The resignation of the Hamas-led government on February 15, and the expected formation of a new government based on the deal reached in Mecca, Saudi Arabia, between Hamas and Fatah may finally bring an end to Palestinian internal divisions and the internecine violence that followed last year’s stunning rise of Hamas to power. It may also herald the beginning of a process that could lead to a reversal of the crippling year-long Israeli and Western measures against the Palestinians. This would be a break for the 4 million residents of the West Bank and the Gaza Strip, who have seen their lives shattered by a continued lack of basic needs and rising levels of lawlessness and anarchy. A more serious question, however, is whether a future Palestinian unity government can deal with the widespread poverty and unemployment plaguing the Palestinian territories. In the best of circumstances, the government would be operating under conditions similar to those existing on the eve of the January 2006 elections that Hamas won. On the social and economic front, therefore, there are few grounds for optimism. The crisis conditions dating back to the outbreak of the second intifada in September 2000 have led to extensive damage of the Palestinian economy, to the point where a return to the pre-2006 state of affairs may no longer be sufficient to revive the deeply stagnant economy. Two signs in particular are disturbing, both for their adverse impact on the long-term stability of Palestinian areas, and, by extension, for their impact on a Middle East that has already had its fair share of trouble. First, there is the World Bank’s warning that the capacity of the West Bank and Gaza to generate fast economic growth rates, even under less restrictive Israeli security measures, is eroding. These Israeli measures have long been identified as the single most significant factor hindering Palestinian economic performance. And second, the International Monetary Fund continues to report on the increasingly unsustainable fiscal position of the Palestinian Authority, even with the resumption of tax money transfers currently withheld by Israel. This situation calls for harsh adjustment measures that could lead to political and social unrest. Under such circumstances, a resumption of foreign aid alone, important as it may be for mitigating Palestinian suffering, is not sufficient to arrest the further deterioration in conditions, or to prevent a more pernicious recurrence of crisis. We know this from past experience. Under conflict conditions that have prevailed since September 2000, and despite the doubling of foreign aid to an average of $1 billion annually between 2001 and 2005, the Palestinian economy was worse off on the eve of the January 2006 election than it was in 2000 – with poverty, unemployment, and personal income levels all registering constant deterioration. This is why a mere return to the pre-January-2006 conditions is not an economically viable option. That road, for all practical purposes, has already reached a dead-end. What is now needed is a holistic approach to the Palestinian socioeconomic crisis, one that views the events of the past year as an integral part of how things have developed in the West Bank and Gaza over the past decade, not merely as a post-Hamas phenomenon. The first step must be the realization by all parties of the high long-term costs of returning to the previous, non-viable status-quo, and the virtual impossibility of achieving economic recovery under continued conflict conditions. Once this is understood, it will become possible to design and implement a comprehensive package to eventually provide the Palestinian economy with what has so far been grossly lacking for a sustained turnaround to recovery and growth: an adequate control over physical resources, effective policy tools for economic management, and modern institutions to support high economic growth rates. Only in such an environment will it become possible for the relatively small Palestinian economy to take advantage of some of its hidden – and so far largely underutilized – strengths: its human capital, its entrepreneurial capabilities, a rich diaspora, its proximity to the more advanced Israeli economy, its close ties with neighboring Arab economies, and a world that has always shown a readiness to be a partner in peace. For that possibility to be translated into reality, however, the root political causes of the current socio-economic crisis in the West Bank and Gaza need to be tackled first. Absent anything positive on that front, we are likely to continue down the present slippery road, unable to see the alarming signs along the way, heading yet again toward a costly dead-end. Mohammed Samhouriis a senior fellow at the Crown Center for Middle East Studies at Brandeis University. He wrote this commentary for THE DAILY STAR.
A political resolution won't save the Palestinian economy
