World Bank Awaits Donor Countries' Approval of PLO Commission

By Frank Collins

The expectation that large sums of money would be offered to reconstruct the debilitated Palestinian economy was a basic incentive for both parties to the accord on principles of peace between PLO Chairman Yasser Arafat and Israeli Prime Minister Yitzhak Rabin. President Bill Clinton quickly moved to convene a meeting of potential donor countries to raise funds for this purpose. The Oct. 1 meeting of 47 countries and international organizations resulted in $2 billion in aid pledges to be spread over five years.

Of this, the United States pledged $500 million over five years, with $200 million for the first two years to be deducted from other aid programs. These pledges are paltry sums compared to the grants and credits that the U. S. single-handedly plans to give to Israel over the next five years. These include between $15 billion and $20 billion in military and economic grants, and the remaining $6 billion of the original $10 billion in loan guarantees for immigrant resettlement, which Israel is now using for other purposes. This duplicity in the use of the loan guarantees is possible because the United States provides virtually no supervision of the expenditures of grants and credits to Israel.

By contrast, expenditures for the rehabilitation and development of the occupied territories will be closely supervised. The World Bank (the International Bank for Reconstruction and Development) will be responsible for the handling and supervision of the $2 billion pledged to date.

Because the Palestinians have no functioning government, the World Bank must devise special procedures for this one-of-a-kind case. When the World Bank mission met early in November in Jerusalem, it immediately found itself in a morass of unresolved questions, which were left to interim committees for study and recommendations.

Progress was made, and the mission scheduled a return to Jerusalem on Dec. 6 to negotiate a formal agreement with a Palestinian Emergency Development and Reconstruction Authority (PEDRA) and to present plans for action to the liaison committee of the donor nations meeting in Paris Dec. 16 and 17.

Once formed, PEDRA will be the authorized representative of the Palestinians in submitting general plans and program proposals for development and reconstruction. PEDRA will have the same status as its counterpart, the Central Bank of Israel, to eliminate the problem of the World Bank being empowered to deal only with authorized representatives, such as central banks.

The main bottleneck in the initiation of the World Bank aid program is PLO tardiness in the formation of PEDRA. The PLO at first proposed a body headed by the leading functionaries of the PLO political bureaucracy, beginning with Arafat himself, instead of leaders with relevant technical skills and experience.

That proposed composition of PEDRA was rejected by the World Bank mission and by the liaison committee for the donor countries, meeting in Paris. Foreign Minister Holst of Norway, facilitator of the meetings that led to the Rabin-Arafat agreement, admonished the PLO to "get down to business" and establish a competent body.

A Break With the Past?

Arafat's excluding himself in favor of technical experts to staff PEDRA entails relinquishing his complete control of the funding of all activities in the West Bank and Gaza, a break with past practice.

While the World Bank mission awaited PEDRA's formation, the mission has worked with the technical committees attached to the Palestinian delegation to the peace talks in Washington in order to expedite the aid. The World Bank mission also invited program planning suggestions from all sources, Palestinian and non-Palestinian alike, for a 6-to 18-month emergency program to be initiated as soon as possible.

The first step will be taken by the World Bank itself with $50 million in credits for emergency programs in Gaza. For the West Bank, $200 million will be provided for "ready to go" public works jobs. In addition, $150 million to $200 million will be provided for direct relief under the ongoing programs of UNRWA (U.N. Relief and Works Agency) and the NGOs (non-government organizations).

There will be two categories of aid: (1) grants and highly concessionary loans (low interest and flexible terms for repayment) and (2) standard loans and loan guarantees. Around 60 percent of U.S. aid and 40 percent of European Community aid will be in the first category. Percentages for other countries are under study.

Yet to be resolved are the modalities of the management of the aid in the occupied territories. Neither the donor countries nor their agent, the World Bank, are able to direct the use of the aid in the field. This can only be done through the yet-to-be-appointed PEDRA.

There is need for a strong Palestinian hand in these proceedings. Through the years, the World Bank has earned the reputation of preferring large capital intensive projects, instead of those more specifically tailored to local conditions. Some of these major projects have turned out to be notorious ecological and economic catastrophes, and some have been abandoned. Critics have pointed out that some capital-intensive projects have benefited the donor countries through the sales of equipment, materials and technical expertise far more than they have benefited the recipient countries. In a number of cases, the recipient countries have received little cash input and have had then to assume the burden of debts created by the projects.

Speed in the provision of funding is essential at this juncture. This is not only because of the urgent needs of the West Bank and Gaza. The Rabin-Arafat agreement set in place a rigorous timetable, starting with the Dec. 13 deadline for the redeployment of the Israeli army in the occupied territories, for the successful conclusion of the several Israeli-Palestinian negotiations on key political issues, and for the holding of June 1994 elections for a Palestinian governing authority.

Each of these processes will require the input of money. As one example, because the PLO has not been able to pay its employees for months, the World Bank is having to ask the donor countries for immediate funds to finance the 15,000-person Palestinian police force planned in connection with the scheduled withdrawal and redeployment of Israeli troops in the occupied territories.

Nor are the pledges made by the donor nations cash in hand for the Palestinians. Some contain conditions that may be difficult to meet. Saudi Arabia, one of the large potential donors, has declared that it would not give one rial "that could find its way into the hands of Arafat."

As the occupying country, the Israelis are likely to have strong influence in the actual use of the $2 billion, perhaps even veto power through the residual powers that the Israelis will have in the autonomous areas to be established under the Rabin-Arafat agreement. It is perhaps inevitable that the projects favored by Israel will be those that will bring in maximum cash to Israeli suppliers of materials for the projects.

A One-Way Street

More important to the Palestinians in the long run, however, is the shape of their future economy as visualized by the Israelis. Israel has treated the occupied territories as an economic colony, serving as a market for Israeli goods and as a source of low-paid and exploited labor in Israel. The open market has been a one-way street–exports of Palestinian goods that might compete with Israeli products are barred.

Now the Israelis are insisting on "open borders," creating a common market among Israel, the autonomous West Bank and the Gaza Strip. A common market would mean no duties or tariffs on goods moving in either direction.

Under general terms of the Rabin-Arafat agreement, however, the Israelis have the power to impose "product standards" and other restrictions on the movement of goods from the Palestinian autonomous areas, while the Palestinian authority would have no such power over Israeli goods, with the possible exception of agriculture. Thus the situation with respect to trade between Israel and the occupied territories could remain essentially unchanged.

Further, the Israelis would remain in charge of the tariff structure and the external regime under which the Palestinians will conduct their commerce. Israeli prices, the highest in the region, would prevail in the occupied territories, raising the Palestinian cost of living substantially.

Extending economic colonialism one step further, highly profitable factories and farms have already been established to take advantage of cheap labor for the production of goods for export. Israeli firms can be expected to move much more of their labor intensive industry into West Bank and Gaza Strip areas where labor costs are lower.

Israeli private business interests already are buying into Palestinian ventures in the occupied territories with a view to establishing their control over major sectors of Palestinian economic activity. This could seriously compromise the ability of Palestinian enterprise to develop trade and markets independently of Israel, especially in the Middle East. The Rabin-Arafat agreement, therefore, may provide the framework for the integration of Palestinian and Israeli capital while effectively excluding the Palestinians from attracting other international partners.

The PLO has now proposed a body it calls the Palestinian Economic Council for Development and Reconstruction of the Occupied Territories as its negotiating representative with the World Bank, which is the secretariat for the donor countries. Composition of the council was announced by PLO's Farouq Qaddoumi at a Dec. 2 meeting with officials of the World Bank in Washington. The proposed council, whose membership is listed in the box on page 17, was scheduled to be approved or rejected by the liaison committee of the donor countries at its Dec. 16 meeting in Paris.

Frank Collins is a regular contributor to the Washington Report on Middle East Affairs.