Post Disengagement: Lessons for the Palestinian Economy - Part 2

October 26, 2005

October 17, 2005 marked an important day in the European calendar to combat world poverty. Under EU sponsorship in Glasgow, a round table conference was initiated.

On the same day, Mr James Wolfensohn issued his second report on behalf the Quartet, deliberating on the next steps forward for the Palestinian economy.

Wolfensohn's proposals are a follow up to his initial paper from 15 August 2005. The themes are very consistent. Only an end to Palestinian corruption coupled with Israel permitting greater freedom of movement will lead to significantly greater economic opportunity for the Palestinians.

Future donor aid must fit into these parameters, rather than just be doled out with blind devotion as in the past. As ever, there is a need to strike a balance between "security" and "development".

Wolfensohn's ideas have been reduced to 6 main categories.

First, border crossings and trade barriers: Agreement has already been reached on 75% of the issues. Here, progress has been delayed due to continuing Palestinian violence. It is hoped that the talks will resume after the Jewish holiday season.

Second, connecting Gaza with the West Bank: Wolfensohn sees this issue as more central to Palestinian economic and social welfare than the development of Gaza. What is emerging from other sources is that the proposals of all sides are being compromised by security considerations; specifically, the secret transfer of the resources of terror from Gaza to the West Bank.

Third, freedom of movement in the West Bank. Wolfensohn notes the substantial progress. Israel's security barrier has allowed numerous checkpoints to be dismantled. And yet, there is more to be done to allow Israel to further reduce its security presence.

Fourth, opening sea and air links. These talks have stalled and may recommence once the parties have resolved the problem of the Rafah crossing point.

Fifth, the settlement houses in the Gaza region. Delays have been caused by changes in the approach of the Egyptian government.

Sixth, the greenhouses in the former Gaza settlements. After initial looting by local Palestinians, these are now being repaired, and Israel is allowing though supplies of raw materials.

As for the PA's fiscal crisis, Wolfensohn surmised that:

In 2005, donors have been providing budget support at a monthly average rate of US$25 million; in pure salary terms, this is equivalent to supporting about 45,000 PA jobs. Despite this assistance and impressive revenue performance, the PA has not managed to maintain budget discipline .. The Cabinet, facing political pressure from different groups of public employees to raise their salaries, recently decided to implement earlier decisions to increase wages in accordance with the Civil Service Law and Security Services Law.
The decision will compromise the PA's Wage Bill Containment Plan, developed with IMF assistance and a cornerstone of the World Bank-managed, multi-donor financed Reform Fund. (and thus) disbursements from the Reform Fund may need to be suspended.

Wolfensohn also stressed that:

Donors are eager to develop new programs in support of disengagement, and an early estimate suggests that donor disbursements in 2005 will reach US$1.1-1.3 billion, an increase of 25-35% over the annual average for the last four years and consistent with the World Bank's estimates from December 2004. (However,) recent setbacks in security (violence and acts of kidnapping), and the PA's increasing lack of capacity have so far not been conducive to donor activities

Click here/a> to read the full details of the working paper.

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