The economy of power reveals its political dilemma.

It is subordination to the occupier (Al Jazeera)

Since the battle of the “Al-Aqsa Flood” began on October 7, 2023, the “economy” that the Palestinian Authority built or adopted in the West Bank in particular has been in decline.

There is no more eloquent evidence than what is happening these days of the depth of the structural defect in the financial policies pursued by the authority, starting with its signing of the “Paris Economic Protocol” with the occupation in 1994, which was annexed to the “Oslo Accords,” all the way to what was called “financial reforms” that were initiated. It was implemented by Salam Fayyad in 2007 under the umbrella of Palestinian Authority President Mahmoud Abbas Abu Mazen.

Why has Israel been deducting for years from the clearance funds it collects for the Palestinian Authority?

Why does Israel collect this money on behalf of the Authority?

Why are there about 200,000 workers in the West Bank who were working in Israeli settlements and the occupied interior and are now unemployed?

Why does the situation change for an entire social segment, moving from a comfortable and luxurious lifestyle to a state of destitution?

This article seeks to explain how the residents of the West Bank reached this difficult economic situation, the features of which began to unfold mainly with the Corona pandemic crisis in 2019, and then now with the economic repercussions of the Flood War.

Before going back in history, what happened to people and their markets?

According to figures from the Monetary Authority and the Palestinian Central Bureau of Statistics, the debts owed by the Palestinian Authority by the end of 2022 amounted to about $3.4 billion, of which about $2 billion were internal debts to local banks, in addition to the accumulation of about $900 million in late debts on the Authority. Palestinian funds for the benefit of the Palestinian private sector, while the Authority’s general budget continues to record an annual deficit of no less than 7%.

All of this comes in light of the continuing decline in foreign and international grants and aid, which in 2008, for example, constituted about 28% of the Palestinian Authority’s gross domestic product, then declined and reached less than 2% in 2021 and beyond, according to World Bank reports.

In addition to the complete collapse of all aspects of life in the Gaza Strip, all economic sectors witnessed a varying decline during the last half year. According to figures from the Palestine Monetary Authority, the added value of various economic activities in the West Bank declined during the last quarter of 2023 compared to the corresponding period. From the previous year, the construction sector declined by 27%, the services sector - the largest sector in size - by 21%, the agricultural sector by 12%, and the industrial sector by 24%.

As for the unemployed, their numbers have increased in the West Bank with the cessation of work for Palestinian workers in the 48 territories since October 7, and private sector activities in the West Bank have also declined, as the “Palestinian Monetary Authority” estimates the unemployment rate in the West Bank for the year 2023 at about 30%, as With the war, the “Palestinian economy” lost about 270 thousand jobs, distributed among workers in the 1948 territories, settlements, and the Palestinian private sector in the West Bank.

The West Bank is suffering economically from unemployment of workers and delayed salaries of employees - West Bank - Hebron - Old City Market (Al Jazeera)

Even for Palestinian public sector employees (PA employees), they only received a month and a half’s salary during the entire period of the war.

If we add to all of this the restrictions imposed on movement as a result of the occupation’s barriers and restrictions, it is expected, according to the Palestine Monetary Authority, that poverty rates in the West Bank will rise significantly during the current year 2024.

This situation is some of the results of the financial policy pursued by the authority, but before we explain: What is this policy?

How did it lead to what it led to?

Let us clarify: What was the economy of the Palestinians in the West Bank and Gaza Strip before Oslo and the advent of the Authority?

What was the Palestinian economy like before Oslo?

Throughout the period of military rule of the occupation in the West Bank and Gaza Strip (1967 - 1994), all resources and institutions were under the control of the occupation authorities. These authorities supervised the management of economic activity, collected taxes and fees, and issued licenses to practice various economic activities.

The sectoral composition of the Palestinian economy during the period of military rule was mainly composed of three sectors:

first

;

Locally funded projects, which are mostly family projects distributed in the areas of simple manufacturing industries, agriculture, tourism, stone industry, etc.,

and secondly

;

Cooperative societies, most of which focus on the agricultural field,

the most recent of which are

;

Financial transfers received from abroad, most of which consist of the salaries of workers in the West Bank and the Gaza Strip within the “Green Line”, and the money of expatriates transferred to their families, in addition to funds from grants and various aid.

Local industrial projects at that time constituted one of the most important sources of income for the Palestinians, and represented one of the most prominent forms of local economic activity that was prevalent before the establishment of the Palestinian Authority.

Aside from the controversy that surrounded a good portion of these projects in that period, considering that they were merely subcontracts to operate “Israeli capital” in the territories occupied in 1967, they were among the sectors that absorbed about 26 thousand workers, according to a study by Adel Samara. Published in 1990 in the first issue of the Journal of Palestine Studies.

According to the study, industrial projects until the late 1980s constituted about 10% of the gross domestic product in the Gaza Strip, and approximately the same in the West Bank.

As for the agricultural sector in general, until the end of the 1980s, it constituted about 27% of the GDP in the West Bank, and about 13% in the Gaza Strip, knowing that the agricultural sector constituted a larger percentage of the GDP in the West Bank and the Gaza Strip before the military rule. .

During the period of military rule, olive cultivation, and the activities and businesses related to it, had a significant share of the “Palestinian economy” in the West Bank in particular, as it amounted to about 14% of the total value of agricultural production in the West Bank. Olive cultivation in it is considered, The largest sector in terms of employing independent workers.

The most prominent experience at the level of the Palestinian “national economy” in that period was cooperative societies.

Although these associations actually began the period of Jordanian rule of the West Bank and were established in accordance with Jordanian laws, their most prominent roles became clearly evident during the period of the first intifada (1987-1993), as institutions that depend entirely on national local capital and local participatory efforts, as well as directing their services. And produced for the local market.

However, its role went beyond the economic field and included social, educational, and health roles.

This contributed to strengthening the steadfastness and steadfastness of the Palestinians during the first intifada.

Later, with the establishment of the Palestinian Authority and its control over the public economic and social sphere, the role of cooperatives and their spread in Palestinian society gradually declined, and this meant that the Palestinians lost a tool of confrontation and steadfastness in the face of the Israeli occupation.

After Oslo, Israel shackled the Palestinian Authority to the Paris Agreement in 1994, and since then the Palestinian economy has been subordinate to the occupier’s economy (Al Jazeera)

The protocol that perpetuated

The economic portion of the Oslo Agreement, known as the Paris Economic Protocol or the 1994 Paris Agreement, is perhaps the most controversial part of the agreement.

Although the protocol, like the entire agreement, is supposed to expire 5 years after its signing, paving the way for the establishment of the promised “Palestinian state,” these five years have passed to this day.

Despite the large amount of water that flowed through the channels of the rest of the parts of the agreement related to security and political issues, the Paris Agreement, with its various provisions, remained steadfast and implemented almost perfectly.

Thus, the agreement came as a transitional phase, to establish Palestinian independence and build the economic institutions of the prospective Palestinian state, but its terms and details were devoid of anything that could lead to this independence or separation from the “Israeli economy,” and rather it consolidated total dependence and institutionalized the organic connection between the two economies.

So what did the agreement stipulate?

From an institutional standpoint, the agreement stipulated the formation of a joint economic committee to follow up on the implementation of the agreement, discuss details and mechanisms, and resolve disputes that may arise later, in addition to forming the necessary technical subcommittees.

With regard to collecting customs on imports, sales taxes, and value-added taxes - which currently constitute the largest share of the Palestinian Authority’s revenues -, the agreement restricted the matter of collecting, collecting, and transferring them to the Authority to the hands of “Israel.” Rather, the agreement stressed restricting the authority’s powers to determine tax and customs values ​​with specific differences from Its counterparts in “Israel” are what is known as the “single customs envelope” policy, with the large difference between income levels on both sides of the “green line,” that is, between the West Bank and the Gaza Strip on the one hand, and Jerusalem and the 1948 territories on the other hand.

At the level of the trade relationship with the Arab border countries, Egypt and Jordan in particular, the agreement stipulated a specific list of goods that the Palestinian Authority could import from them, according to special customs and tax rates determined by the Authority, and even this item was not without restrictions related to the environment, specifications, and others.

As for fuel prices (gasoline specifically), the agreement restricted the authority’s ability to do its own pricing, not to exceed a 15% difference from the price of gasoline in “Israel.” It also stipulated restrictions related to the environment and European and American specifications approved in “Israel” for importing fuel from Egypt and Jordan. "Israel."

The agreement stipulates that the Israeli currency is an approved currency in the areas of the Palestinian Authority, and does not give the Authority the right to issue a special currency except within the framework of an agreement approved within the Joint Economic Committee, which deprived the Palestinian Authority of taking independent and feasible financial and monetary policies.

The dilemma of economic connectivity

According to the Palestinian Central Bureau of Statistics, “Israel” has the lion’s share of trade exchange with the Palestinian Authority, amounting to two-thirds of its value. In 2022, Palestinian exports to “Israel” amounted to 88% of the total Palestinian exports, while the Palestinian Authority’s imports of “Israel” for the same year represents 57% of its total imports, knowing that there is a trade balance deficit in favor of “Israel” of approximately $3.2 billion.

Israel reaps its siege and impoverishment policies in the form of cheap Palestinian labor working inside the occupied territories (Al Jazeera)

Not only that, until last October 6, “Israel” was competing with the Authority for the position of the largest employer of Palestinian workers, as approximately 200,000 Palestinian workers were working in the occupying state and its settlements in the West Bank, and the majority of them became unemployed overnight. The work is based on a decision by the Israeli government, in a clear example of the fragility of the Palestinian economy, which was established by the Paris Agreement.

It seems that the problem of the agreement is not limited to its unfairness, as it extends beyond that to the way in which the Palestinian Authority dealt with the agreement.

According to a study issued by the Palestinian Economic Policy Research Institute (MAS) in 2013, it dealt with the practical reality of the Paris Economic Agreement, and concluded that there are provisions in the agreement that serve the Palestinian economy, and the Palestinian Authority did not make an effort to activate, apply, and use them optimally, including, for example, the possibility Importing fuel at a better price from Jordan and Egypt, or items related to mutual tax information to reduce losses in tax collection (= uncollected due taxes), as well as some items related to agriculture, workers, and others. The study also indicates a number of items that were not implemented or were implemented incompletely.

In any case, despite the importance of discussing the technical aspects of the agreement, they are not merely technical economic terms that can be treated in isolation from politics. This agreement is essentially a political agreement.

Any technical improvement that was possible in application would not have addressed the Palestinians’ loss of control over their borders and land and sea outlets, nor their lack of a central bank and independent financial and monetary policies, nor would it have addressed their deprivation of benefiting from the natural resources in their lands, especially those located in areas classified as Land C. According to the Oslo Accords of 1993.

Thus, the Paris Protocol only contributed to institutionalizing and deepening the dependence of the Palestinian market on the Israeli economy.

In light of this, most Palestinian economists in the past concluded that it was impossible or difficult to create a strong Palestinian economy, or sustainable economic development, in light of the escalating occupation invasion since the signing of the Oslo Accords and within the terms of its economic annex.

Even those who were more optimistic about the possibility of successful economic development in these circumstances, according to the director of the MAS Institute, Raja Al-Khalidi, came to the same conclusion.

The last five months have once again confirmed the weakness and vulnerability of the Palestinian economy in the face of crises.

However, it is not the agreements alone that brought this crisis to the Palestinian economy, but also perceptions, convictions and models adopted by the authority and its elites, which resulted in financial and economic policies implemented over the past three decades, which deepened the economic rift in Palestinian society.

What are these policies?

Free market except from "Israel"

The expert and economic advisor, Nasr Abdel Karim, points out that a good portion of the Palestinian Authority’s economic elite believes in the necessity of achieving further integration with the “Israeli economy,” considering that it is the most correct economic option, given that the “Israeli economy” is an advanced economy and integrated into global markets. And adopts free market policies;

Which will benefit the “Palestinian economy,” according to their belief.

This is at a time when many experts agree that the safest economic option is to reduce dependence on the “Israeli economy”, for purely economic reasons, far from even political reasons.

Compared to its Israeli counterpart, the “Palestinian economy” is considered a small, closed economy that lacks many of the necessary components to compete and protect local capital and product.

But the frantic pursuit of integration into the "Israeli economy" prevailed.

The first stage of establishing the Palestinian Authority was a stage of building various institutions, and enacting laws and legislation or importing them and applying them locally.

But the most prominent feature was and still is its absorption of a large number of employees in the public sector, both civil and security;

This was reflected in the share of the salary bill in total public expenditures, as the salary bill ranged between 1997-2018 - according to data from the Monetary Authority, the Ministry of Finance, and the Central Bureau of Statistics - between 45% and 60%, that is, 50% on average, which is a relatively large percentage that constitutes twice the average. Global ratio of public sector salaries to public expenditures.

Criticism abounded about the lack of governance and transparency and the spread of corruption within the authorities, and it became a pretext that was strongly used to restrict Yasser Arafat by withdrawing financial powers from him and institutionalizing spending and funding, against the backdrop of accusing him of supporting the armed uprising that began in 2000. Later, with the end of the Al-Aqsa Intifada, Mahmoud Abbas took over Presidency of the Authority, and formed the government of Salam Fayyad, which went far in adopting “free market” policies, except from “Israel”.

Fayyad worked to urge banks to invest larger percentages of their funds in the West Bank, since the Gaza Strip had become under the rule of the Hamas movement, so he instructed the banks to deal according to two different policies for the West Bank and Gaza.

As for the West Bank, it was flooded with banking facilities, which mostly meant providing easy and quick loans for consumer purposes, so the loans granted between 2007 and 2017 doubled four times.

Salam Fayyad's government worked to create an imaginary state of prosperity based on loans and citizens' dependence on banks (Al Jazeera)

The majority of loans granted were focused on consumer or non-productive purposes. For example, according to figures issued by the Monetary Authority for the year 2023, the share of the agricultural sector was only about 2% of the value of the credit facilities granted, and the industry and mining sector was about 7%, while the share of purchasing cars and vehicles was about 5%, and consumer loans amounted to about 14%;

Which could be considered a clear indication of the nature of the policy followed in directing and granting credit facilities.

Even apart from lending, economically and politically important sectors such as agriculture and manufacturing industries were neglected, at the expense of internal trade and services sectors.

According to a study issued by the Palestinian Policy Network, the share of internal trade in 2018 amounted to 22% of the gross domestic product, compared to 7.5% for agriculture and 11.5% for manufacturing industries.

In addition, the Authority worked to attract expatriate Arab and Palestinian capital to invest in the West Bank, and the Bethlehem Investment Conference in 2008 is a good example of the efforts of the Salam Fayyad government in this regard.

With the flow of international and Arab aid to the Palestinian Authority, growth rates were achieved in the economy during the years of Salam Fayyad’s government, but great criticism arose about the reality of this growth and its real economic impact on the Palestinians.

The Palestinian Authority is also one of the few models in which customs duties constitute a very large percentage of its financial imports. In most countries and natural economies, the share of income taxes is much higher than the share of customs duties in imports, but the opposite happens in the case of the Authority.

In addition, this huge dependence depends on Israeli policy, as it controls the collection of these resources (customs duties) and therefore has the right to prevent them, transfer them to the authority, or use them as a punishment and a means of pressure and blackmail, as has been the case for years.

De-politicizing economics

Researcher Ibrahim Shaqaqi points out that the dominance of the occupation economy over the “Palestinian economy” and the latter’s subordination was the distinctive feature of the period before the Palestinian Authority, while the Authority was not able to change this situation, but on the contrary, it became more entrenched with it.

As for the period of the first intifada, according to Shaqaqi, it was an exception, when the Palestinians were able to employ the resistance factor as a tool of independence by adopting a boycott and the activity of cooperative societies. This relative success was due to the fact that this economic factor was used in the context of a political project at the time.

Shaqaqi concludes that there are no economic solutions to a political issue, explaining the failure of all successive economic peace paths.

Thus, the Palestinian Authority, in its financial policies, sought to try to remove politics from the economy, as it presented a fragile economic model, on the surface of prosperity and economic development, but inside of it was an occupation that plunders, confiscates, and controls resources, making us more dependent on it. The nakedness that the flood revealed is nothing but the badness of this model.

Source: Al Jazeera