Israeli Economic Measures in East Jerusalem: an Interview with
The closure, which the Israelis say is security-inspired, is the
most obvious example of Israeli policy in East Jerusalem which
affects the Palestinian economy. What was the impact of the closure
imposed in March 1993, which cut off the city from the rest of the
Occupied Palestinian Territories (OPT)?
In order to understand the importance of the closure of Jerusalem,
you must consider what Jerusalem means in the Palestinian economy,
and the relationship between Jerusalem and the rest of the West
Bank and Gaza. Jerusalem is a heavily populated Palestinian city.
It houses more than 160,000 Palestinians, and many, many more
depend on Jerusalem as a workplace and trade center. In terms of
health, education, culture, religion, commerce and so on, Jerusalem
is integral to Palestinians, and day-to-day access to Jerusalem is
In the surrounding area of the city, there are 100,000 people who
used to rely on the Jerusalem market to sell their produce.
Economically, Jerusalem is also the trade center for the whole West
Bank. People used to make all of their purchases in Jerusalem.
Since the closure, the Palestinians do not have access to that
market. Closure means Jerusalem is cut off from the rest of the
OPT, without providing any substitute for the Palestinians who
relied on Jerusalem or for the Jerusalemites who used to make their
living from internal trade.
Many institutions in Jerusalem also employed a lot of workers from
out¬side the city, from Ramallah, Bethlehem and other places.
Cutting off Jerusalem severely disrupted their work.
Can you give me an idea of what that means in terms of economic
Fifteen percent of the Palestinian economy is based in East
Jerusalem, an economy of about $450 million per year. I believe
this has declined by at least 40 percent since the closure [in
At the same time, there is an Israeli policy of "squeezing"
Jerusalem mer¬chants. Take, for example, the Arnona [property
tax]. The Israelis have classi¬fied the Palestinian areas of
Jerusalem in the category which pays the highest rate of Arnona -
the whole Old City, for example. If you make money or not, you
still pay this tax. In addition, the merchants must pay VAT, and
income tax, which the Israelis calculate arbitrarily, on the basis
of estimates. And ser¬vice industries, and public
institutions, for example, have lost workers.
The levels of taxation are unquestionably high, and that is
difficult for business in East Jerusalem. But taxes are high for
Israelis; this is a highly-taxed society.
Yes, but for Israelis it is business as usual, they are not
affected by the closure. Few Palestinians went shopping in the West
before the closure. Businesses in the East have seen their sales
decline up to 60 percent. And the Israelis are still estimating
income, for tax purposes, as if it were normal.
Before the closure, taxes were high but people at least had their
profits. They could survive. Now, you find a very high level of
bankruptcy, because we can't afford high taxes with low sales, or
But how hard has this hit the Palestinian economy as a whole? Has
the economy in places like Bethlehem and Ramallah picked up, since
people don't have access to East Jerusalem? Is the damage from the
closure localized to Jerusalem?
To some extent. Merchants in Bethlehem and Ramallah take part of
the demand, formerly concentrated in Jerusalem. But not at the
previous level, because the closure affects other areas besides
sales. It denies workers access to the Israeli market. This leads
to high unemployment and a decline in purchasing power.
How many workers are affected?
Before the closure in March 1993, there were 120,000 workers
employed in Jerusalem and Israel from the OPT. That dropped to zero
after the first clo¬sure, and then climbed back to reach a
maximum of 60,000 before the kid¬napping [of IDF soldier
Nahshon Wachsman] in September 1994. After that, it declined to
zero again, and picked up to a bit more than 40,000. Since Beit Lid
[January 1995], it has declined to less than 20,000.
How many of those people are able to find alternative sources of
income, when they are denied access to Jerusalem and work in
There is no alternative income outside Israel. Our economy cannot
absorb this number. Look at the history ¬in the normal
situa¬tion, between 1970 and 1987, the Palestinian economy
opened 1,000 new job opportunities each year. The increase in the
Palestinian labor force each year is 14,000 (as a result of
population growth). So 1,000 of them find work in the Palestinian
labor force, and the rest seek work outside the Palestinian
The result of the continuous closure is that Israeli companies
shifted from using the Palestinian laborers to foreign laborers,
and many jobs were filled by Jewish immigrants. Demand for
Palestinian labor, because of this disruption, declined
¬Israelis do not want to risk using this labor, even if it is
cheap, because it is not sus¬tainable, and the result is this
level of unemployment [estimated at 60 percent in Gaza and 35
percent in the West Bank].
Especially in terms of Jerusalem, have Israeli measures against
Palestinians, generally, and specifically economic, been
detrimental to their own economy?
Every Palestinian laborer denied access to the Israeli market costs
us $27 a day. But it costs the Israelis NIS $67. (If the worker
does not produce three times his or her salary they won't hire
him/her.) So their losses are of a magnitude much greater than
ours. But those $27 are much more important for us. We are a
$3-billion economy, while they are a $60-billion economy.
So if you take the losses from the latest [total] closure, 40,000
laborers at $27 a day, that is about $1.1 million. This is our
daily loss from wages, only. The closure also means disruption of
trade, internal and with Israel. The total is at least $3.3 million
The Israelis are losing about $2 million a day. For 300 work days,
that's about $600 million a year. In an economy of $60 billion,
their losses are about one per¬cent of their GDP, lost from
the workers with no access to Jerusalem or Israel.
For us, it is $300 million, out of $3 billion, which is about 10
percent of our economy. You must multiply that by three because of
the disruption of trade, both internal and external, with Israel.
That's 30 percent of our GDP.
What part caused by the closure of Jerusalem?
Jerusalem is 40 percent, or $450 million, those are continuous
losses. Access is almost totally denied: very few people get
permits, and nobody strug¬gles to get a permit just so they
can do their shopping.
The Israeli government has its plan for the physical separation of
Palestinians, which would seem to suggest continued separation from
Jerusalem. What is the implication for the Palestinian
It won't work… Separating the West Bank and Gaza from Israel
will cut our trade with Israel, deny our laborers access to their
markets. Israel will also cut East Jerusalem off from its natural
environment, its natural mar¬ket, its natural customers, so
its economy will continue to wither. That is part of the Israeli
policy to evacuate East Jerusalem, through the bankrupt¬cies
and so on, to make the city more and more Jewish, to change its
We are ready to finish with Israel, but we must have our
independence, even economic - we must have free access to
Are you willing to accept economic separation from Israel, although
it would be detrimental, if it is accompanied by political
If it is accompanied by political separation: self-determination
for the Palestinian people, and an independent Palestinian state.
Economically, it will be very difficult. But we are ready to live
with it, because it will be tem¬porary. We will have
alternatives for our exports, free access to interna¬tional
capital, which we will be free to invite to invest here.
In the scenario of separation we were discussing, which you said
you would accept, what happens to East Jerusalem? How can half of
the city be economically separated?
If the Israelis want separation, it should be political rather than
economic and it must be agreed by both peoples on a basis of mutual
benefit. No other enforced separation provides a solution for them
or for us, in the long run. Jerusalem should become a city of peace
and security for both people.
Stephanie Nolen is the design and production editor of the Journal.
She holds an MSc in Economics (Development Studies) from the London
School of Economics.