Crisis in the Palestinian Economy

The purpose of this briefing is to provide you with facts and counterpoints that should clarify this subject.

The facts:

1. During the current conflict, from the beginning of October 2000 until the end of that year, Israel has transferred NIS 407 million (approximately 100 million US dollars) to the Palestinian Authority from indirect tax revenues that Israel collects on the PA's behalf, as set forth in the interim agreements.

2. This amount is lower than the sum normally transferred (pre-October 2000) for two reasons: - A decrease in the economic activity in the PA, as well as a decrease in the economic activity between Israel and the PA. - The amount does not include a sum of NIS 200 million (almost $50 million) that was advanced to the PA by Israel in June 2000; it has been agreed upon at the time that it would be subtracted in the last quarter of 2000.

3. In the wake of the violent confrontations with Israel, the PA is experiencing a financial crisis. This is because the riots caused a significant decline in the revenue from taxes collected by the PA and a reduction in revenue from money transferred from Israel. Accordingly, the PA has expended great effort in different channels to obtain aid for its activities. This effort has so far yielded $140 million in Arab and international aid and enabled the PA to continue paying salaries regularly to its approximately 100,000 employees.

4. Recently, official elements in the PA have placed a boycott on certain types of Israeli goods, threatening to arrest anyone who violates the decree. We know of cases where Israeli goods have been taken off the store shelves. The boycott is being enforced mainly on Israeli products for which a substitute may be found or produced in the PA territories as well as on several products from international companies. Some examples of boycotted products are eggs, carbonated drinks and laundry powders.

5. In light of these facts, it would appear that the economic state of the PA, although not good, is nevertheless definitely not on the verge of collapse. However, a distinction must be drawn between the economic situation of the PA and that of the Palestinian people, who are experiencing extreme hardship, due mainly to the growth of unemployment from 11% to 45%.

Counterpoints:

1. The economic difficulties of the Palestinians are directly linked to their choice of violence and terrorism as the way to achieve their political goals. The PA has been tied to terrorist activities, incites to violence and is not doing a thing to prevent any of these acts.

2. Terrorism forces Israel to adopt stringent security and cautionary measures to minimize the dangers and prevent attacks and injuries.

3. As a natural result of the violent events, there has been an appreciable decline in economic activity. This decline has led to decreased income for the Palestinians, from salaries and taxes, as well as a considerable increase in poverty among the population.

4. At the same time, alongside the strict security measures, Israel is doing everything it can to make things easier for the Palestinian population, in the framework of what is called a "permeable" closure. This means that the closure, for humanitarian reasons, is not "hermetic" and therefore Israel is thus taking upon itself an enormous security risk that has so far cost the lives of dozens of Israelis and injured hundreds more.

5. In addition, despite the enormous debts owed by the PA and semi-governmental bodies within it (for example the electric, telephone and cellular phone companies) to Israeli companies supplying these services. Israel, for humanitarian reasons, is not disconnecting the Palestinians from these services, and is itself absorbing the costs.

6. When the rioting first broke out, Israel did not immediately halt the "ongoing employment" program, attempting to allow Palestinians to continue working in Israel, so that their livelihood would not be disrupted. The regular work program was stopped only after the disturbances intensified. Attempts to reinstate the program failed because of terrorist attacks on Israeli citizens, which reached their peak with the bus attack at Azur Junction.

In contrast, work in the industrial areas along the "seam line" was not halted, although the amount of work has diminished due to violent Palestinian attempts to prevent workers from arriving at these areas and as a result of the burning of industrial areas (such as the one near Tulkarem) by Palestinians.

7. Israel is allowing the free entry of consumer goods, food, fuel and medicines (humanitarian aid) - as well as unlimited transport of agricultural produce intended for export or for use in other areas of the PA. The main crossing to Gaza was closed for only 5 days because of the disturbances. The Palestinians, by their own decision, closed it from their side for an additional 13 days.

8. The PA is not at this point in danger of economic collapse and is able to raise funds and pay salaries regularly to its 100 thousand employees, who constitute about 20 percent of the Palestinian work force.

9. It should be pointed out that the PA, in order to make the picture of suffering, which is bad enough, look even worse, likes to cite incorrect information to international investigative bodies. Thus, for example, UNSCO's report, based on Palestinian information, states that the Karni crossing, through which goods are transported between Gaza and Israel, was closed for 93 days. In reality, according to the Coordinator of Activities in the Territories, the passage was closed for only 18 days, thirteen of which were at the instigation of the Palestinians themselves. The report also states that Allenby Bridge was closed for 35 days when, in fact, according to figures from the Airport Authority (which operates the crossing), the bridge was closed for only 16 days. The Palestinians are also complaining about the decreased amount of funds being transferred, "forgetting" to note that NIS 200 million was given in June as an advance and subtracted, by agreement, from the sum paid in the final quarter of 2000.

10. It must also be remembered that the Palestinian violence - which broke out at a time when Israel was prepared to consider far-reaching proposals for bridging the gaps in the peace process with the PA - caused considerable damage to Israel, both in human lives and in economic terms. The tourist and construction industries were hit hard, unemployment increased, budget allocations were transferred to security operations. However, the biggest damage that occurred on the Israeli side was the damage to trust - the trust that we placed in our understandings with the Palestinians.

11. We regret the great suffering caused to the civilian Palestinian population, whose situation has deteriorated to one of great economic distress, poverty and unemployment. However, the biggest source of regret is that the PA has not reached an agreement with Israel, an agreement that was possible in light of Israel's sweeping concessions.