ZSTREET Conference: Rethinking the End Game – May 4th, 2011
Gal Luft
The question I was asked to address is whether or not a Palestinian State has economic viability, and whether or not recognition of a Palestinian state or Palestinian independence, will improve the lives of Palestinians and make their lives better off – which is a very very difficult question to answer. It’s like asking if Marshall Island declares independence or Puerto Rico declares independence will Puerto Ricians lives better off than they are today. It is very difficult to answer the question because Marshal Island and Puerto Rico are extremely and utterly dependent on the United States of America and the two economies are completely intertwined.
CURRENT PA ECONOMY
The reason the Palestinians had in the West Bank 8% growth last year and in Gaza 15%-16% growth in the past year - which are very good numbers in our time has a lot to do – a lot to do with the fact that Israel that has gone through a significant era of prosperity and even national prosperity. We have to reexamine a lot of the mythologies we have been fed over the years by those people who said…basically, the narrative is always to both the Palestinians and Israel but specifically to Israel, that you need peace to have prosperity. In other words, if you don’t have peace you won’t have prosperity, security.
ISRAELI ECONOMY
Well guess what? Israel today is going through an unprecedented era of prosperity. Look what happened to the Israeli economy in the past couple years: The healthiest growth that you see anywhere in the West the country that was admitted to the OECD, which is the most prestigious economic club in the world, last year the country found an enormous, gigantic reservoir of natural gas. Just so we understand the magnitude of this discovery, in 2009 when they discovered Tamar, which is the small field, it was the largest discovery of gas in the world for that time. The year after, they found Leviathan, which was more than double, and now they are thinking there may be five Leviathans out there and maybe even oil underneath the gas – that’s a big game changer. But the reality is today that Israel is undergoing unprecedented prosperity real-estate prices in the US collapsed by nearly 50% in Israel just in the past two real estate when up for 50% so if you have house in the States and a house in Israel the one in the States lost 50% of its value that one in Israel doubled its value – when up 50%.
So we don’t have peace, but we certainly have prosperity and if you ask Stanley Fisher -the Ben Bernanke of Israel - what is Israel’s main economic challenge on a daily basis, he will tell you it is how to weaken the Shekel, how to de-value the Shekel, because the Shekel is so strong. There is an influx of investors who are looking to buy the Shekel. Everyone wants the Shekel because its such a strong currency. (And it gets to the point that it hurts Israeli exports because you lose you competitiveness when your currency gets too strong and your country wants to export.)
But what does it tell you about the state of the economy? It tells you when people are looking for investment, the dollar is not a great investment, the yen is in trouble because Japan is in trouble, the Euro is not so hot now - the shekel is good. So that’s what we have to ask ourselves, what is it with this nexus between peace and prosperity? And that is true for the Palestinians as well because if you look at what happened to the Palestinian economy and mind you they started from a very low level, the base is very low there is still 38% unemployment in Gaza, there is still a lot problems and poverty, yes, all that is true.
But the fact of the matter is, is that the Palestinian economy is growing and growing fast. And if we want to go into all kind of experimentations and put a huge road bump on the road to prosperity you don’t know if this car is going to fly up in the air and collapse into pieces and that’s something we need to consider in light of extremely extremely impressive economic growth that we are witnessing today. And you know if you look at particularly the West Bank Gaza is a problem and we can talk about Gaza later but in the West Bank you can see construction, investment, they have Palestinian stock market which is one of the stable ones in the Arab World – yes they only have forty companies but still. Per capita the GDP is growing 6% a year which is pretty good for this larger global economic state. They even have a TED conference in Ramallah – I mean a TED conference.
So lets ask ourselves do we want to stop this train by putting all these rocks along the way. The Palestinians something that was echoed in a recent the IMF and World Bank reports are saying that the Palestinians economy is ready for Prime Time – in other words they are ready for statehood. Well yes and no because in reality they are ready for statehood , only – only if the current arrangement with Israel continues in other words as long as Israel is willing to maintain the economic ties to the degree that it has with the Palestinian Authority today and let me throw a few numbers so you understand the level of dependency of Palestinian economy on Israel. The Palestinian budget is 2 billion dollars out of the 2 billion, $ 1.3 is basically money that Israel returns to Palestinians through VAT when they buy Israeli goods they pay Israeli VAT and that money as part of the agreement goes back to the Palestinians and that is 1.3 out of 2 billion dollars. So if that 1.3 is not returned to the Palestinians they only have 700 million dollars that’s enough to pay salaries, clean garbage or pave roads that means they are broke so where do you come up with the extra money?
Another thing we need to remember almost eighty percent of the Palestinian export goes to Israel - Israel is the most important market for Palestinian economy. If you look at the flip side of things from Israel’s perspective the Palestinians are only one percent of Israeli exports so Israel does not need the Palestinians the Palestinians need Israel in terms of economic exchange.
Eighty percent of Palestinian electricity is generated in Israel, so if tomorrow they say “we are independent,” well Israel could say “lights off, have a nice day, generate your own power.” There is no legal obligation to provide such services to an independent country, so its very easy to say we are declaring a state but how do you keep you lights on?
So my point is that there is no economic viability right now in current situation to an independent Palestinian state it doesn’t mean it can’t change in the future but certain things must happen. There are number of important questions that we must ponder regarding the Palestinian economy one very important one is what will happen with Salem Fayyad. In my opinions one of the main reasons the IMF and World Bank was so supportive of a Palestinian State was because they believe in of Salam Fayyad and I don’t think Hamas will want to see Fayyad continuing in his job as Prime Minister. Without the Salam Fayyad I it will send a very bad signal to the world and the entire investment community. Second, will there be a Palestinian currency one of the reasons the Palestinian economy is growing is because of the Shekel the Shekel is strong - the Shekel is the main currency in the Palestinian territories if they decide to drop the Shekel and adopt their own currency they can buy a printer and print money anyone can do that but will this money be backed buy something or will it just be a piece of paper and that means they can buy less and less with their fiat money that means that the Palestinians will get poorer and poorer as we move forward.
Refugees – once they declare statehood what will happen to the refugee are they going to say to the 400, 000 , 100, 000 in Lebanon that they can’t move back to the Palestinians areas well can they absorb more people do they have the economic ability to absorb more people from the Diaspora?
The two main questions are: will Israel agree to uphold the current deal and obligations in light of the fact that the Palestinians broke every possible agreement and went on a unilateral declaration of statehood and the second is whether the donor community would agree to foot the bill for another failed economy. We have an economy on verge of economic collapse do we want to take another obligation for another country - its going to be a charity country. We - I assume that everyone in this room pays American taxes - we will have to fund this. And its one thing to fund something that has upshot, growth an upward trajectory, and another to fund something that has no future. So I don’t know if the donor community, in light of what Harold said regarding the Arab Spring, - and the Arab world is looking inward they have their own obligations - with these conditions I don’t see how it is the right time to accept another state that is not viable and quite frankly, in light of everything that it is happening in the Middle East. There is very little taste to admitting into the family of nations something that could /might end up as more of the same and after everything we have seen in the past few months oppression, people killing fellow citizens, corruption everything that we are learning that happened in those countries do we really want another one of those?
Thank you
Note: Articles listed under this section provide information on the current discourse concerning the Israeli - Arab Palestinian End Game. The views expressed in these articles are the views of the authors' and are not included here to represent the views of Z STREET.
