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On June 24, the World Bank released its study on Israel's Gaza disengagement proposal and how it would affect the Palestinian economy.

The World Bank study concludes that easing the harsh Israeli closure policy would do more than any other step to revive the Palestinian economy and that Gaza needs to export in order to survive. The study also calls for
a credible Palestinian reform program to be restarted in order to attract investors. If the Palestinian Authority and Israel carry out these steps,
the study states that a donor assistance program of $500 million annually (on top of the $1 billion already pledged) would help the Palestinian economy turn the corner.

Principal Conclusions of the World Bank Study

* The deep economic crisis in the West Bank and Gaza threatens to impoverish and alienate a generation of young Palestinians. It is undermining the credibility of the PA, increasing the popular appeal of militant factions, and threatening Israel's security. Unless today's impasse is broken soon, the PA could melt away, leaving Israel with a poor, embittered neighbor with
whom dialogue could be much more difficult.

* The Palestinian recession is among the worst in modern history. Average personal incomes have declined by more than a third since September 2000, and nearly half of Palestinians now live below the poverty line.

* The economic crisis has been caused by restrictions on the movement of Palestinian people and goods, which Israel regards as essential to protect its citizens from attacks by militants. Without a major reform of the closure regime, however, the Palestinian economy will not
revive and Israel's security gains may not be sustainable.

* By itself, Israel's disengagement plan of June 6 will have very little impact on the Palestinian economy and Palestinian livelihoods, since it only proposes a limited easing of closure. A focus on this over-arching issue is essential if disengagement is to deliver long-term benefits.

* Disengagement will remove internal movement restrictions in Gaza and in part of the northern West Bank, but Palestinian economic recovery depends on a radical easing of internal closures throughout the West Bank, the opening of Palestinian external borders to commodity trade, and sustaining a reasonable flow of Palestinian labor into Israel.

* Easing internal closures throughout the West Bank must be accompanied by a credible Palestinian security effort; as long as Palestinian violence persists, the case for dismantling closures will always be contestable.

* Removing restrictions on the movement of cargo across borders is relatively simpler - technologies and administrative methods exist that permit the orderly flow of cargo and the maintenance of security.
Introducing a new, efficient border cargo regime would make a major difference to Palestinian welfare and commercial prospects. The international community should focus on this key economic issue in its diplomatic dialogue with the government of Israel.

* An easing of closures alone, though, will not attract investors back to the Palestinian economy. A reinvigorated program of Palestinian reform, designed around measures that will create an investor-friendly business environment, is essential. There is no reason for the PA to delay implementation of such a program.

* It is important to understand that additional donor money alone cannot solve today's economic problems. Donor disbursements of $1 billion per annum (or $310 per person) are already very high. Additional aid in today's economy would help alleviate day-to-day hardship, but would have little lasting impact. As long as the web of Palestinian economic transactions remains shredded by closures, investors will stay away, and short-term gains will not be sustainable.

* With a freeing-up of the constraints on economic activity and committed Palestinian reform, an additional major donor effort would make a difference - it would enable the Palestinian economy to turn the corner. An
additional $500 million per annum, on top of existing disbursements, could by 2006 spur a growth in real personal incomes of about 12 percent (and 20 percent in
nominal terms), and could reduce unemployment to levels only slightly higher than prior to the intifada.

* The alternative to this is stark. At the wrong end of the spectrum of possible outcomes is a Palestinian economy with unemployment levels of more than 35 percent by 2006, and with poverty afflicting upwards of 55 percent, and 70 percent in Gaza. With the PA weakened as it is, time is running out to get things right.

* As for the settlement assets that Israel will leave behind, those in Gaza have considerable economic value, and in time can make a significant contribution - provided Gaza's borders are opened for trade.

* The manner in which the settlement assets will be transferred to the Palestinians remains a core issue. The PA should seize this opportunity to demonstrate transparency, equity and efficiency in receiving and disposing of the assets.

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