Foreign Ministry Dir-Gen Savir- Regional Economic Development

Jerusalem, March 25, 1996

I'd like to share with you my thoughts about this whole essential link between economics and the peace process, seen from a perspective of someone who has had the advantage of entering this field of regional economic development from a point of view of almost total economic ignorance, and really had, in our various negotiations, together with our experts, to start and develop new political thinking in Israel regarding the peace process of how we could combine our efforts to build a new relationship, moving from conflict to peace, with essential economic underpinnings.

The basic and fundamental predicament and dilemma in this whole field is that, once we will have achieved peace in this region, and we will have comprehensive peace one day in this region, the economic element will be easier to sustain and develop, but politically less essential. Now when we are still in the process of transition between conflict and peace, the development of economic relations and the development of a new economic reality is much more difficult to achieve, because many political obstacles still exist. Therefore we have to develop a combined political-economic view of the issues, because it is now really that the economy can play a role in stabilizing the very beginnings of peace, and later on stabilize peace, once achieved in a more comprehensive way. But it does not suffice to analyze the economics separate from the political situation. Because, time and again, dealing with economic relationships, we do not have only the problems that are part and parcel of this region, but we do face, time and again, problems related to the political process.

Let me start with an example that I experienced some weeks ago. We were sitting with our Syrian counterparts at the Wye Plantation in Maryland, discussing the future economic relationship between Israel and Syria. We asked our Syrian counterparts how they perceive future Syrian-Israeli economic cooperation. The response was that after we will have achieved the political solution, after Israeli withdrawal, President Assad will consider, based on Syria's national interests, how he would like to develop Syria's economy and, in this context, if there is place for a Syrian-Israeli economic relationship. We tried to pose to our Syrian colleagues the following dilemma: that really in terms of the necessity to plan ahead a different economic reality for Syria and for Syrian-Israeli -- or, if you wish, Syrian-Israeli-Lebanese -- economic relations, and to attract international political support for an area that is not necessarily economically that attractive, the planning stage and some of the investment stage must be done while we are in transition from conflict to peace. Because here there is political will, on the side of say the United States, the European Union, Japan, to assist us to plan a different economic reality, to assist us in planning an economic relationship.

For the Syrian delegation, we were really touching on a taboo. Economic relations with Israel is something very difficult for them to perceive, let alone to plan. On the other side, I think the point was well taken, that if we will not plan today our future economic relationships, and if Syria will not start planning today the development of its infrastructure and its economy, later on we will find ourselves internationally far less "interesting" to those who today have a political will to assist us economically.

Actually, the Syrians introduced a very interesting notion of a "bridge" between the current situation and the future situation -- an economic bridge, on which the international community, including the Arab world, including the two parties involved, would start planning for a different economic reality based on Syria's needs, based on Israel's needs, and based on the possibility of Syrian-Israeli economic cooperation and Syria's role in regional development. We have just started to do that, and faced, as you know, the obstacles of our negotiations of this period, facing the issue of terror, facing the issue of terror in southern Lebanon. When we will come back to the table we will have to deal with this issue, also learning from other experiences of peace-making in the region.

We had different experiences in each of the peace processes or the peace treaties with our neighbors. With Egypt, initially, the main economic ingredient was American economic aid to Egypt and Israel, with very little economic planning of what was possible in terms of the development of the Egyptian economy or the development of Egyptian-Israeli economic relations, except for technical normalization agreements that actually led to very little economic relations.

With the Palestinians, the economic factor was and is far more dominant. One of the issues that brought us actually to Oslo was when the Palestinian delegation there, who were exploring various ideas with Israeli academics, suddenly raised issues of regional economic development, of an economic relationship between the Palestinians and Israelis. It caught the attention of the then Foreign Minister Shimon Peres. When we met the PLO for the first time, we were surprised, I think, by the depth of their economic thinking about future economic development in the West Bank and Gaza and its relationship with Israel and the regional dimension. Probably nobody quite remembers the details of the Declaration of Principles, but there are two specific economic annexes, mostly related to regional economic development.

Here, again, we face the same dilemma of an absolute necessity, probably more than in any other case of the peacemaking process, for the economic development of the West Bank and Gaza, and the political obstacles on the way. For the Palestinians, an international body was created, the ad hoc liaison committee, where the international community pledged 2.5 billion dollars for five years. Initially the international community faced problems regarding the economic system that was set up by the Palestinian Authority. Later on, we saw a problem of creating a Palestinian bureaucracy and a Palestinian police where there was none, and most of the money had to go to recurrent costs. Later on, we faced and are still facing the problem of violence and terror, and the security measures that Israel is forced to take, which, again, is an impediment to economic development. We are all the time faced in this dichotomy between political necessities and economic necessities, and the balance does not always produce the best results. But we have no other choice, looking at Gaza, which is maybe, if you want, the "gate" to the peace process; because I believe that without progress on the Palestinian track, there will be no progress at all in terms of the peace process in the region. And without success in Gaza in undermining fundamentalism and the violent opposition, progress will be very difficult on the Palestinian track and in regional peace altogether.

We need three parallel approaches to make it successful. First, a very strong position against any violence -- obviously for political reasons, for reasons of undermining terror, but clearly also for economic reasons because nobody will invest in an area where you have bases of violence and terror. Secondly, we need an ongoing political process. People on both sides are very much hypnotized by their own problems, by their own predicaments, and they need always to see future hope in this process through what was created in the Oslo process -- a gradual political process leading to permanent status. And the third aspect is the necessity of economic development, both in terms of aid to the Palestinian Authority and in terms of getting the private sector involved in Gaza and the West Bank.

We have had better times and worse times; we now find ourselves in a crisis. But, again, in our dialogue that has been intensified with the Palestinian Authority over the last week and will be even more intensified in weeks to come, we must find a solution to this triangle: security, political progress, and economic progress. In the meantime, I just come from a meeting where we discussed emergency economic assistance to Gaza, giving the very dire and difficult situation.

If I look at the peace with Jordan, the peace with Jordan is probably the most economic peace treaty that Israel has. It was partly developed out of a trilateral committee between the United States, Jordan and Israel, and to a large degree in the peace treaty itself, we outlined a series of projects along the borders of the Jordan Rift Valley to be developed by the two countries and through investment by the private sector. The expectation in Jordan very much is that peace will have immediate economic benefits. The solution of the water problem for Jordan is essential, and Israel is trying to assist. The issue of tourism has vast potential, and the development of projects. Here, too, I think, while we have done well on the political front -- we have a very good political relationship with Jordan and we don't have real security problems -- economically, we are not well enough prepared, on both sides of the border, to develop in an attractive way the type of projects that can attract the international private sector, given also the political goodwill that will introduce various guarantees and soft loans to the private sector.

The most important aspect of peacemaking in the region is not bilateral, but multilateral. The bilateral peace process is paralleled by the multilateral peace process, where we have really tried to define what are the areas of greatest potential in terms of economic development: develop plans, have meetings between experts. And it's clear that, in a way, the advantage of the region moving from conflict to peace is the lack of economic development due to the fact that we lived in conflict; the existence of certain natural resources; the existence of knowhow; the existence of vast markets. And, to a large degree, it means the economic planning and reorganization of this region so it can become more affluent, so the standard of living can rise. Actually, this is the best guarantee to prevent fundamentalism from becoming stronger and to threaten the peace process, because fundamentalism grows, obviously, on the fertile ground of hunger and poverty.

Looking at economic regional development, I think what we have to do is to continue and define the kind of fields where such development is possible. Again, there are many problems that are inherent in this region, that have nothing to do with the Arab-Israeli conflict. But there is also great potential. If you take tourism, for instance. We get in Israel almost two million tourists a year. I think Jordan has about the same number, Egypt. If we were to live in peace, in a comprehensive manner, also with Lebanon and Syria, the tourism potential is enormous when we think of developing regional tourism packages, developing together the infrastructure of tourism, and really, in a few days, offer a Middle East of peace to tourists around that world, that would raise the number of tourists four or five times from the various continents.

There are other areas of potential development, such as energy, the linkage of electricity grids, opening of transportation between countries that actually had no peace borders. Here regional planning is so important.

I feel, after three years of peacemaking, bilateral and multilateral, that maybe the most important aspect of the economic development is to start and create institutions in the Middle East that will allow us to do the right economic planning. And the most important institution, probably, would be a regional bank, a regional development bank for the Middle East; because it will force us, in this region, for the first time, to sit between neighbors and develop the region according to economic priorities, given a financial mechanism that will make investment for the international private sector and the regional private sector possible.

We also have to institutionalize various aspects of regional economy, such as trade regulation. Trade in the Middle East alone, inside the region, is about six percent. In the European Union, if I am not mistaken, it is about 60-65 percent; in Asia it's about 60 percent. We export 94 percent of our goods outside of this region.

What has helped develop some of these potential institutions are the multilateral gatherings, both of the Madrid Conference, but also others that developed in Casablanca and Amman, where the private sector was invited and came in large numbers to look at such projects, or the one initiated by the European Union in the Barcelona process, looking at the common fortunes of the Mediterranean countries. It is very much in these forums of the Casablanca, Amman and the next conference in Cairo; or the Barcelona Conference that has a meeting next week; or the development of a regional economic bank, that again has a meeting planning the bank and bringing it to realization hopefully this year, also next week in Cairo; or the planning of the Cairo Conference, with a meeting in two weeks in Rome -- all these activities have constituted an "underground" peace process. International public opinion, the international media, and even international diplomacy is not aware of the intensity of activity that is going on, to start and plan and develop regional economic development, bilateral relations, and attract the private sector.

I will not speak any further about the economic aspects. But let me conclude with the following: Without political progress, economic development cannot happen. I think Oslo has set the political process on a track that is irreversible. It is not so much the technical details of the DOP or the Interim Agreement, but, in a much deeper sense, the mutual recognition between Israel and the PLO. We face serious problems today, we will face serious problems in the future, we will face serious problems in permanent status negotiations. We will overcome them, because there is no way back, and because mutual recognition has led to a political path between Israelis and Palestinians where, by definition, we have created or actually recognized reality; recognized the interdependence between two neighbors.

I also believe that once we renew negotiations with Syria, there actually is no alternative but to reach an Israeli-Syrian peace treaty. Syria must make a choice between an alliance with fundamentalism, with Iran, with the Hizbullah; or a relationship with the United States, with Europe, with Israel, and possibly with Turkey, where Syria has important water interests, Turkey having security interests related to Syria.

But maybe what links all of us into a process in this region, that was marred by so much conflict and suffering, is really the economic dimension. While we have to overcome the obstacles by political decisions and by an ongoing political process, the real temptation is economic, and the real guarantee for its success is economic as well. Because we have discovered the common enemy. The common enemy of the combination of suffering, of social instability, political instability, has, for the first time in our region, created, in every country among our neighbors, an opposition. An opposition where before there was no opposition. A challenge to every regime. And a regime that doesn't satisfy its people has an alternative -- if you look at the Iranian example. And really the only guarantee to stabilize the various countries, the various regimes and the region is through economic development. There is no economic development without peace. And, therefore, I see in economics the real way to peace, but also the best way to stabilize peace while in between we must make a supreme political effort to resolve the problems and plan our common economic future.

Conclusion:

I think that there are some parallels between the political process and the economic process. But, if I am not mistaken, the same inhibitions that prevented us from forecasting the political process in this region may be preventing us today from forecasting the economic fortunes of this region. With all expertise on Middle East and politics, not a single soul, I believe, predicted the visit of Anwar Sadat to Jerusalem, the fact that the late Prime Minister Rabin and Yasser Arafat would shake hands on the White House lawn. I don't know of a single Jordan expert who predicted that King Hussein would sign an agreement with Israel before President Assad would -- which doesn't stop us from making other wrong predictions.

Most predictions, I believe, have been wrong partly because of the lack of two elements: One is, one generally is, in every political analysis and I believe also economic analysis, hypnotized by present reality. The second is that what makes government change policies are different elements than before. They are no longer so much of strategic nature, not so much of geographic nature, and not necessarily linked to natural resources. They are more related to economic factors, because everyone in this region is aware, again, of two things: one is the globalization process -- and, given the restrictions of everybody's economic system, still everybody wants to be part of this bandwagon; and secondly, as Emanuel Sharon asked: what is the alternative? The alternative, obviously, is much more costly. Any future Middle Eastern war would probably be, not just in human terms but in economic terms, economically unbearable for this region or internationally.

Therefore, instead of maybe responding to some aspects, some of which I agree, some of which I disagree with in terms of the micro-analysis that often can be very accurate, I think, in the larger sense, this region has a real opportunity to go in a political and economic direction which maybe few of us, if any, predict. And it may be those on the optimistic side of the table who can perceive, 20 years from now, and not just 20 months from now, a region that is economically transformed. It's enough to think of the region 20 years ago, in 1976, which was a much poorer region; we were in a state of war -- Israel was in a state of war with Egypt; we were in the midst of PLO terrorism against Israel; we had no formal relations with Jordan; nobody could dream of trade between the Persian Gulf and Israel. Today, informally, there are hundreds of millions of dollars of bilateral trade between Israel and the Gulf countries.

Businessmen tend to be, I think, maybe the one factor in the region, again that nobody predicted would be the most avant-guard. It is the private sector in the Arab world and the private sector in the Israeli community that, I think, will be the most surprising. Because they may force governments that are either too conservative in their views of the necessary reforms, or not magnanimous enough, to enter gradually into the type of reforms that will not make the Middle East a Europe-like region; it will have its own distinctions. And we may have to move initially by more modest steps, but with a broader view of what later is possible. I don't think it is impossible to predict some years down the line import to Israel of energy from Saudi Arabia, or tourism projects between Lebanon, Israel and Syria; or an economic arrangement between Jordan, Israel, and a future Palestinian entity in its trade regulations, both with the United States and the European Union.

And therefore, while we shouldn't be basing our analysis on too much of an optimistic vision, neither should we be either politically or economically too constrained by present realities in the Middle East. And while many of the answers to the questions would be more negative rather than positive, we do see a very surprising curiosity by the private sector that does come here, that does come to Israel, that does look at these fancy project books as an appetizer, and not more. But as we have attracted the attention of this world, of the media world, far too intensively and far too long because of the conflict, we may be attracting the private sector simply because of what war prevented: and that is a basic new economic infrastructure of peace -- of roads, of telecommunications, of tourism, etc.

This, too, is not a given. But if I would like to leave a message, it is the following:

The only scenario that I think is probably quite unlikely is that things will stay as they are. The Middle East is really at a crossroads. We either will have the courage to break through political and economic taboos and move towards something that is more regional, that has a close relationship with Europe because of the proximity, that has a relations with Asia and the United States, where each keeps his uniqueness in terms of the country's economic structure, but where regional development will be maybe even more surprising than the peace process itself. It's mainly a matter of political will, in my view. The economics will come as a net result. And it's not necessarily in the analysis of each and every one of the components of the constraints where we see the future. But we need that type of economic vision in order today to make the necessary political decisions. Because I very often, as a negotiator, feel that I and my colleagues and my colleagues from Arab countries, for hours and days and nights, negotiate irrelevant issues, politically, while we should be tackling relevant problems of the future, such as economic opportunities, such as water. Saudi Arabia is the leading country, I think, in the world, on water desalinization.

I'd like to leave you with a cautious note of optimism -- maybe in your minds and the minds of many of my countrymen and women it sounds like reckless, irresponsible, visionary views of the future. But then, as so little was predicted in the political peace process, we tend to believe that the economic process that will match the political decision-making will ultimately create a different economic Middle East far more prosperous than we can predict simply by the logical analysis of today's social economic components.