The Israeli closures of the Palestinian territories, under the guise of security, have constituted a succession of links along the way towards the implementation of an economic policy aimed primarily at direct separation between Israel and the territories. Indeed, Israel has used the economy as an effective instrument within the framework of future political settlements. The prime victims of such measures, however, have been the Palestinian economy, labor force and those sectors financially dependent on Israel ┬Čindustry, trade, agriculture, etc.
The most recent closure, which started on February 25, 1996, has affected the investment climate and job creation opportunities. It has also formed the basis for various scenarios regarding the economic future of the territories. In light of the ongoing discussion about such a future, a general consensus exists about the necessity for opening the borders with Jordan and Egypt, as these countries can become bridges to vast markets in North Africa and the Gulf states for Palestinian products and work force. There is also a call for opening the passages between the Gaza Strip and the West Bank.

New Palestinian Thinking

This proposal indicates a qualitative change in Palestinian thinking geared towards diminishing Israeli economic hegemony. It is also a step in the right direction towards finding new ways for sustainable Palestinian growth and greater economic stability in the future. Naturally, the existing conditions entail a search for the most suited scientific solution, and I believe that Keynes's theory, "The General Theory of Employment, Interest and Money," would be the right theoretical introduction for the purpose.
Keynes advocates turning to what he calls "public goods," which in our case can be infrastructural projects, such as electricity, water and various waste matters. However, the most suitable mechanism for the implementation of such a program would be a distribution of the different projects of the infrastructure among the donor countries, whereby each country would adopt one specific project. For example, road construction in one district would be given to Norway and that of a second district to France, and so on. Such a mechanism will enhance follow-up and will impact favorably on the economic situation. Once a project is carried out, the Palestinians will realize the extent of the seriousness of the donor countries and vice versa. In effect, public goods in Keynes's theory - or the infrastructure - have the capacity to absorb a large number of unemployed laborers. Indeed, as these have been working in the construction sector in Israel, their absorption into the same sector on the Palestinian side will not necessitate any rehabilitation.

Interest Rates

The other part of Keynes's theory relates to interest rates. The huge number of banking institutions that have opened branches in the Palestinian territories need to activate their role in the developmental process, since capital constitutes one of the most important factors of production. Periods of stagnation call for a reduction in interest rates on loans for investment in order to encourage investment. In this context, the Palestinian monetary authorities should "consult" with the banks operating in Palestine, to facilitate their functioning and relax the conditions relating to legal reserve requirements.
Coordination among the various relevant ministries is imperative for success, as the negative effects of a lack of coordination are still being felt on the local scene. Undoubtedly, the adoption by the Palestinian National Authority (PNA) of genuine contractionary fiscal policy measures will prove an efficient means towards an integrative economic stability. A gradual reduction should be pursued until the real level of standard of living is reached, leading, eventually, to the real economic situation compatible with the Palestinian territories.

A Climate for Investment

In order to generate conditions conducive to economic stability and the creation of a climate for investment, certain steps should be contemplated in light of the continued Israeli closure and as a long-term Palestinian strategy. The general standard of living in all the Palestinian territories must be reconsidered, to allow for the achievement of relative benefits and competitive privileges for the Palestinian economy, within a global vision of an Arab environment, i.e., of cooperation within the framework of what is known as the Middle East. Currently, discrepancies in standard of living do exist between Gaza and the West Bank, as well as in salaries among administrative hierarchies within the same sector. In addition, there must be a review of a certain mode of thinking which attempts to use Israel as measure or model, unaware, albeit unintentionally, that Palestinian consumption far exceeds the gross national product (GNP).
This unique situation requires sacrifice in the short term. However, a reduction in the standard of living does not necessarily imply leveling with any of the neighboring Arab countries, but will be compatible with the size of the Palestinian economic output, and will diminish dependency and direct or indirect economic hegemony from the exterior.
We should not forget that closure has negative repercussions on the Israeli economy as well. That is why, after a few days of closure, Israelis always reopen the crossings for the flow of goods in one direction only, without adherence to the principles of reciprocity. The daily need of the West Bank and Gaza in flour, for example, amounts to 600 tons which represent 37 percent of the output of Israeli mills. In addition, approximately one million liters of milk enter the territories daily, as well as veal from kibbutzim. It should be noted that such products cannot withstand long periods of storage and suffer a daily loss in value. Thus, a knowledge of Israeli economic conditions is essential for our dealings and negotiations with the other party, as well as for the definition of our demands.

The PNA's Role

In short, I believe that the Occupation, within the framework of a well-studied strategy, has worked towards an artificial improvement in the economic condition. This has left the PNA with the onerous task of grappling with the situation, and Israel is in the process of creating various constraints and obstacles, most important of which is the siege policy. Economic experiences worldwide, such as that of North and South Vietnam, or Hong Kong and its projected return to mainland China, can be valuable guidelines for us. In the former, the standard of living in South Vietnam has dropped to the North Vietnamese level, and in the latter, the high standard of living in Hong Kong is going to drop to equal that of the low Chinese level of living.
Finally, we should not forget that the Palestinian agricultural sector can be considered an important economic reserve, both for the provision and for the absorption of work force. It is a known fact that a big percentage of Palestinian laborers have rural roots, but have been lured by high wages to work in Israel. This has resulted in the complete neglect of the agricultural sector. Therefore, working out a general national plan for the rehabilitation and the absorption of the work force into this sector will achieve several aims, whether in employment, in the utilization of agricultural lands or in the increase of the gross domestic product (GDP).
Those working in this sector are invited to come up with new ideas about the subject, given a common awareness of all the obstacles which have been discussed in thousands of workshops. The continued belief that the reopening of borders with Israel and working there is the only way out of our crisis, leads in the wrong direction and gives the Israeli side an added opportunity to further control our political and economic future.

Gradual Separation

We should note that in light of the latest closure, the Israelis have started giving Palestinians permits to work in settlements. Such a phenomenon has important political implications. In particular, the financial reasons that drove the Palestinian laborers to work in these settlements in the first place, will indirectly lead them to accept their role and to incorporate it within their daily routine. And herein lie the far-reaching social and political effects of a long-range Israeli political strategy.
The PNA, the relevant ministries and negotiators are faced with a huge responsibility. Dealing with the Israeli side with short-term reactions, allows Israel to implement its own plans and to transform them into permanent policy. The involvement of the PNA, during the interim period, in the economic activities is an essential and valuable element in order to surmount the coming economic difficulties. In addition, such an involvement can constitute the legal justification for control over a reasonable income per capita and average consumption compatible with the economies of the countries in the region. This can help overcome the short-term difficulties, including their acceptance by the population.
Consequently, our relationship with Israel should not proceed further along the road dictated by its siege policy, but should be replaced by gradual separation, accompanied by equal, reciprocity-based economic relations. Such a change will contribute towards the creation of balanced relations in the fledgling peace bond of this new era. <

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