taxes it collected on goods imported into the PA from Israel, on grounds the PA was paying terrorists with the money. The World Bank mentions that fact at least five times in the report, and emphasizes the monies do not belong to Israel. The current estimate of money Israel owes to the PA, up to December 2001, is half a billion dollars.

The report comments negatively on a well-known phenomenon in the PA: the lack of a shared governmental vision of how to manage the crisis. A number of ministries, especially the Planning Ministry, treasury and PEDCER (Palestinian Economic Development Council for Economic Rehabilitation) worked out emergency plans, but they were written separately and were not adopted.

No umbrella forum was established to manage the crisis, and inter-ministry coordination, problematic even before the intifada, did not improve. The World Bank report is meant to solve that problem and to propose to the donor countries and the PA an appropriate, coordinated working program for dealing with the crisis (according to all three scenarios mentioned at the outset).

The PA, for its part, is committed in the document to adopt a series of steps in the context of internal reforms, both administrative and financial. Those promises came a long time before Israel and the U.S. began insisting on reforms. Some of the reforms were implemented, under the watchful eyes of the International Monetary Fund and the donor countries, before the intifada. Others were done during the crisis, especially all those dealing with economic legislation that would encourage the private sector, as well as a
pension fund for civil servants, to guarantee a social safety net.

On March 27, Roberts still hoped the action plan would help, to some degree, in reviving the Palestinian economy, on condition the closures, particularly the internal closures, were lifted. On May 9 he was speaking differently. All the signs show, he said, that Israel intends to tighten the internal closures even more, and to limit to an absolute minimum the movement of people and goods from one Palestinian township or village to another. People leaving besieged cities need “authorizations for movement under closure” that only
go to a very narrow category of people. Most of the goods going to the cities are transported “back to back” meaning a truck full of goods backs up to an empty truck on the outskirts of the city at the checkpoint, and the goods are transferred from one to the other. It adds time and costs to the entire process.

The damage caused by the closures to the Palestinian economy, says Roberts, creates a barter economy that is not appropriate for the private sector and for any vision of economic development. Under such circumstances, he adds, the donor countries are forced – against their will – to become charitable organizations to an impoverished population, without any political framework. Roberts allows himself to say that the closure policy “is more damaging to security in the long run” and says he finds it difficult to be persuaded
that a process that is impoverishing the entire Palestinian society – causing damage to stability in the long run – can lead to rapprochement in the future. “Militarily, I have no opinion on the effectiveness of the closures.

But strategically, it is clear they are creating an atmosphere that is not conducive to the security of Israel.”

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