TEST
Relief and Reform in the Palestinian Economy
Could you give a brief description of UNCTAD's activities and aims in the Palestinian Territories?

Raja Khalidi: UNCTAD has been working with the Palestinians since 1979 - we were one of the first organizations to examine the underlying structural weaknesses of the Palestinian economy and decide on coherent strategies to get it on a path to sustainable development. In 1995, guided by the findings and recommendations of the research and studies undertaken up to that period, UNCTAD set up an integrated program of technical assistance activities.
This served as the framework for a series of advisory missions, training sessions and workshops, in response to requests for assistance from different ministries of the Palestinian Authority (PA). The technical assistance program currently in place broadly deals with trade policy, trade infrastructure, finance and development, and enterprise and investment.
Our mission is to set up project teams, with the agreement and approval of the PA and the ministries involved, to bolster Palestinian institutional development and help create a positive environment for the private sector through a range of technical cooperation projects. Once we have imparted the expertise that we have in these specific fields, the projects will become self-sustaining.
Before the outbreak of the most recent Intifada, we were working on three main projects: developing a customs initiative1, a public debt management system, using UNCTAD's computerized Debt Management and Financial Analysis System, and small- to medium-enterprise (SME) support programs. We were also offering advisory services on a number of subjects such as trade, dealing with the World Trade Organization, and developing economic relations with Israel.
On the basis of this strategy, and the clear needs emerging from the Palestinian territories, we were able to attract funding for these UNCTAD programs. We are continuing to carry out targeted research and analysis, especially in the trade, finance and related services sector.

Previous UNCTAD reports make unfavorable mention of the Paris Protocol. Do you believe this protocol hindered the development of the Palestinian economy from the outset?

We have always been critical of the Paris Protocol, right from its conception in 1995. We produced reports stating that we saw deficiencies in it, which we were concerned may prove insurmountable to a developing economy2 - but this was a practical concern rather than a political one.
Prior to 1995, UNCTAD had been very much under attack from Israel and the US for carrying out research that they felt entered negatively into the political framework. Given that our mandate at that time was to investigate the impact of Israeli restrictions on the growth of the economy in Palestine, it is hardly surprising that they felt under attack. In fact, Yasser Arafat was given permission to return to Palestine before UNCTAD was.

Are you working on these projects in cooperation with Israel?

Israel is a member of UNCTAD, as are all other members of the UN. We have an annual review of the work programs we are running, where we analyze the assistance we are providing. Israel takes part in these debates and, since Oslo, has been a positive contributor, with no criticisms of UNCTAD's work. However, Israel is not directly involved with any of our projects and nor are any other countries. We work directly with the Palestinians.

What is your prognosis for the future of your projects in the Palestinian economy? Will you be forced to withdraw at any stage?

All our projects, which were designed prior to the outbreak of the second Intifada in 2000, were founded on the conviction that the Palestinian economy is viable. Prior to 2000, we were bringing in, and helping to implement, the most up-to-date systems available, and we had all the components necessary to set a new example in the region of a thriving and efficient economy.
When the Intifada broke out, we initially thought it would be over within a couple of months. As it continued, we were unable to send experts over to continue training, but e-mail and the internet meant we were able to keep our training and advisory programs going, even when we weren't actually able to be on the ground ourselves. It would have been much harder to keep working over the past two years without this technology.
The political horizon meant the completion of projects, such as the customs program, for example, became pretty much unimaginable. The rationale for our involvement there appeared to be in serious doubt - were we developing systems for self-rule or to hand over to Israel?
Emergency needs began to take precedence for both the PA and the donors. As UNCTAD programs work best in periods of stability and an established political framework, our projects here essentially hit rock bottom last year.
But, we can be flexible, so we looked at the projects we were already running here and how applicable they were to the current situation. When the PA ultimately becomes the governing authority here, it will have hundreds of millions of dollars of debt, while it is still responsible for the significant amounts of imports coming into the territories. The SMEs will also still be here and their need to be equipped to cope in a variety of circumstances is greater than ever - so we decided that UNCTAD's projects here remain relevant.
In addition to this, what we were carrying out were active reform programs, long before the reform debate was put on the table. This is now being quoted as an example of PA foresight and commitment to reform. So, in a sense, our work has even become increasingly relevant. The first phases of the customs and debt management projects are also being reported by Salam Fayyad, the new finance minister, as examples of preparations for the future.
We are now also looking at providing technical assistance for the investment promotion agency in the territories, as UNCTAD has a proven track record in this field. Given the difficulty that currently exists in obtaining donor support, we feel it is important that there is after-care for current investors to keep them on track and make sure their investments remain viable.
All this essentially means we have been revisiting our pre-2000 ideas, giving them a relief and development angle to keep them relevant.

Are there any other projects that you have managed to revive in this way?

Before 2000, we had started a strategic food commodities procurement and food security program, which was aimed at helping the PA to stabilize food supplies in the territories. We have now widened this to look at training, access to international commodity trading and new risk management strategies. We are also working with the private sector to develop its capacities in dealing with volatile international commodity markets.
One good example of this is our work with the Palestinian olive harvest. Given the problems that had been occurring in this sector, we decided to provide support to the producers and the marketing sector. Again, all of this is aimed at giving a development dimension to relief work.

What impact will the construction of the security wall have on your projects, especially the customs program?

It has no direct impact on what we are doing - we are giving people the sort of training they need to deal with that problem themselves. Going back to the wall - although this may sound controversial, it could actually be beneficial to the PA in the long run, certainly in terms of customs structures. Imports and exports will be passing through designated and controlled points, which is an ideal situation in which to set up a separate customs country. Customs borders are very different from physical borders, but once they are established, the Palestinian territories will be eligible to join the World Trade Organization, for example.
Obviously, the wall will initially impede trade given the current circumstances, and the implementation of our customs systems is dependent on reciprocity. The irony is that the Israeli Ministry of Trade has been calling for the implementation of the same measures as the Palestinians when it comes to trade. But, because of the political situation, the matter is out of their hands.

Who have been the major donors to UNCTAD projects here?

Since 1999, we have been receiving money from UN Development Program, the World Bank, the UK, Italy, the Netherlands and Norway. They fund one-to three-year projects and so far, despite the situation, we have had no problems with late or withheld payments. Understandably, it is currently very difficult to attract new funding. Programs need to be linked to the reform agenda and donors are also increasingly cautious - not about transparency or corruption, but about investing in anything that risks being either destroyed or dissipated.

You sound remarkably upbeat about the prospects for the Palestinian economy.

The PA's authority to govern is at its lowest-ever level. But I believe it will strengthen now and we'll start to see consolidation. In a sense, the fat has been burnt off and only the best is left - the technicians, the dedicated, those who need this place to succeed. The elements that were holding the PA back have either left or are inactive. We had been dealing with Salam Fayyad before he became minister of finance and he endorsed our management project. We have a long working relationship with that ministry, the Ministry of Economics and Trade and the Palestinian Central Bureau of Statistics, all of which are now active in reform and building the new government.
Of course, things could get much worse. I have been talking from our technical point of view, rather than politically. My optimism about future statehood is based on the two-state solution mentioned in the Security Council resolution six months ago and the Quartet plans. If these are put into practice, there will be work for everyone. Otherwise, until there is some definite outcome, we plan to keep things ticking over and working slowly to build up these systems and programs.

1 The General Directorate of Customs and Excise relies on the Israeli authorities for obtaining customs statistics and information. Consequently, it is unable to adequately monitor imports, especially those originating from Israel, with lost customs revenue estimated at between US $166 million and US $275 million a year during the period from 1994 to 1996.
2 The Paris Protocol provides that Israel controls clearing procedures for products imported through its ports and airports. This has inflated transaction costs incurred by Palestinian traders, which are generated by strict security measures at border crossings and cumbersome customs and overland procedures.

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