Washington Report on Middle East Affairs, December 1997, Page 84

Trade and Finance

U.N., World Bank, IMF Criticize Israeli Closure Policy

By Colin MacKinnon

In mid-September the U.N. and the World Bank issued a joint report on the economic effects of this year's closures of the West Bank and Gaza. The document, which all major donors are known to have approved, is a hard-hitting and sophisticated critique of Israeli policy. It was issued just 10 days after the International Monetary Fund criticized Israel for withholding revenue it collects for the Palestinian National Authority (PNA) under the Interim Accord signed in 1994.

The public criticism of Israel by the top three international organizations reflects a widespread and growing concern among multilateral and bilateral donors that their work is being hampered by Israeli policies that go well beyond seeking to assure Israeli security.

Particularly disturbing to the donors are two practices: Israel's imposition of a system of "comprehensive closure" that seals off Palestinian areas from the rest of the world and from each another; and Israel's withholding of Palestinian funds from the Palestinian National Authority. Israel imposed the two policies after the suicide bombings of July 30.

The Two Closures

Comprehensive closure keeps Palestinians and Palestinian goods from traveling into or through Israel. It also keeps goods and people from crossing into or out of Egypt via Rafah in Gaza or Jordan via the Allenby Bridge.

The Israelis call the practice of isolating West Bank Palestinian villages and towns from each other "internal closure." It's a relatively new policy, pioneered by the Israelis early in 1996, but applied with more rigor than ever before in August and September of this year.

"Internal closure," says the report, "denies Palestinians passage through checkpoints, usually from Palestinian areas into Israeli-controlled areas, but wider application of this restriction also occurs, including preventing access to and from villages and towns in the West [Bank]...Residents of the major towns are regularly turned back at the entrance points to those towns by Israeli soldiers or police."

"What inspires the Israelis to make life difficult is beyond me other than a need to inflict collective punishment," says Salem Ajluni, chief U.N. economist in Gaza and main author of the report. "[The internal closures] are really not much of a security tool. If the aim is to stop Palestinians from entering Israel, they don't do that. If the aim is to make life uncomfortable and inconvenient, they're having the intended effects."

Shortly after the report was issued, Israel relaxed its closure policy to a degree and also began allowing a certain number of Palestinian workers to enter Israel. The damage had been done, however.

Israeli policies go well beyond seeking to assure Israeli security.

Here are some of the results of Israeli policy, according to the U.N. and the World Bank.

* From the beginning of the year to mid-September Palestinian workers lost 26 percent of work days in Israel.

* Direct paycheck losses resulting from this were probably $1.3 million a day, totaling around $47 million.

* Unemployment rose. Jobs in Israel have been employing around 12 percent of the Palestinian labor force. When workers can't get to job sites in Israel, unemployment in the Palestinian areas, normally around 20 percent, rises to 30 percent.

* Trade with Israel and the outside world fell as well. Losses here probably ran to about $1.3 million a day, totaling around $45 million.

These were just the direct effects. There were indirect effects as well.

* Wage losses and losses of export revenues meant people had less money to buy things, and this depressed the local economy in goods and services. Down the road, secondary losses like this can equal the direct losses.

* Inputs for production in Palestine's industrial base, mostly small, three-to-four-person shops, were reduced, so production declined.

* Perishables like tomatoes and cucumbers in Gaza and the northern West Bank and grapes in Hebron rotted, both because workers couldn't get to them to pick them and because even if picked the produce couldn't make it to market.

* All of this reduced taxes and put more economic pressure on the PNA.

Figured together, say the U.N. and World Bank, the effects of closure cost the Palestinian Territory some $4 million to $6 million dollars a day (that's without taking into consideration the results of internal closure, which are harder to estimate).

Withholding Palestinian Funds

The other practice donors find disturbing is the withholding of funds that Israel collects on Palestinian transactions and which, under the Oslo accords, Israel is supposed to turn over to the PNA: a value-added tax, customs receipts, a gasoline tax as well as income taxes and health fees paid by Palestinian workers. Altogether the funds make up about 60 percent of PNA revenues and were expected to total $513 million this year. (Before the closures and their economic results, total PNA revenues for 1997 had been estimated at $814 million, but because of the economic crisis, revenues will be significantly lower this year.)

Closure and the withholding of funds obstruct donor projects in a number of ways, says the report. For one, projects are delayed if workers are holed up in their towns and can't get to work sites. For another, if construction materials can't be imported, they run out, with obvious effects on projects. Even when materials are available, scarcity drives their cost up, which drives up project costs.

Worst of all, probably, is that the donors are finding themselves diverting funds from infrastructure projects to the day-to-day relief of hardship, in effect taking funds from the long-term development of the Palestinian economy to mitigate immediate effects of the Israeli blockade. (The PNA also finds itself having to borrow funds locally, which sops up liquidity and makes it harder for West Bank and Gaza businessmen to get loans, which dampens economic activity further.)

Partly because of the closures, donor aid has not come in as rapidly as hoped. Donors had originally committed $2.8 billion to be disbursed from 1994 through 1997, but by the end of 1996 only $1.5 billion had actually been disbursed. In the first two quarters of 1997 only $107 million had been allocated.

The closures threaten what the IMF considered a promising improvement in Palestinian economic conditions. The Fund had projected a growth rate of about 8 percent for 1997. That won't happen now.