Statehood No Panacea for the Palestinians

With or without Israel’s permission, Palestine is about to be born.

Whether this month, as some Palestinian leaders insist, or a bit later, the declaration of an independent Palestinian state seems all but inevitable and will crown a 52-year quest for legitimacy and homeland that has been at the heart of the most enduring conflict in the Middle East.

But what will this state, Palestine, look like, and how will it function?

Can it survive economically after struggling for decades under the Jewish state’s occupation and staggering now under a bloated, corrupt bureaucracy? Will it remain wholly dependent on Israel, or find a niche in the regional economy that brings more balance to its relations with its most powerful neighbor?

Will it be the secular democratic Arab state that many of the original crusaders of the Palestinian cause once envisioned? And will Palestine’s two largest portions, the West Bank and Gaza, be linked comfortably and efficiently?

Palestinian leaders have made significant progress in creating institutions, in building infrastructure and apartment houses, and in adopting the trappings of statehood. Palestinians now have their own airport, passport and flag.

Today the Palestinian Authority, under its president, Yasser Arafat, runs nearly 50% of the West Bank and Gaza, and has jurisdiction over 98% of the Palestinian people: more than 1,000 square miles, 2.5 million people. Before the peace summit at Camp David, Md., failed in July, Israeli Prime Minister Ehud Barak was offering to nearly double the authority’s land holdings.

In the six years since Arafat returned to this land to administer a limited form of self-rule, unemployment has declined steadily, while wages, the standard of living and the gross domestic product have grown. There are luxury hotels on Gaza’s beach and high-rise apartments in the bustling West Bank city of Ramallah. Banks have sprung up tenfold in six years. “Palestine” already has its own cellular telephone network and Internet country designation.

But beneath the surface prosperity and building boom, the picture is less encouraging.

The Palestinian Authority is riddled with corruption. Its management of the economy has largely followed an unhealthy pattern of protectionism, nepotism and the multiplication of lucrative monopolies that scares off most potential investors.

Its judicial system is ineffective, its legislative branch largely ignored.

Arafat rules in a manner that deliberately keeps other potential centers of power weak. His absolute control stretches from the largest to the most minor of matters; he personally must sign every order, from the death sentences of murderers to bank takeovers. And he refuses to sign laws passed by the parliament, the Palestinian Legislative Council, that might erode his hold on power, including a Basic Law that would give Palestine a functioning constitution.

Arafat tells his people that he will allow democratic reform once the paramount goal of forming a state is fulfilled. But such reassurance is less and less satisfactory to a people both eager at the prospect of real independence and frustrated by the reality of diminishing expectations.

“Palestinians cannot indefinitely go on claiming we are a revolution,” said Hisham Awartani, an economics professor at An Najah University in Nablus who has written extensively on the Palestinian Authority.

It is especially the educated, politically progressive and intellectually talented who are giving up on the future and, in many cases, abandoning the state before it can be declared.

“There is a widespread feeling that the Palestinian Authority is not to be trusted for its performance and for a level of corruption,” said Ziad abu Amr, a political science professor who chairs the political committee of the Palestinian Legislative Council. “This may be exaggerated, but there is apathy and mistrust . . . nourished [because] the system is stagnant and there is no transparency and accountability.”

And there is controversy over when the state itself will actually come into being. Arafat has repeatedly threatened to declare the sovereign state unilaterally, a move that many fear would trigger a spiral of violence, with Israel retaliating by annexing parts of the West Bank.

Most recently, Arafat had given Sept. 13 as his target date. But with moves afoot to resume high-level peace negotiations with the Israelis, and with international pressure warning him off, Arafat is likely to postpone any declaration until mid-November or later.

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The Palestinian and Israeli economies are entirely intertwined. They are among each other’s largest trading partners. Israel controls the West Bank and Gaza’s flow of imports and exports, and it would like to continue to do so through customs unions or other mechanisms. (The Palestinians favor a free-trade arrangement.)

Every day, 125,000 Palestinians travel into Israel to work, mostly as manual laborers and in the service sector. Palestinians are fully reliant on Israel for electricity--although a U.S. firm is building a $150-million power plant in Gaza--and for most of their water.

The integration of their economies holds benefits for both sides but ultimately intensifies Palestinian poverty, according to a recent study by the World Bank. The wages they take home help put Palestinians in a top bracket regionally for earnings. But because Palestinians are forced to spend their money on more expensive Israeli products, their buying power is the second lowest in the region, according to the World Bank. On average, Israeli earnings are more than 10 times that of Palestinians.

If the new Palestine is to wean itself from dependency on Israel, it must attract private investment, experts agree. But investors will come only if the Palestinians create a sense of trust and confidence by developing fair rules of the game and a respect for laws.

So far, it is a test that Palestinian leaders have failed.

“There is a high risk associated with investing in Palestine,” said Jihad Wazir, managing director of the Palestine World Trade Center in Gaza and son of the legendary Palestinian revolutionary known as Abu Jihad, who was assassinated by Israeli commandos in a raid on Tunisia in 1988.

Wazir blames much of the problem on the tight grip Israel maintains over the nascent state’s borders and the restrictions it places on the movement of goods and people. But in the end, he said, the economy suffers because “the normal business practices of any other country are not practiced here.”

Wazir sat in the World Trade Center’s new marble-trimmed offices, which have remained empty in unfulfilled anticipation of the arrival of droves of eager businesspeople.

The hazards of doing business under Palestinian rule are painfully familiar to Mahmoud el Farra.

With an expertise honed in the West, contacts nurtured in the Arab world and plenty of money to spend, Farra would seem precisely the kind of businessman that the new Palestine will need.

He returned to Gaza in 1996 after living for 30 years in Los Angeles, where he raised a family and built a successful construction firm. In Gaza, he built the first state-of-the-art flour mill. But as his business struggled, Farra found himself the victim of a takeover by a group of Palestinian Authority officials, led by Arafat’s most powerful aide.

“When you come here as an investor, you feel that you are immediately an enemy of somebody, or a target of somebody,” he said. “A lot of people ask why they should take the risk of investing here and take on so many problems. You have to be a true believer.”

Like so many business dealings within Palestinian territory, the details of this affair and each side’s motivations are murky. Farra himself initially hoped to benefit from official Palestinian protectionism. He begged the Palestinian Authority to restrict imports of Israeli flour, claiming that he couldn’t compete and was losing money. Officials refused and instead pressured him to sell them stakes in the company. Farra eventually succumbed and sold off shares.

Led by Mohammed Rashid, Arafat’s influential financial advisor, the Palestinian officials gained control of the company, and Farra was replaced as chairman of the board. Two days later, the same Palestinian officials closed the market to Israeli imports of flour, and the prices they could charge soared.

Rashid did not respond to requests for an interview. Farra concedes that allowing the authority to take over was probably the only way for the business to prosper, and some international financial experts say government intervention may in fact have been justified.

But no one questions the fact that a keen sense of uncertainty and insecurity permeates the business climate in this state-in-the-making--and that being a partner with the government, coerced or otherwise, is crucial to success. Rashid and a cabal of Arafat advisors decide the types of investment and who should be allowed to invest.

Under enormous pressure from Europe, Washington and other donors who underwrite the Palestinian Authority and who were threatening to pull the plug, Rashid recently was forced to come clean with details of the government’s secret investments portfolio.

In a report published on the authority’s Web site two months ago, it was revealed that the government held assets worth $345 million. These included a casino in Jericho, a monopoly cement company, portions of the telephone and cellular telephone companies and several luxury hotels.

Most of the money to make these investments came from tax revenues collected by Israel on Palestinian exports, which were transferred directly to an account belonging to Arafat and then administered by Rashid through an entity called the Palestinian Commercial Services Co.

Rashid, speaking to reporters on the eve of July’s Camp David summit, promised an end to this practice. Revenues in the future will go to the Finance Ministry and will be invested by a publicly accountable fund instead of the company that Rashid controls.

When it is a sovereign state, Palestine will have to show this kind of accountability to be able to apply for loans from the World Bank, the International Monetary Fund and other organizations.

The Palestinian Authority won praise for disclosing its assets. But critics suspect that Rashid revealed only a portion of the moneymaking endeavors that he and other senior officials oversee. Furthermore, the new accounting procedures did little to dispel other endemic problems. Businesspeople claim that they have little recourse to ensure that they’ll be allowed to conduct business; there are persistent reports of people having to pay off the police or local political officials for protection.

“Multinationals and big firms, even local firms, are appalled at the level of lawlessness in Palestine,” economist Awartani said. “If you’ve got a problem with a client, a customer, you fool yourself to think it can be settled in the courts.”

A prosperous private sector also is important because of the jobs it will eventually have to provide.

The public bureaucracy employs nearly a quarter of the Palestinian labor force in low-paying, make-work jobs and in redundant security forces. With its demographic explosion, 30,000 Palestinians enter the work force every year, a growth rate of nearly 7% annually.

And those figures don’t take into account the tens of thousands of refugees living in Jordan, Lebanon and Syria who may return to Palestine under likely peace treaties.

For the new Palestine’s economy to thrive, the country will need assured access to world markets--an access that cannot be closed by the Israelis, who will insist on some sort of control over or international supervision of borders with Egypt and Jordan.

And it will need free movement between the squalid, but seafront, Gaza Strip and the more prosperous West Bank. A system where it takes four or five hours to travel 40 miles from Gaza to the West Bank city of Hebron, for example, as it does now, will simply not be sustainable, analysts say.

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By living alongside Israel, Palestinians have been exposed to a regime far more democratic than those of Arab neighbors, and they would like much of the same for their own state.

Yet Arafat’s near-dictatorial rule has thwarted significant development of a responsible judiciary or a responsive lawmaking body.

“The fear is that we will end up with a Syrian constitution: beautiful, but it can be changed in 15 minutes,” Wazir said. “We don’t want [a Syrian-style dictatorial] system. We’d rather have Israeli occupation than a banana republic. And we are at the crossroads.”

In Damascus, after the death in June of President Hafez Assad, the Syrian parliament hastily altered the constitution to lower the age of presidential eligibility from 40 to 34, exactly, so that Assad’s 34-year-old son, Bashar, could take office.

The joke circulating these days in Gaza, supposedly first told by Arafat himself, is that the Palestinians will write a constitution that requires the president to be female and 4 1/2 years old. Arafat has a 4 1/2-year-old daughter, his only child.

Arafat has shown little tolerance for criticism of his government. Intellectuals who signed a petition late last year accusing Arafat’s cronies of corruption were summarily jailed. Newspapers and radio or TV stations that offend are shut down, albeit temporarily.

Palestinians make allowances for much of Arafat’s abuse of power and repression--mild by some Arab-world standards--because of what they see as the external threat posed by Israel. Once the state is formed, Palestinian analysts say, pressure will mount on Arafat to allow change. Assuming that the state is born as part of a comprehensive peace deal with Israel, the Palestinian leadership will no longer have a pretext for ignoring human and civil rights.

Whether it’s economic or political reform, the new Palestine will desperately need a generation of leaders who move beyond the old revolutionary mentality of Arafat and his cronies, numerous Palestinians say.

When Arafat and his associates arrived from exile in Tunis in 1994, they brought many of the under-siege, guerrilla-style practices that had kept them alive for decades. The transition has been slow; Arafat continues to hold intellectuals and democrats in contempt, according to people who know him. And the opposition has remained weak and fragmented.

Arafat, 71 and in poor health, has deliberately prevented a natural heir from emerging. The most likely successors are Mahmoud Abbas, the Palestine Liberation Organization secretary-general who is better known as Abu Mazen, and Ahmed Korei, the head of the Palestinian Legislative Council, who is better known as Abu Alaa.

Both men, however, are also well into their 60s and linked, either directly or through family members, to a raft of lucrative business deals. It is also far from clear whether “The Abus” could control the 14 or so security forces that would vie for power in the wake of Arafat’s demise, or the radical Islamic elements eager to press a violent war against Israel.

Many Palestinians agree that declaring a new state will not magically solve these problems--unless a new leadership can emerge. A new state will magnify the defects and cause Arafat’s hold to gradually loosen, analysts say.

The time has come, Awartani said, “to say thank you to the old guys, and goodbye. Not in an ungrateful way, but enough. We need new blood.”

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Israel / Palestine

PER CAPITA INCOME

West Bank and Gaza: $1,850

Israel: $16,000

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GPD

West Bank and Gaza: $5.7 billion

Israel: $96 billion

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UNEMPLOYMENT

West Bank and Gaza: 10.9%

Israel: 8.9%

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Sources: World Bank, United Nations