0 | tvs-i-ior4S ews20179lI 1999 Development Under Adver,'Ttl: The Palestinian Economy in Tronnsition SUMMARY Ishac Diwan and Radwan A. Shabp-- W IOPM1ent Under Adversity Palestinian Econom,y in Transition Edited by Ishac Diwan and Radwan A. Shaban aestineEconomic ot e _M Acknowledgments This report is produced jointly by the Palestine Economic The report has relied extensively on studies carried out Policy Research Institute (MAS) and the World Bank. The by MAS and the World Bank. The core team was assisted by report has been written by the following core team: specialists in the WBGS and abroad, many of whom pre- MAS World Bank pared background papers for this report. Research for this report has relied extensively on analysis of raw data sets of Osama Hamed Ali Khadr labor force, expenditure, and demographic surveys carried out and made available to us by the Palestinian Central Martha Sipple was the editor, Isabelle Schnadig provided Bureau of Statistics. data support, and photography was provided by Miriam Sushman. 0 opmen oftePlstini:an ecnm eerc upthsincue numrus pulicsationis on bankigA00 Coera phtstdeveomnt, andA Rafdnalysisaof statoistcs MShosts codwnferenaCesy and workeshopassn tohenouragEez d hebate nt on teconomicpoicy issues, A full-timeunit continuouslymonitorseconomic tconditions and;; pubflish- 0Ves:regularreports:l0 inteMAS Ecoomic Montor DaSta prvdedby tMAS on Sthe arious Sareas 0off the0 visit th websit atiVeS;; www.palecon.org.OAAs Cover photos: Students at Al Rafiden primary school in Sheik Radwan, Gaza City; and workers passing through Erez checkpoint. ii Contents Acknowledgments ii Definitions and Terms v Introduction 1 Recent Economic Record: Frustrated Development and an Economy Increasingly Below Its Potential 2 High and Increasing Levels of Poverty 2 Excessively High and Widely Fluctuating Unemployment Rates 3 Border Closure and Permit Policies 4 Permanently More Costly Transactions at the Border with Israel 4 Permit Policy: Sharp Deterioration in Employment in Israel 5 Unpredictable Border Closure Policy 5 Larger Public Sector and Lower Private Sector Activity 7 Liabilities Depressing the Palestinian Economy 8 Legacy of a Long Occupation 8 The Infrastructure Gap 9 Increased Uncertainty in the Interim Period 9 Structural Assets 10 Strategic Choices Facing the Palestinian Economy 13 Economic Structure and International Relations 13 Free Access: Moving People and Goods 13 Trade Policy Options 14 An Efficient and Compassionate State 16 A Better Civil Service 16 Raising Revenues and Avoiding Fiscal Deficits 17 Effective Stabilization Policies 19 Taking Advantage of Social Capital and New Technologies 20 Legal Framework 20 Partnerships with NGOs 21 Private Delivery of Infrastructure 21 Leveraging Human Capital through Information Technology 22 A Sectoral View: Policies to Generate Growth 23 Private Sector Development 23 Agriculture and Industry 23 Housing 24 Tourism: Constraints Amidst Potential 25 iii iv Development Under Adversity: The Palestinian Economy in Transition Financial Sector Development 26 Banking 26 Financing Micro-entreprenuers 27 The Emerging Financial Market 27 Developing Human Resources 29 Education 29 Health 30 Risks and the Role of Donors 33 Short-term Support versus Investment 34 Bibliography 36 Contents of Forthcoming Book 41 Figures Figure 1 Collapse of Living Standards in the WBGS 2 Figure 2 Substitution of Palestinian Workers with Foreign Workers in Israel 3 Figure 3 Index of Average Weekly Hours of the Labor Force, 1980-96 3 Figure 4 Evolution of the Percentage of Palestinian Labor Force Employed in Israel and Net Worker Remittances as Percentage of GNP 5 Figure 5 Increasing Incidence of Border Closure 5 Figure 6 Changes in the Composition of Labor Force, 1992 and 1996 8 Figure 7 Per Capita GNP Increases with Education Level: 102 Countries in 1990., but WBGS Income Level Is Far Below Potential 12 Figure 8 Evolution of Fiscal Revenue and Expenditure 18 Figure 9 Composition of Total Investment as Share of GDP 25 Tables Table 1 Comparing Infrastructure Services in the WBGS 9 Table 2 General Development Indicators 11 Table 3 Regional Water Resources 23 Boxes Box 1 Cost of Border Closure and Permit Policies 6 Box 2 Palestinian Diaspora 12 Box 3 The Gaza Port and Airport 15 Box 4 Industrial Estates 21 Box5 PADICO 28 Definitions and Terms Acronyms and Initials CG Consultative Group on the West Bank and PMA Palestinian Monetary Authority Gaza Strip PPP purchasing power parity EU European Union RWB remaining West Bank excluding East FTAs free trade agreements Jerusalem GDP gross domestic product RWBGS Rest of West Bank and Gaza Strip excluding GIE Gaza Industrial Estate East Jerusalem GNP gross national product UNRWA United Nations Relief and Works Agency ICA Israeli Civil Administration US United States ICBS Israeli Central Bureau of Statistics VAT value-added tax IFC International Finance Corporation WBGS West Bank and Gaza Strip IMF International Monetary Fund MENA Middle East and North Africa region Weights and Measures MIGA World Bank's Multilateral Investment BCM billion cubic meters Guarantee Agency DWT deadweight tonnage NGOs non-governmental organizations kg kilogram OECD Organization for Economic Cooperation km kilometer and Development MCM million cubic meters OPIC Overseas Private Investment Corporation Mw megawatts PA Palestinian National Authority PADICO Palestinian Development International Currency Company JD Jordanian dinar Paltel Palestinian Telecommunications Company NIS New Israeli shekel PCBS Palestinian Central Bureau of Statistics US$ United States dollar PEA Palestinian Electricity Authority All dollar figures are expressed in current US dollars unless PLO Palestinian Liberation Organization otherwise specified. Agreements Annex 5 Economic Annex to the Interim Agreement Declaration of Principles Israeli-Palestinian Declaration of Principles on Interim Self-Government Arrangements Cairo Agreement Agreement on the Gaza Strip and the Jericho Area Early Empowerment Agreement Agreement on Preparatory Transfer of Powers and Responsibilities Economic Protocol Protocol of Economic Relations Gaza-Jericho Agreement Agreement on the Gaza Strip and the Jericho Area Hebron Protocol Protocol Concerning the Redeployment in Hebron Interim Agreement Israeli-Palestinian Interim Agreement on the West Bank and Gaza Strip Oslo Agreement Israeli-Palestinian Declaration of Principles on Interim Self-Government Arrangements Oslo II Agreement Israeli-Palestinian Interim Agreement on the West Bank and Gaza Strip Pans Protocol Protocol of Economic Relations Taba Agreement Israeli-Palestinian Interim Agreement on the West Bank and Gaza Strip v Introduction This is an executive summary of a book that analyzes policies that can be implemented immediately which some key strategic choices facing the emerging would generate noticeable economic improvements in Palestinian economy in the short and medium terms. the short and medium terms. The book reviews economic developments since the The book outlines three specific areas of policy 1993 signing of the Declaration of Principles on change that can foster stabilization and encourage Interim Self-Government Arrangements (Declaration growth in the Palestinian economy in spite of existing of Principles or Oslo Agreement), identifies the under- political difficulties: (i) freeing access to external mar- lying structural assets and liabilities of the economy, kets, the opening of new trade channels to the world, and explores options that would allow the economy to and diversifying away from disproportionate reliance capitalize on its potential assets and reduce the nega- on Israel in trade and delivery of services; (ii) creating tive impact of its areas of weakness. a governance system with an efficient civil service, Since the signing of the Oslo Agreement, the eco- minimal fiscal deficits and suitable tools for stabilizing nomic situation has continued to deteriorate. The the economy; and (iii) taking advantage of a dynamic decline in household incomes, a sharp increase in private sector and resourceful non-governmental orga- unemployment, and the general broadening of pover- nizations (NGOs) in the delivery of health, education, ty pose serious challenges for economic sustainability. welfare, and infrastructure services. Given the loss of jobs abroad, the most pressing eco- The donor community can help greatly in imple- nomic challenges are to remove some of the constraints menting such a development framework with support facing domestic production. Ultimately, an advanta- for investment projects, especially those that facilitate geous resolution of political uncertainties-control of free and diversified access to outside markets; support borders, access to natural resources, and management the move toward a lean and efficient governance sys- of territory-is necessary for the economy to embark tem; and encourage all the parties to overcome the on a path of strong and sustained growth. But there are obstacles to development. 1 Recent Economic Record: Frustrated Development and an Economy Increasingly Below Its Potential The Palestinian economy is increasingly less able to sustain jobs and incomesfor its people. In contrast to the initial rosy economic scenarios that were projected early in the peace process and despite the assis- tance of the international donor community, the standard of living has continued tofall in the midst of massive unemployment and rising poverty. The central story of the West Bank and Gaza Strip border closures comes on the heels of large negative (WBGS) economy in the past few years is one of dete- shocks generated by the Intifada after 1988 and the Gulf rioration, even though positive developments have War in 1990-91; as a result, real per capita expenditure also occurred since 1993 with the transfer of some has continued to deteriorate over more than a decade, areas of authority to the Palestinian Authority (PA). and is now at its lowest level for any year since 1980. Positive developments include the setup of a function- ing civil service that has managed to collect taxes and High and Increasing Levels of Poverty deliver services in various fields such as health, educa- Given a poverty level of $650 per capita annually (less tion, and public utilities, along with efforts to develop than $2 per day), approximately one-fifth of the WBGS and enforce the legal system. In response to removal of population was poor at the end of 1995. The incidence the regulatory restrictions, the banking system has of poverty is greater in Gaza Strip, where more than managed to grow rapidly and collect a substantial 36.3 percent of the population was poor at the end of amount of deposits within a few years. 1995. Since 1995, the situation seems to have deterio- However, the overall deterioration is reflected in rated considerably with harsher labor market condi- lower income levels, greater unemployment, and tions having a direct impact on poverty increased poverty (Figure 1). It is difficult to trace the exact transformations of the economy because macro- Figure 1. Collapse of Living Standards in the VWGS economic data are not available for the period 1995-97. Percentage However, the newly established Palestinian Central 0 t0 20 30 40 50 60 70 80 Bureau of Statistics (PCBS) has collected data at the _ household level that allows us to trace economic out- Povertyrate 919.1 comes. Based on analysis of the Palestinian Expenditure Consumption Survey that was carried out in 12 rounds over the period October 1995-September 1996 on Unengploy 9entrate _ 28.4 4,800 households, the average per capita consumption expenditure in the WBGS was $1,431 annually ($1,519 in the West Bank and $1,214 in Gaza Strip) during the employment in Israel 76 last three months of 1995. In comparison to private consumption expenditure obtained from Israeli nation- Decline in per capita al accounts, real per capita average expenditure in the real consumption 15 1995-96 survey period is about 15 percent below its 1 average for the years 1992-93. The post-Oslo period of Source: Diwan and Shaban (1998) and based on PCBS data. 2 Recent Economic Record: Frustrated Development and an Economy Incrcasingly Below Its Potential 3 The profile of poverty reveals the nature of hardship. Palestinian employment in Israel has declined contin- An average family with a regularly employed person at uously since 1992 in response to the permit and closure the going wage rate should be able to avoid poverty policies. At the same time, employment of non- The high incidence of poverty is rooted in rising unem- Palestinian foreigners from East European and South ployment and the repeated and severe shocks from Asian countries in Israel has increased substantially border closures. The closures prevent workers from (Figure 2). While this substitution has reduced the reaching theirjobs and inhibit private sector expansion impact of the loss of Palestinian workers to Israeli and job creation. Poverty is more widespread among employers, overall employment opportunities have not those living in refugee camps. The refugee camp rate expanded over such a short-time period to create jobs for of poverty at the end of 1995 was 31 percent compared the displaced workers. As a result, unemplorment has to 17 percent for urban and rural households. Refugee increased to very high levels, and Palestinian employ- camp households rely on labor earnings as the major ment opportunities in Israel have been permanently source of livelihood, and thus, are more severely affect- reduced. ed by labor market shocks and downturns. According to the two labor force sample surveys, the PCBS estimates that the rate of unemployment was Excessively High and Widely Fluctuating 18.2 percent in September-October 1995 and 28.4 Unemployment Rates percent in April-May 1996. Given the strict definition The hope of the official actors in the peace era was that of unemployment used by the PCBS and in the absence domestic job creation by an export-oriented private of any unemployment insurance, these rates are sector would expand domestic employment quickly, extremely high. Even with such a strict definition, the transforming the Palestinian economy from labor- unemployment rate in the WBGS is higher than all 57 exporting to commodity-exporting. However, political economies analyzed in the World Bank's World factors in the post-Oslo period have suffocated export- Development Report 1995. oriented private sector development. When the closure Out of roughly one-half million workers in the labor policy is implemented, Palestinians workers, business- force, 92,000 were unemployed in September-October men, and merchandise can be delayed suddenly and 1995 and 149,000 in the April-May 1996. Notably, the for long periods at the border. magnitude of unemployment fluctuates widely over a Figure 3. Index of Average Weekly Hours ot the Labor Figure 2. Substitution of Palestinian Workers with Force, 1980-96 Foreign Workers in Israel Percentage Number of workers in thousands 110 120 a West Bank U WBGS 100 Gaza Strip 100 M Foreign 9 80~~~~~~~~~~~~~~9 so~ ~ ~ ~ ~ ~ ~~~~~~~~8 60 70 40 60 20 50, 0 1980 1982 1984 1986 1988 1990 1992 1994 1996 1990 1991 1992 1993 1994 1995 1996 Note. Index for 1980 is set to 100. Average weekly hours of labor force Note: Number of foreign workers refers to permits issued and is obtained in 1980 was 43.3 in the West Bank and 43.7 in Gaza Strip. from the Israeli Ministry of Labor. Source: 1980-94 data are based on ICBS; 1994 data were not collected Source: Israeli Central Bureau of Statistics (ICBS) for Palestinian in Gaza Strip: and 1995-96 data refer to fall and spring of these years, employment up to 1994, and PCBS for 1995-96 Palestinian employment. respectively, and are based on PCBS. 4 Development Under Adversity: The Palestinian Economy in Transition short-time period. Various PCBS surveys indicate that, strikes, the index turns out to be much more reveal- on average, approximately 20 percent of the labor force ing than the straight unemployment figures. This is unemployed during "normal" periods. However, this index is set at 100 for 1980 (corresponding to 43.3 rate suddenly jumps to 30 percent during border clo- hours in the West Bank and 43.7 hours in Gaza Strip). sures when Palestinian workers are prevented from Figure 3 illustrates the decline in average hours reaching their jobs in Israel. In the Gaza Strip, these worked for the 1980-96 period. The economy was rates are even higher during periods of border closure. operating close to full employment in the early 1980s, A high rate of unemployment is usually associated exporting workers to Israel and the Gulf countries. with substantial underemployment of labor Then, an unstable environment during the Intifada resources. To assess the quantitative underutilization led to a drop of the index to 72 in 1988, implying that of labor, we constructed an index of the average 28 percent of existing labor force potential was not weekly hours worked by the average person in the utilized. The index improved in the early 1990s but labor force. The index captures both open unem- then dropped unambiguously over 1992-96. By ployment and underemployment of the existing labor spring 1996, only 63 percent of the West Bank and a force. Due to the predominance of part-time jobs and mere 55 percent of Gaza Strip's available labor force the disruptions caused by closures, curfews, and potential was utilized. BORDER CLOSURE AND PERMIT POLICIES The permit and closure policies that Israel has imple- mented since 1993 constitute a major new constraint and challenge to economic development in the WBGS. Economic losses from the resulting interruptions to labor and trade flows with Israel have been very large, and have contributed substantially to a reduction in the standard of living, and an increase in unemployment and poverty. Since 1993, security checkpoints have been created along the borders separating Israel and East Jerusalem from the remaining West Bank (RWB) and Gaza Strip. Permits are required by all Palestinians who cross these borders, whether to work in, travel to, or move through Israel and EastJerusalem. The border checkpoints have considerably slowed the mobility of goods and people and have increased transaction costs. Israel has closed various borders-between the West Bank and Gaza Strip, between the West Bank or Gaza Strip and Israel or the rest of the world, and between various cities of _ the West Bank-for varying lengths of time. These policies have been particularly costly to the Palestinian economy given its deep integration with the Israeli economy since the 1967 occupation. Permanently More Costly Transactions at the Border with Israel The erection of border controls in 1993 and intro- duction of the permit system for Palestinians sub- Workers passing through Erez checkpoint en route to jobs in Israel. Recent Economic Record: Frustrated Development and an Economy Inc -casingly Below Its Potential 5 stantially restricted and increased the cost of mobili- bers as to substantially replace Palestinian workers. ty of Palestinian workers and goods across borders This could imply a permanent loss of employment with Israel, increasing delivery costs, interrupting the opportunities in Israel even if the political situation production process, and increasing production and permits a larger number of Palestinians to seek such operation costs. During the three decades of occupa- employment. Palestinian earnings from work in tion, the WBGS developed economic structures based Israel collapsed from an estimated 25 percent of GNP largely on open labor and goods markets. The initial in 1992 to 8 percent in 1995, and to 6 percent in situation in 1992, before the imposition of the permit 1996 (Figure 4). policy, reflects these economic structures: one-third of the labor force was employed in Israel, 90 percent Unpredictable Border Closure Policy of imports came from or through Israel, and 80 per- The shocks from the border closure policy have cent of exports went to or through Israel. Given these occurred with increasing frequency (Figure 5) and conditions, the sudden and sharp reversal of "open- uncertain duration, causing additional loss of labor ness" and the accompanying very high transaction income, increased unemployment, declining sales and costs have had a major negative impact on the profitability, loss of perishable goods and services, and economy creating incentives to adjust toward lower value-added activities. Officially, these closures are related to secu- Permit Policy: Sharp Deterioration in Employment rity concerns, but their economic cost, both direct and in Israel indirect, is devastating, thereby potentially creating a The number of permits issued by Israel lo bigger security LhreaL in the future. Farmers who con- Palestinians has declined and workers have often verted large land areas to higher value products (i.e., been unable to use these permits during periods of strawberries and carnations in Gaza Strip for Israeli border closure. As a result, Palestinian employment and European markets) were hit hard during border in Israel declined from an annual average of 116,000 closures due to spoilage. They are now converting back in 1992 to 28,100 in 1996. The Israeli economy has their production to lower-value crops that are in high- been adjusting by importing workers from East er demand domestically or more easily stored. Firms European and South Asian countries in such num- that export-to Israel, the West Bank, the Gaza Strip, Jordan, or the rest of the world-or rely on imported Figure 4. Evolution of the Percentage of Palestinian inputs, face reduced production and find it hard to sur- Labor Force Employed in Israel and Net Worker vive in the confines of a minuscule market. Remittances as Percentage of GNP Employment in Israel as percentage of Palestinian Worker remittances Figure 5. Increasing Incidence of Border Closure laborforce as percentage of GNP Percentage of closure days per year 35 35 40 30 30 35 * West Bank 30 _S~~~~~~~~~~~\\ 30~~~~~~7 Gaza Strip_X 25 x 25 30 25 20 ~~~~~~~~~~~~20 20 15 1 ^5 10 -West Bank ¾.10 -'-WBGS 10 --Gaza Strip .> 5 Worker rermittances 0 0 1990 1991 1992 1993 1994 1995 1996 1993 1994 1995 1996 Source: ICBS and World Bank. Source: Based on data in chapter 4, Diwan and Shaban (1998). 6 Development Under Adversity: The Palestinian Economy in Transition The estirnate losses to the B e tedirect loso noeb aetna okr nIre; bhairadageaedmn,temlile iei ( 0:ii): the mostyinthir 404s land SOs, nludetUi 00 tion ofthe WBGS While tere are jlageconnratins f g0 Ca0l larenme ofhighly eduated 0profes'sionals, suc as $0 d Eiaspora Palesinianls in Jora,Learnon anld Syria, the 01 0academics, dloctovrs,t enginieers,2 and manag:ers, whXo hldl 0 cSfi omuniFty is widespread, extendingS toS EupropAe,NoGrth ,0 00-topjpoRsiton in Wcroainsadaepr om~0f infent inbank- and 00S:South America, and Astali. ing, both itg 20;i 00;g00 000000 gX00 0000 0 tV00q00n Europe and gtheX MiddleEast. 0 0;00000 0 0:t0 ;tt: l: The eDiasporaWPalestinancmity hascome to beh W before the beginnig o t peace prcs recognized for its en:trep reurial and hard-worethics wealthy stan exriates were channelig funds AS well1 as~ its leadesi,mnaeilmn seilzd6kls it the WBGS A o f tefunds wetoedcina in business, banig egnern,mdicine,adgvm n uaiainatvte,sc ascntiuoston- finclude a alt i Inte n wiih more operatng out of such centers as London, Atens, Cyprs, han 1000 0o the rihs Diaspora Palestinian usinessmen Riyadh, Qatar, Dsto . asmemers.be ouc:Abu-~Ghaia(19) support long-term infrastructure needs in the inter- help generate a significant supply response. Free from est of improving overall conditions. the legacy of high debts, inefficient public enterprises, In view of these strong structural assets, the Palestinian or a revenue base that is too small given needed pub- economy has been operating below its potential. This can lic expenditures, public policy can focus on creating be illustrated by comparing its levels of skills and income the framework conducive for development. with other countries. Figure 7 shows for 102 countries how increasing educational levels are associated with Figure 7. Per Capita GNP Increases with Fducation higher levels of income. The average level of schooling Level: 102 Countries in 1990, but WBGS Income Level years of the WKGS adult population was 8. 1 years in Is Far Below Potential 1995. Given the average relation betwveen schooling and PPP-adjusted per capita G2P (, per capita income, one would expect a per capita GNP level of a little more than $ 10,000, adjusted for purchas- 20000 ing power parity (PPP). Given very conservative PP EP adjustment factors, the Palestinian economy is operating a e Q at one-third to (at most) one-half of its potential, consid- 15,000 ering its stock of human capital. The implications of this substantial underutilization 10,000 ' a of human resources and, more generally, of many of its main assets is clear. Given the right environment and 5.ooo* the right policy, the economy could generate substan- tial growth rates within a short-time period, without 4 a pushing against the constraint of labor quantity or 0 2 4 6 8 10 12 quality The removal of regulatory constraints, the Average years of schooling of adult (15+ years) population establishment of supporting institutions and infra- Note: WBGS average years of adult schooling was 8.1 years in 1995. structure, and reduced uncertainty should, therefore, Source: Barro and Lee (1996). Strategic Choices Facing the Palestinian Economy A reorientation of the Palestinian economy is needed to sustain jobs and incomes during the current peri- od of political instability, and to lay the basis for a take-off when a political solution emerges. To make an impact, three strategic concerns will need to be addressed simrultaneously: how to diversify external economic relations and depend less on goods and services provided by Israel; how to set-up a good sys- tern of governance that can ally fiscal responsibility, efficiency, and compassion; and how to utilize exist- ing social capital to help deliver core public services more effectively, including health, education, wel- fare, and infrastructure. ECONOMIC STRUCTURE AND INTERNATIONAL RELATIONS The WBGS is heavily dependent on Israel for infra- more secure and the border must operate efficiently. structure services and trade. Diversifying the sources of The success of any trade strategy will depend on diver- services, through internal development and creating sification (making trade less dependent on any one the ability to purchase them from other countries in the source) and on widening access to new markets in Arab region, will permit cheaper and more reliable services countries, in Israel, in the industrialized countries, and in the long term. Certain internal investments, espe- in the emerging Asian and Eastern European countries. cially in trade infrastructure, may make sense in light Admittedly, both the infrastructure for trade (i.e., of the diversification motive even when they appear ports, airports, bridges, roads) and the trade regime sub-optimal when viewed by themselves. The trade (i.e., customs unions, free-trade area, non- regime must also be adjusted to allow for more diver- discriminatory regime) can be only partially improved sified international trade relations. The benefits of within the bounds of the existing agreements with diversification will occur not only to the WBGS but Israel. The economic agreement itself is in force during also to Israel in increased stability and security. the five-year transitional period, and economic rela- For an economy as small as the WBGS, the develop- tions beyond that will be defined after the permanent ment of strong linkages with external markets is essen- status issues are resolved. Therefore, an important tial for economic survival. Yet, as a result of high trans- aspect of the discussion is whether a change in the eco- action costs at the border, trade has fallen dramatically nomic agreement itself should be pursued before then in the past few years. Macroeconomic data have not to improve outcomes during the transition. been collected scientifically since 1994, but rough esti- mates made by the International Monetary Fund (IMF), Free Access: Moving People and Goods the World Bank, and the Palestinian Ministry of Finance Trade and tourism are likely to become dominant eco- reveal that merchandise exports were nearly cut in half nomic activities in the future: the relatively small size of between 1992 and 1996, from 11 to 6 percent of GDP, the economy makes it heavily dependent on interna- and imports fell from 46 to 38 percent of GDP tional commerce, and the deep historical and religious Any development strategy will, therefore, need to be significance of the region makes it a major tourist attrac- built on better trade infrastructure and improved trade tion. Consequently, the free movement of goods and agreements. Access to outside markets must become people is essential, and this requires a political agree- 13 14 Development Under Adversity: The Palestinian Economy in Transition ment and expanded investment in transportation infra- using Israeli facilities even under normal conditions, structure. Such investment includes a network of roads, and especially at times of border closure. Direct inter- efficient land, sea, and air links, and border infrastruc- national access from Gaza Strip and the West Bank, ture. The need to diversify trading routes and enhance consequently, has an important "option value." If a free competition among service providers is underscored by economic zone is to be created, direct access to a port the likelihood that closures will continue. is undoubtedly essential. To Israel, the benefits occur Whatever trade regime ultimately emerges, expand- in the form of reduced expenditures on security checks ed options for trade, the movement of people, and new of goods and people moving through Ben Gurion, transportation linkages are required to and from the Ashdod, and Haifa. rest of the world, as well as within Gaza Strip, within the West Bank, and between the Gaza Strip and the Trade Policy Options West Bank. At present, all movement in and out of the To a large extent, the Palestinian trade regime has WBGS to the rest of the world must take place through already been anchored by the FTAs signed with the EU ports of entry located in Israel,Jordan, and Egypt. Over and the US in 1996. But in the short to medium term, 90 percent of Palestinian trade passes through the the rules for trading with Israel remain crucial. Indeed, Israeli ports. Under the Oslo II Agreement, "equal while a major reorientation in trade should occur over treatment" was to be accorded to Palestinian exporters time, any sharp cut in trade with Israel would have and importers at these points of entry and exit. In prac- large short-run costs, as recent experience with permit tice, besides the port fees, goods from or to the WBGS and closure policies illustrates. Therefore, it is better if are typically subject to stringent security checks and diversification is based on a strategy of expansion long delays at border crossings. rather than restriction. Besides direct routes to the outside world (such as a The Economic Protocol signed in 1994 in Paris port and airport in Gaza Strip; Box 3), the crossover between the Palestinian Liberation Organization (PLO) points through Egypt and Jordan could be used to and Israel regularized the existing trade relation and expand options for trade. However, these routes are in improved some of its aspects. First, there is no customs a state of disrepair and lack access roads and support- border between the WBGS and Israel. Subject to Israeli ing infrastructure. The rehabilitation of these crossover quality standards, trade between the WBGS and Israel points, i.e., Karameh bridge, Damiah bridge, or Rafah is mostly free (the only exceptions are five agricultural crossing, present immediate lower-cost options. goods with quotas until 1998). Second, customs rev- Investments in border administration and infrastruc- enues and VAT raised on goods coming from third ture must also be made. countries are partially returned to the Palestinians. The Direct access to outside markets from Palestinian VAT operates on a destination basis, i.e., the VAT on areas of control will provide increased options to imports from Israel is remitted by the Israeli treasury traders, business people, tourists, and internationally to the PA. Third, trade relations with third countries- mobile workers, and hence reduce the uncertainty of tariffs, standards, quotas-are largely determined by access from the WBGS to the outside world. Two pro- Israeli policies, albeit with some limited exemptions. jects under active preparation are a port and an airport Tl-he choice of an optimal trade relationship with in the Gaza Strip. In the past, there has been some con- Israel is complicated by the uncertain political outlook. cern that the port and airport require large investments In a peaceful environment, there would be large gains and hence may not be economicallyjustified for a small to free trade with Israel, but this arrangement has dev- economy. Most small economies the size of WBGS typ- astating negative impact under repeated closures. ically do have their own port and airport because they * Under ideal border conditions, free trade with Israel have no other choice. It has been argued that it would seems very much in the interest of the Palestinian be better for the WBGS to use the highly developed economy. In spite of several disadvantages, its major facilities in Israel. That argument loses force, however, attraction for Palestinian producers is that the Israeli in view of the serious uncertainties associated with tariff structure is particularly protectionist in sectors Strategic Choices Facinig the Palestinian Economy 15 Box 3. The Gaza Port and Airport The Gaza port is to be located five kilometers south of the Costs for the first phase are expected to be about $60 Gaza City border. According to the PA, the plan is to pro- million for the port and $40 million for supporting land vide international access to traders all over the WBGS and development, equipment, and rail facilities for cargo to industrial estates in the immediate vicinity and, possi- movement. Various European donors have indicated an bly, establish a free trade zone for the assembly of light interest in financing this phase. Operations are likely to be manufactured goods. undertaken through a management contract. In the first phase, a 600-meter berth in deep water plus In conitrast to the proposed Gaza port, conistructioin of a petroleum products berth are planned. The berths and the the physical infrastructure for a new airport at the south- harbor basin would be protected by a 700-meter long and eastem edge of the Gaza Strip is largely completed. The 11-meter deep breaklvater. At the end of the first phase, the airport includes terminal buildings and a runway capable port would be able to receive small container vessels with a of accommodating Boeing 747-400 long-haul jets. maximum size of 15,000 deadweight tonnage (DWT). Port Funding for this work, which cost about $20 million, was equipment is expected to be elementary, including mobile made available mainly by Egyptian commercial banks. cranes. A multipurpose container terminal with the ability However, operation of the airport continues to be delayed to handle larger vessels will be constructed in the second pending approval by the Israeli authorities, who have phase. In the third phase, the breakwater will be expanded cited security concerns. Such conceres have also been and a multipurpose terminal will be constructed in the cen- cited for delaying the clearance to import essential equip- ter of the harbor basin to handle even larger vessels (50,000 ment for airport operation as well as three aircraft which to 70,000 DWT). Upon completion of the third phase, the have been provided by donor countries as part of their port will be able to function as a major transshipment facility. assistance programs. Source: Mody (1996). where the Palestinians have a strong export poten- it the preferential treatment for Palestinian exports, tial: agriculture and labor-intensive manufacturing would be extremely costly in the short to medium term. (e.g., shoes, garments, furniture). It would impose on Palestinian exports to Israel (80 per- But while trade preferences accorded by Israel under cent of total WBGS exports) the high levels of protection free trade are valuable on paper, their value is neg- that Israel applies to third countries. ligible under repeated closures since agricultural The choice of an optimal trade relation with Israel exports are highly perishable and industrial sub- should thus be partially dictated by expectations about contracting requires a high degree of predictability. the frequency of future closures. Unless new ways are Indeed, under the current arrangement, the found to isolate security issues from the passage of Palestinian economy is not taking advantage of the the- goods and people between the WBGS and Israel, a more oretical opportunities offered by free trade. Agriculture is shifting from high-value crops (i.e., strawberries and flowers) to less valuable but also less perishable and less risky ones (i.e., potatoes and onions). Gazan firms spe- cializingin subcontracting have cut their business in half over 1995. In 1996, total exports to Israel were estimat- ed at $200 million. By some estimates, the figure could have been $600 million in the absence of closures. But at the same time, the preferences accorded by the Palestinians to Israel involve real costs. A system with I zero tariffs for all imports, for example, would allow - - Palestinian importers to purchase goods from third par- Construction of the Gaza airport is nearly completed, but opera- ties at prices cheaper than from Israel. However, giving tion of the airport continues to be delayed pending approval by the up a preferential trade agreement with Israel, and with Israeli authorities. 16 Developmnent Under Adversity: The Palestinian Economy in Transition 0; l - --t - t --- l0t^ttry relations (i.e., a customs union) a good intermedi- ate solution? Such a strategy would maintain open trading relations with Israel, but would potentially avoid the protectionist aspects of Israel's trade regime, -0>S. | l ||especially in regional trade. Taxes that now leak to Israel could be collected at the (new) customs border. .- < | l l A strategy of free trade with third parties would improve the bargaining position of Palestinian trade negotiators, perhaps resulting in more efficient opera- tions at the border with Israel. However, several other problems must be dealt with for the FTA solution to Site of Gaza port under construction. become attractive (i.e., the low value added of Palestinian industry and geographical separation of the independent trade relation may be preferable from a West Bank and Gaza Strip). Palestinian economic point of view. Improvement with- One possibility worth investigating seriously is to in the current agreement would be boosted by increased turn the Gaza Strip into a free trade zone (and also the Israeli cooperation on issues such as improved revenue- West Bank as soon as the border situation allows it). sharing systems, a more fluid border, increased trade This would send a strong signal to the world that Gaza independence with neighboring countries (in terms of is open for business, and government is out of the busi- longer lists of allowable goods and larger quantities), ness of trade. Together with its large and relatively and larger labor flows. The alternative of renegotiating skilled labor force, such an initiative would make the the agreement would be more attractive, however, if the Palestinian economy very attractive as an export plat- current situation does not improve. form to the US and EU-. Because almost no customs rev- In the context of this difficult dilemma, is a FTA with enue is presently collected on manufactured imports, Israel which falls short of an agreement on third-coun- there would be little effect on fiscal revenues. AN EFFICIENT AND COMPASSIONATE STATE The second strategic issue concerns the evolution of through expenditure rationalization. As a first step, it is the Palestinian governance system. With its rich civil important for policy makers to articulate the range of society and high level of skills, Palestinian society has services to be provided and paid by government, under the potential to break the regional mold and jump to a its prevailing financial constraints, based on a detailed modern state that is efficient and compassionate at underlying blueprint of the role of the state. once. While the public sector's track record has not An equally important-but frequently overlooked- been long, there are indications that it may move requirement for effective public sector performance is toward the regional mold. Establishing a modern sys- having the tools to translate policy decisions into prac- tem of governance is needed so that fiscal deficits are tice. Such tools include an effective budgeting process kept in check, expenditure and revenues are managed (embedded with appropriate incentives for spending efficiently and fairly, and the negative effect of shocks ministries and agencies to remain within budgetary ceil- on the poor is reduced. ings), devices for monitoring budget execution and detecting over-runs, and an effective cash management A Better Civil Service system for processing payments. Despite the substantial The desirability of developing an efficient public sector progress in building up revenue administration, expen- militates sLrongly in favor of curbing any further growth diture management capacity in the PA's Ministry of in recurrent expenditures and identifying cost savings Finance has been slow to develop. By and large, annual Strategic Choices Facing the Palestinian Economy 17 budgeting has thus far been viewed as a formality by the 8). But tax collection ratios, which stood at a respectable spending ministries and agencies. Not until June 1996 21 percent of GDP on an annualized basis in late 1996, was a circular issued to announce the start of the annu- can still be improved. Several issues remain unresolved al budget cycle (for 1997) and to give directives for the or under implementation, such as the development of exercise. Even the budgeting exercise for 1997 remains formal work rules and instructions for revenue admin- confined largely to ministries' and agencies' recurrent istration staff, reconnection of Gaza Strip's revenue budgets. Significantly, the capacity for monitoring bud- administration facilities to the ICAs computerized for- get execution, early detection and correction of slip- mer taxpayer records, and strengthening the manage- pages, auditing, and cash management remains limited. ment of customs administration. Although several measures to enhance expenditure In the face of mounting donor fatigue vis-a-vis management capacity are either planned or under recurrent cost funding, it is unlikely that any further implementation, in many cases they occur with outside grant assistance will be made available for this technical assistance. These include bringing financial purpose-barring some large and adverse political comptrollers in the spending ministries and agencies shock. While near-term prospects for increasing rev- under the authority of the Ministry of Finance, and con- enue are modest, demands on expenditure are likely to solidating the existing multiplicity of cash management continue to grow Unchecked expenditure growth channels into a single account. There is also the need to would risk generating large public sector deficits and consolidate the accounts of PA revenues, so that they crowding out potential private investment. In the include all revenue sources, such as petroleum excise tax absence of demonstrated capacity for macroeconomic revenue from Israel under the clearance system. management and in the present climate of political The incentive structure for the civil service is not uncertainty, prospects for foreign commercial borrow- presently geared toward ensuring optimum staff per- ing and domestic non-bank borrowing are likely to be formance. Only when the extent of government's limited. This would mean forcing reliance on substan- responsibilities for service provision have been clearly tial additional borrowing from the domestic banking spelled out will optimal organizational designs, staffing system and a further build-up of payments arrears. levels, and profiles for government structures become The concerns about the sustainability of the fiscal easier to specify There is now a serious risk that con- accounts are exacerbated by the fact that all public tinued recruitment at the same pace as in the recent expenditure needs are not fully provided for in the PAs past will threaten medium-term fiscal stability Even a ongoing or planned spending patterns. At least six cursory look at the PAs present organizational struc- areas can be cited where costly public sector interven- tures and personnel management policies suggests that tion may be required. there is much room for streamlining and greater cost- effectiveness. Substantially better results and greater cost-effectiveness could likely be achieved through A-A A j consolidation of, or clearer distinction among, the 1estiniall Leg1s1ive Cotii mandaLes of the various ministries and agencies. - & .mtAX t-Birehd Governorate .tj 4L; Raising Revenues and Avoiding Fiscal Deficits VSi Despite grave problems in revenue collection during the first few months of self-government in Gaza Strip and Jericho, it is generally acknowledged that by late 1995 revenue administration had been placed on a sound footing, with progress in capacity-building reflected in consistently higher-than-projected revenue collection - The 88-member Palestinian Legislative Council, along with the by the PA, especially via the revenue clearance mecha- President of the PA. were elected in January 1996 to hold office for nism provided for under the Economic Protocol (Figure an interim period of up to five years. 18 Developnment Under Adversity: The Palestinian Economy in Transition Figure 8. Evolution of Fiscal Revenue and Expenditure Local tax-raising capacity will have to be built up to Millions of U.S. dollars maintain the same coverage (especially on VAT and 800 income tax collection) if less Palestinian workers go to 700 Israel in the future, or if less trade transits through 600 Current expenditure israel. 00 l C expenditure l l *The public sector functions still to be transferred to 500 the PA during the Interim Agreement period are in 400 zones B and C of the West Bank While the recur- 300 rent expenditure increases associated with these remaining transfers will be small, they nevertheless 200 can be significant. 100 * The paucity of quality and funding sources for 0 municipal services provided by local authorities 1992 1996 may call for inter-governmental fiscal transfers over Source: Diwan and Shaban (1998), annex table A.5 and World Bank the medium term to support service improvement 1994-96 GDP estimates. and extension. 3 The risk of closure-induced shocks to revenue and, to * The United Nations Relief and Works Agency a lesser extent, expenditure is significant. Direct loss- (UNRWA) runs parallel systems of education and es in fiscal revenue include income tax on lost earn- health care for the refugee population in the WBGS and ings in Israel, customs, excise, and/or VAT on the dif- neighboring countries. At the very least, integration of ference between normal and closure-restricted flows the operating costs of these systems into the PAs bud- of goods and services imported into the Palestinian get will arise as a serious option over the medium term. self-government areas. Indirect (or second-round) Besides improvements at the margin related to better losses include tax and possibly non-tax revenue loss- institutional performance, major increases in revenue es stemming from the general decline in economic are unlikely over the next few years, barring changes in activity triggered by the loss of factor income earned the revenue-sharing formulae with Israel which would in Israel and of export revenue, and by the disruptions require renegotiation of parts of the present Economic in domestic production as a result of interruptions in Protocol. If such renegotiation were to prove politically intermediate import supplies. Public expenditure is feasible, at least two areas merit serious attention: also affected by periods of closure if desirable stabi- * The present revenue-sharing formula for customs lization policies are put in place. Indeed, in the face of duties on imports, based on the destination principle, continuing risks of closures, more significant reserves allocates to the Palestinian treasury a share of rev- need to be built in the future. enue calculated on the basis of recorded import • Public investment expenditure will need to be fund- flows that are explicitly designated for final use in ed, at least in part, from central budgetary resources Palestinian self-government areas. Palestinian offi- once the presently exclusive reliance on donor fund- cials frequently point out that a significant leakage ing is no longer feasible. Public funds will also be occurs under this formula, which according to a required for operating and maintenance costs. The recent study amounted to 4 to 6 percent of GDP (or need for integrated recurrent and capital budgeting around $125 million) during the 1994-96 period. is acquiring greater importance as the focus of pub- The leakage is due to the high proportion of indirect lic investment activity shifts increasingly from reha- imports (that is, imports into Israel which are sold bilitation to the construction of new infrastructure. to final users in the WBGS but which are not explic- * Presently, a large share of revenues comes from Israel itly designated as such at the initial point of entry). in the form of tax clearances (over 60 percent in 1996). * The second area concerns seigniorage revenue-the This means that the Palestinian treasury, to a large real resources appropriated by a governing authori- extent, is relying presently on Israeli tax collectors. ty as it increases the money (currency) base in the Strategic Choices Facing the Palestinian Economy 19 economy Because the prevailing Interim Agreement employment schemes-more finely linked to closures- rules out near-term issuance of a Palestinian curren- would be preferable on welfare grounds. Export insurance cy, no independent seigniorage can be generated for schemes can also be explored, especially if this helps bring the Palestinian treasury. Moreover, there is no provi- donors into the negotiating picture with Israel. sion for allotting a share of the seigniorage collected * Employment Generation Schemes. The main policy by Israel to the Palestinian treasury under the present instrument to mitigate the economic impact of clo- currency union arrangement. It has been estimated sures has been the implementation of numerous that a defensible formula for sharing seigniorage on employment generation schemes. Most of these the shekel might yield some 2 to 5 percent of GDP schemes, however, have been used primarily as anti- annually in additional revenue to the PA. poverty programs, and none were designed specifi- cally as built-in stabilizers. Some performed simple Effective Stabilization Policies tasks that do not create permanent assets, which A crucial policy choice for Palestinian society concerns enabled them to transfer a relatively high share of the extent and manner in which closure shocks are their budgets to the poor. In particular, the World smoothed. In the face of massive shocks, stabilization Bank Direct Hire program and the UNRWA policies can achieve very little. The effects of closure- Emergency Employment program managed to related shocks can be decreased significantly only if the ensure that $1 of every $1.50 allocated reached the economy becomes more diversified in its trade relations. poor. Other programs attempted to create assets as But given the vulnerability of the economy to external well as help the poor, which diluted their effective- shocks, stabilization policies still need to be developed ness as an anti-poverty program. UNRWA's Shelter to relieve the pain of the most vulnerable in society Rehabilitation program, for example, spent $3 to $6 Civil service employment is not a good instrument for for each dollar received by the poor. stabilization. In the past few years, the expansion of pub- To serve as an effective built-in stabilizer, these pro- lic service has, to a large extent, become a means of grams should involve simple tasks that can be imple- smoothing the negative shocks that have hit the mented directly by local municipalities or farmed out Palestinian economy. Clearly, part of the public sector using standard contracts covering more than one increase stems from the phased transfer of public sector period, which would shorten their time lags. The functions. A strong case can be made for some new inputs used should be produced domestically or eas- recruitment (on top of employees inherited from the ily and inexpensively stockpiled, thus making the ICA) in order to provide for enhanced delivery of public program less vulnerable to closure. It should also be services that were widely perceived to have been sub- possible to change the coverage of the program with- standard under occupation; to fill senior staff ranks in the out causing serious disruptions in its operation. civil service, which under the ICA had been confined to Possible tasks that can be performed include foresta- Israelis; and to carry out functions (mainly those relating tion programs, soil preservation, street sign installa- to public order and security) for which no ready-made tion, access road construction, and garbage disposal. apparatus was bequeathed by the ICA. There is evidence * Unemployment Insurancefor Workers in Israel. It is not that the extra recruitment has now brought public sector prudent at the moment to set up an unemployment employment to a level that should amply fulfill public insurance for all Palestinian workers since the PA sector functions under a market economy blueprint. does not presently have the resources to finance it, Rather than relying on public sector employment, there the organizational capacity to manage it, nor the is an important role for insurance programs and targeted infrastructure needed to compile the extensive and policies of stabilization to offset the most deleterious effects timely data it requires. However, an effective mech- of transitory shocks on the poor. The deployment of an anism to mitigate the economic impact of closure is unemployment insurance system for Palestinians working to provide unemployment insurance for Palestinian in Israel could be considered. For long border closures, workers in Israel. Limiting this program to unem- indirect effects are also important, and so transfers/local ployment as a result of border closure would keep 20 Development Under Adversity: The Palestinian Economy in Transition it manageable and avoid potential moral hazard absence of stabilization instruments. An independent problems. This program would cover all WBGS currency would allow the Palestinian Monetary workers who have permits to work in Israel at the Authority (PMA) to reduce the impact of monetary beginning of each year. Premiums collected should shocks emanating from Israel or Jordan, and act as a be the major source of funds for the program. The lender of last resort. However, the issuance of an inde- program should be able to draw funds from Israel pendent currency is constrained politically by bilater- and donors, particularly during long closures. Given al Palestinian-Israeli negotiations. It is also economi- the frequency of closures, it would need to collect a cally advisable to avoid the issuance of an independent relatively high premium. currency until after a track record of fiscal discipline Export Insurance Programn. Insuring exporters against has been established, in order to improve the chances some losses resulting from border closure helps the of public acceptability of the currency export-oriented sector and removes an important In the absence of a currency, the PMA should avoid barrier to greater private investment. Shipping taking any action to limit the free circulation of the three delays due to closure cause liquidity problems as currencies in the market (Jordanian dinar, Israeli well as financial losses resulting from damages to the shekel, and US dollar) since currency substitution by exported goods. Liquidity problems and other finan- the private sector provides a stabilizing element against cial troubles caused by closure can be alleviated by imported monetary shocks. The PMA also needs to find an export insurance program. The program would mechanisms to fulfill its function as lender of last resort insure exporters against financial losses caused by in order to stabilize the banking system against any the failure to ship on a timely basis due to closure or bank run. Since the PMA cannot issue currency and other Israeli restrictions, by damage to the goods at does not have a credit line from the central banks whose the border, or even by the loss of a contract due to currencies are circulating, building monetary reserves is delays at the border. Covered exporters prevented essential. The PMA also needs to regulate and supervise from shipping by Israeli restrictions would be paid the banks very thoroughly to ensure proper operation by the program on the date the shipment was sup- and to protect deposit safety. One activist policy for the posed to take place. Setting up an export insurance PNIA to adopt is to vary the amount of liquidity in the program can help to expand credit by enhancing the banking system by moving reserves in and out of the value of an exporter's balance sheet as a source of local banking system as a way to offset shocks to the information about financial performance. economy. The implementation of this policy, however, Monetary Stabilization. The potential for monetary sta- requires careful consideration and substantial strength- bilization is limited by the size of shocks and by the ening of the PMAs institutional capacity. TAKING ADVANTAGE OF SOCIAL CAPITAL AND NEW TECHNOLOGIES The third strategic dimension concerns the ability of agents and to protect these agents from undue govern- Palestinians to take advantage of a rich tradition of civil ment intervention in economic affairs. The present society and dynamic NGOs, the newcomer advantage, legal environment requires significant improvement if and new technologies, to form effective partnerships in the WBGS is to become an attractive place for sectors ranging from health and education to the pro- investors. Needed improvements include avoiding vision of infrastructure. intervention in legal affairs and resolving conflicts between different layers of legal codes that are on the Legal Framework books. Immediate attention is needed to secure legal A first requisite to encourage private activity (for prof- protection against expropriation and confiscaion of it and not-for-profit) is a transparent and independent foreign investment property, and legal guarantees that legal system to settle disputes between private sector ensure the repatriation of capital and profits. The cre- Strategic Choices Facrig the Palestoiian Economy 21 ation of special economic zones can provide an island anisms through which various service providers com- of short-term protection until the system is improved pete must be built, for example, procurement based on (Box 4). Other measures can encourage the develop- competitive bids, or client choice and voucher systems. ment of sectors that are more robust to political tur- In addition, public disclosure of funds through client moil, i.e., housing and other types of infrastructure surveys, investigative joumalism, and public citizen with a large pent-up demand. Such measures include policing are needed to ensure accountability the registration of land and moveable assets, designing leasing laws, and reforming the rent control laws. Private Delivery of Infrastructure The private sector could provide some of the invest- Partnerships with NGOs ments required for infrastructure. Global trends indi- In education, welfare, and especially health, it would be cate that private actors can engage in broader fields of advantageous for the public sector to enter into part- public interest if the proper regulatory system is in nerships with NGOs and tap into existing managerial place. Such efficient governance systems are decen- capacity In commissioning NGOs to deliver health ser- tralized, with an emphasis on competitively contract- vices or providing them with charitable or tax-exempt ing out infrastructure to private companies and non- status, it is important for the PA to develop the appro- government citizen groups. The provision of public priate regulatory framework. After all, NGOs, as special goods is safeguarded by mechanisms that foster interest groups, may have a conflict of interest with the accountability and contested markets. overall public good. The challenge then is to create The first step toward private sector involvement has accountability mechanisms in a framework that fosters already taken place in the water sector. The newly estab- both competition and the free flow of information, since lished regional water and sanitation authority in Gaza effective competition among NGOs can only be sus- Strip awarded a four-year management contract to an tained by mechanisms that help the market evaluate per- international operator through competitive bidding. In formance and make choices. This means that the mech- telecommunications, a private company, Palestinian Box 4. Industrial Estates A series of industrial zones has been planned to help (PADICO), local private sector investors, the International jump-start industrial development in the WBGS by estab- Finance Corporation (IFC) and the European Investment lishing closure-free movement of goods and labor in a Bank. The remaining budget of $30 million for technical legal and regulatory environment attractive to potential assistance and off-site infrastructure components will be investors. The estates would, in effect, sidestep the many covered by the donor community. When used at its full obstacles that presently impede employment, investment, capacity, the GIE could have 17,000 permanent jobs, with exports, and business transactions through the WBGS. an additional 20-30,000 jobs created indirectly for ser- The Gaza Industrial Estate (GIE) is designed to be the first vices and other manufacturing operations. phase in abroader program of industrialestate development. Project viability will hinge on a number of critical suc- The GIE is the first of the export-oriented border estates, tar- cess factors. In particular: geted primarily but not exclusively at export markets. A * Security and Access Agreement The success of the zones German-funded project in Jenin is the second such estate. is dependent on political and legal agreements of a bind- Municipal industrial estates (with a proposed project for ing nature that will insulate these zones from border clo- Nablus initially) constitute the third dimension of the pro- sures. Negotiations are underway to formulate security gram. These municipal estates focus on the domestic mar- procedures and agreements of access to and from the ket, are designed to provide facilities for small workshops in GTE site to insure complete closure-free operaticon. local areas, and incorporate a policy dimension to address * The Policy Environment. Significant progress has been newly enforced municipal zoning requirements. made recently in advancing the legal framework and The GIE is a pioneer project-the first of a series of institutional arrangements to assure transparency, effi- industrial zones. The total cost of the project is estimated ciency, and investor confidence. Further progress is at $64 million, of which $34 million is expected to come still required in gaining legislative approval for the from private sector investors, including the developer investment law and the industrial and free zones law. 22 Development Under Adversity: The Palestinian Economy in Transition Telecommunications Company (Paltel), was awarded ing. A commission would serve two functions. It would an exclusive franchise for rebuilding and operating both establish common principles of regulation across sec- the fixed and mobile phone systems in the WBGS for a tors and insulate the regulatory process from political 15-year period, with a non-exclusive franchise for interference. Political insulation occurs as the commis- another 15 years. In electricity, the Palestinian sioners, appointed for fixed terms, are responsible ulti- Electricity Authority (PEA) is presently negotiating the mately to the legislature. Some economies may be real- development of a power generating plant in Gaza Strip ized by coordinating the activities of regional electricity under a 20-year build-operate-transfer contract with a and water utilities. private company that will ultimately provide 215 There are likely to be economies in joint billing and megawatts (Mw) of power. The principle of creating collection, saving both on software development and incentives for performance is being adopted. In the collection costs as well as in joint network planning, Gaza Strip water supply management contract, com- i.e., laying of pipes and cables, and maintenance. pensation has been tied closely to performance. In the Gaza power plant, the price paid for electricity received Leveraging Human Capital through Information will evolve according to a pre-specified formula, in the Technology spirit of price cap regulation. Operation and mainte- An unusually high level of human capital could be nance costs will be tied to a cost of living index, and the leveraged through the use of modern information tech- energy cost will be tied to a world energy price index. nologies. Conversely, since Palestinians do not possess Besides incentives, private provision of infrastruc- any significant natural resources, the future of the ture also requires building sufficient regulatory capac- Palestinian economy will be determined largely by the ity to ensure that societal interests are met. Where com- capacity to construct a knowledge-based economy. petition is effective, service providers have the right Such technologies would not only support domestic incentives to price in a socially desirable manner. transactions, but also international linkages. In partic- Hence, regulation should be limited to non-price ular, the possibility exists of developing trade in a vari- issues, such as safety and environmental protection. ety of services. The pillar of such an economy is a mod- Where market power exists however, a price regulato- ern telecommunications infrastructure. Looking ahead, ry mechanism needs to be put in place. the development of information technology capabilities Beyond this, institutional innovations and mecha- would open up a series of possibilities for the economy. nisms need to be conceived and put in place for plan- * As a Middle East financial center, it could tap into ning, regulation, project implementation, and coordi- the resources of specialized Palestinian bankers, nation. The benefits of an umbrella structure, such as provide a safe haven for investors, integrate region- a US-style regulatory commission are worth consider- al stock markets, and serve as a center for currency trading and clearing credit-card obligations. *By encouraging information processing industries, it could exploit decreasing long-distance telecom- munications costs to enter new markets in off-shore information processing and software engineering (as in Barbados and India). * As a high-skill hub for professional services, it could provide legal services, insurance, investment bank- ing, consulting, education, specialized medical treatment, advertising, and software development. * It would give a boost to the tourism sector that Under the Emergency Assistance Program, road rehabilitation was requires significant infrastructure, including mod- initiated and focused on intemal village roads and rural access roads. ern communications for hotels, resorts, and restau- Inter-urban road rehabilitation and investment are only beginning. rants in the historic sites. A Sectoral View: Policies to Generate Growth The implications of the three principlesfor a sustainable economy-diversification of external relations, an efficient and compassionate state, and capitalizing on strong social capital and new technologies- vary across the sectors of activity. Diversification is crucialfor finance, industry, and agriculture. While good governance is important across the board, it is crucialfor education. Partnerships between the state, the private sector, and civil society are hey for mobilizing dynamic activity in health, tourism, housing, and infrastructure. PRIVATE SECTOR DEVELOPMENT Substantial investment funds can be mobilized from 70 percent of all extracted water (strikingly, in Gaza Strip, Diaspora Palestinians and international sources, and it uses 150 percent of annually renewable water the WBGS could attract significant foreign investment resources), and the sector contributes about 15 percent under the right circumstances. it is difficult to imagine to GDP By companson, industry and construction con- a sustained private-sector boom in the current circum- sume about 13 percent of available water resources and stances of political turmoil and border closures. contribute about 25 percent to GDP The value added per However, important forces that depress private invest- unit of water is therefore much higher in industry. Typical ment in the short term can be removed by well-craft- value added by irrigated agriculture in the region varies ed policies. between $0.15 and $0.30 per cubic meter of water, while value added by most industries can be as high as $30 to Agriculture and Industry $50 per cubic meter of water used. To ensure future eco- Water is a scarce resource in the West Bank, and a very nomic growth, less water should go to agriculture, and scarce resource in Gaza Strip where the groundwater more should go to industry. But less water use in agri- resources are over-exploited and becoming increasing- culture does not necessarily mean lower agricultural out- ly contaminated. Present availability of renewable puts. Converting current irrigation practices to more effi- water resources (based on the Oslo II Agreement) is cient methods could protect and consume less of the only 115 cubic meters per capita per year-among the lowest in the world (Table 3). While a favorable final Table 3. Regional Water Resources status seLtlement would provide iriore water to the Resources WBGS, water resources will be extremely limited and Resources Consumption (cubic meters per ' ~~~~~~~~~~~~~Country (BCM' per yecsr) (BCM per year) capita per year) will pose a serious constraint for the economy. This challenge requires re-thinking economic growth pat- Joraeln 08 1.0 237 terns and changing attitudes vis-a-vis water. Lebanon 4.8 0.8 1,200 Agriculture is clearly very important to the Palestinian Syria 5.5 3.3 385 economy Yet, an implication of overall water scarcity is WBGS 0.2 0.2b 115 that agriculture is unlikely to play a leading role in terms a. Billion cubic meters. b. Actual Oslo 11 allocations (interim) are 264.5 million cubic meters of rapid and sustainable expansion of its output and jobs (MCM) (248 MCM renewable and 16.5 MCM from Israel). creation. Presently, WBGS agriculture uses, on average, Source: World Bank (1995a). 23 24 Development Under Adversity: The Palestiniian Economy in Transition available fresh water resources. Nevertheless, given the The West Bank could develop a strategic trade large share of the labor force in agriculture, the required alliance with Jordan, and the Gaza Strip with Egypt. future adjustment is considerable. Free trade with these regional partners would be In these circumstances, industry and services will necessary So, such a strategy cannot be followed have to play a leading role. Given the size of the econ- within the existing agreement with Israel. Gains omy and the constraints on the export of labor, focus would also be available if the four economies were must be on the export of goods and services. Trade pol- to get closer, as long as the WBGS remains less reg- icy swill have to open up new growth opportunities ulated and, therefore, more attractive as a location based on comparative advantage. Advantages include a that can access all these markets. relatively sophisticated and hard-working labor force; a * Strategy C: Gateway to the East-transformation of strategic geographical position; and a relatively open western technologies and the adaptation of techno- economy with little industrial base at risk, and whose logically intensive goods to fit better the specific revenue base does not rely on customs duties. Given needs of the neighboring Arab countries. The gate- these advantages, policy can play a facilitating role. way to the East strategy provides a challenging vision There are three economic patterns of production, for the medium term: to transform Western tech- presented below in order of increasing sophistication, nologies for regional needs. It is the most demand- that ought to be considered. ing in terms of human resource development and * Strategy A: Labor-intensive Growthl-low- and medium- modem infrastructure. It also requires open trade skilled exports to the West, starting with Israel and relations with both the West and the region, but inte- expanding to the rest of the world, especially the EU gration with these markets needs to be deeper, and US. Labor-intensive value-added industries would extend to services, and provide protection of intel- build on the existing base of $400 million in potential lectual property rights. Such a strategy would take exports to Israel (in the absence of closures). Labor- advantage of rising skills and cultural advantages, intensive activities require continued openness to and could encompass sectors ranging from telecom- Israel and increased openness to richer markets in the munications to the information industry and Organization for Economic Cooperation and finance. From this perspective, links with Israel and Development (OECD). The recent signing of FTAs the OECD, and links with the region should be with the US and the EU will help such a strategy. It is viewed as complementary, as the ability to develop possible to envision a quick expansion of manufactur- links with the rest of the region is made more valu- ing for exports to the EU and US if the infrastructure able by deep links with Israel and the OECD. for trade was to improve, especially in the Gaza Strip. * Strategy B: Gateway to the West-transforming raw Housing and semi-finished unskilled labor-intensive region- Traditionally, domestic savings and investment in the al products into more valuable exports. Undertaking WBGS have been relatively high, but most of this invest- activities with higher value-added would take ment has been concentrated in housing (Figure 9). advantage of the Palestinian strategic geographic Investment in housing exploded with the start of the and cultural positioning to make use of arbitrage peace process, causing land prices to skyrocket; but the opportunities between East and West. A strategy of sector started to falter by 1996. Most new construction gateway to the West requires large improvements in has been in residential housing at the upper end of the trade infrastructure, but it also has higher payoffs. market, with new apartments bought by relatively well- Its premise is that neighboring countries need time to-do returnees or the small new professional class of before they can afford to open up. If the WBGS public servants and bank employees. However, demand could trade freely with these countries, its economy is potentially greater and much more robust to political would be able to exploit its free access to the OECD, uncertainties at the middle and lower end of the mar- adding value to labor-intensive regional manufac- ket. There are serious crowding problems among lower- tured goods for the benefit of the region as a whole. income households, particularly in refugee camps. A Sectoral View: Policies to Generate Growth 25 Before this potential can be realized, improvements are * The increase in housing costs and the incidence of needed in financial markets, in the legal framework, poverty in the last few years has made housing unaf- and within the construction industry fordable for a significant segment of the WBGS pop- * Housing finance, which plays an important role in ulation without some assistance. One effective facilitating the purchase of dwelling units in most approach is to provide cash-based housing assis- countries, hardly exists in the WBGS. The emergence tance. Several donor-driven projects now underway of a market necessitates, among other things, the estab- are planning to give lower-income households (that lishment of better land titling, a functioning law sys- do not earn sufficient income to cover basic needs) tem that supports mortgage lending and financial sec- rent vouchers or a loan subsidy. tor development, and setting up a housing insurance fund to cushion against the unhedgeable political risk Tourism: Constraints Amidst Potential components. Effort on all these fronts has started. The WBGS has great potential as a tourist destination * Efficiency gains must be realized in the construction because of its religious, historical, archeological, nat- industry The WBGS house price-to-income ratio is ural, and cultural attractions. The number of tourists around 10, which is significantly higher than other to the WBGS has increased substantially in the last few countries at a comparable level of development (4 years. By 1995, the annual number of visitors to the in Jordan, 5 in Israel and Egypt). Changes are need- Church of Nativity in Bethlehem and archeological ed on the regulatory and institutional fronts, includ- sites of Jericho reached one million and 300,000, ing defining and monitoring norms in the construc- respectively Yet, the role of tourism in the economy is tion business and improving zoning practices. Here presently very limited. In 1995, total revenues of the too, efforts are underway, but they are constrained tourism sector in the West Bank and Gaza Strip, by institutional weakness at the municipal level. excluding East Jerusalem (RWBGS), were around $26 * The share of rental units in the housing stock is very million, compared to $155 million in East Jerusalem low-only 4.9 percent in the Gaza Strip and 11.4 and $2,930 million in Israel. percent in the West Bank, as a result of the rent con- The limited contribution of the tourism sector to the trol laws. A complete repeal of the rent control law, economy is not surprising, given its stagnation in the last however, is not politically feasible at present. A more three decades of political uncertainty and Israeli restric- realistic approach would be to allow owners of new tions. Since 1967, for example, the number of hotels rental units to increase rent by the rate of inflation. remained approximately the same in East Jerusalem. During the same period, the number of licensed guides Figure 9. Composition of Total i.vestient as Share in the WBGS dropped sharply. By 1996, the number of of GDP guides in East Jerusalem was down to 47, compared to Percentage of GDP 154 in 1967, and most of these guides were licensed 30 before 1967. In the RWBGS, the number of guides in 1996 was only 24, of whom 18 were licensed before 25 1967 and the other 6 were licensed recently by the PA. ... Other private Israeli restrictions also have inhibited the establishment 20 of tourist bus companies in the WBGS, where no such .5 -- .- - - - ; . . -. , . .companies were licensed over the three decades of occu- Residential pation. Hence, efforts to increase the contribution of 10 . ....... . . -- ... tourism to the Palestinian economy in this transition period should focus on increasing the competitiveness 5 of the WBGS tourism sector to enable it to capture a Public higher share of the combined WBGS-Israel market. ° 1980 1993 The long-term prospects of the WBGS tourism sec- Source: World Bank. tor will be highly influenced by the permanent politi- 26 Development Under Adversity: The Palestinian Economy in Transition cal settlement. One policy area that will greatly affect in each other's territories. So far, however, common the short-term competitiveness of the tourism sector is standards for tour guides have not been established, the implementation of the Palestinian-Israeli agree- which effectively prevents PA-licensed guides from ment regarding the mobility of tour guides and bus working in Israel, and the free movement of buses has companies. According to these agreements, tour buses been enjoyed only by Israeli-licensed buses. This has are supposed to move freely between PA-controlled given Israeli tourism operators a clear advantage over areas and Israel, and tour guides that meet standards their Palestinian counterparts in the competition for agreed upon by both sides are supposed to be honored tourists in the shared market. FINANCIAL SECTOR DEVELOPMENT The development of the financial system is limited by supervising their branches provided the WBGS banking economic and political uncertainties. However, some system with badly needed help in maintaining safety and growth and deepening can be achieved before the res- stability in the system. But while foreign branches will olution of uncertainties, especially in the banking sys- no doubt continue to serve an important function in the tem and the equity market, with policies that better future, their dominant role cannot be maintained indef- monitor the banking and financial systems, encourage initely Eventually, the PMA should require foreign banks savings, and boost the provision of long-term credit to convert their operations in the WBGS into sub- and risk-sharing opportunities. sidiaries. However, the conversion should be done grad- ually to avoid disrupting the banking system. in the Banking meantime, the PMA should work closely with the home The Palestinian financial system has expanded substan- regulatory authorities of foreign branches, particularly tially in the last three years. The expansion was particu- the Central Bank of Jordan, to develop a common strat- larly large in the banking sector, which sharply increased egy for supervising foreign branches. its deposits from $220 million in 1993 to $1.7 billion in Adequate regulation and supervision are key to sta- 1996. However, while the deposit base has reached bility and confidence in the banking system. Bank reg- Middle Eastern standards, it remains low compared to ulators usually institute failure-prevention measures, more efficient settings, e.g., Lebanon has a deposit to failure-containment mechanisms (i.e., deposit insur- GDP ratio that is three times higher. The banking system ance and discount lending), and monitoring devices. has been much more effective in mobilizing deposits Since the WBGS presently does not have deposit insur- than in channeling these deposits to local borrowers. At ance and the availability of discount loans is limited, it the end of 1996, the loan-deposit ratio for the WBGS is difficult for regulators to contain individual bank banking system was only 0.24. W7hile it is not realistic failures. It is thus appropriate that bank regulation to expect this ratio to reach the 0.6 to 0.8 levels observed focus on failure prevention. This requires imposing in other countries in the region prior to the successful strict capital adequacy rules, relatively high liquidity conclusion of final status negotiations, a significant ratios, and restrictions on acquiring risky assets, such increase in lending can be achieved even in the present as real estate and stocks. Most of these measures have political environment if certain policy actions are taken. been promulgated by the PMA, but there is a need for The establishment of foreign branches in the WBGS continuous supervision to ensure compliance and was the main reason for such a rapid expansion of bank- sound banking practices. ing over the past two years. In expanding their opera- Domestic lending by banks operating in WBGS is tions, foreign banks were able to rely on their head very limited and the majority of credit extended by them offices for technical and managerial support and for is in the form of overdraft facilities. At the end of 1996, training new employees. This expansion took place at a total credit accounted for merely 19 percent of total time when bank supervisory capacity in the WBGS was assets and 24 percent of total deposits, and the share of extremely limited. The role of home offices abroad in short-term lending in total credit was 65 percent. The A Sectoval View: Policies to Generate Growth 27 main factors that inhibit long-term lending are the lack able, they must find ways to become less dependent on of acceptable collateral, political and economic uncer- subsidies. -To do so, lending NGOs may have to elimi- tainties. and credit rationing by branches of foreign nate most of their interest subsidies, as some already banks. In this context, commercial banks can be encour- have done. They also may have to find ways to mini- aged to provide long-term credit by increasing the avail- mize default risk without relying entirely on collateral. ability of collateral and setting up a mortgage insurance One achievable option is to make use of the group risk- program and a secondary mortgage facility. sharing method, which was pioneered by the Grameen * The most effective way to increase the availability of Bank in Bangladesh and recently implemented by collateral is to establish clear property rights to land. UNRWA and Save the Children. The UNRWAs With the registration process frozen since 1967, Solidarity Group Lending program, offering working- only 30 percent of the land in the West Bank and 90 capital loans to women micro-enterprise owners, con- percent in Gaza Strip is registered. Land registration sistently has had 100 percent repayment rates since its can now be resumed in the Gaza Strip and in some inception in 1994. Technical and managerial assistance of the West Bank (in zone C, the resumption of land is provided to small borrowers, especially to those like- registration is still contingent on Israeli approval). ly to suffer from market discrimination. The PA can also increase the availability of collater- al by registering tractors, other agricultural tools, The Emerging Financial Market and industrial machinery The PA further needs to While there is still no bond market in the WBGS, a new introduce legal reforms that make it easier for stock market opened recently. The role of equity in the lenders to foreclose in the case of non-payment. Palestinian financial system had been limited in the * Mortgage lending by commercial banks is presently past to over-the-counter trade in a handful of public negligible. If such lending is to be seriously consid- companies, most of which are family-controlled. In the ered by banks in the present economic environ- future, equity can potentially play a substantially larg- ment, mechanisms for reducing credit and liquidity er role in spreading risks more broadly While there are risks must be instituted. Credit risk can be reduced presently around 50 joint stock companies in the by the newly created mortgage insurance program. WBGS, most of which have been established in recent Liquidity risk can be alleviated by setting up a sec- years, this still accounts for less than 1 percent of all ondary mortgage facility. establishments. Established in 1997, the Palestinian • The PMA should avoid imposing minimutn lending stock exchange can play an important role in stimulat- requirements on banks in the greater interest of ing demand for equity. Centralized trading provided by deposit safety The PMA should carefully explore the the exchange for listed companies will increase the liq- implications of dual reserve requirement policies uidity of their stocks and their appeal to investors. before resorting to policies that reward domestic Listed companies are required to publish annual bal- lending or impose a cost on placing funds outside ance sheets, which will significantly increase the abili- the WBGS, such as reducing the reserve require- ty of potential stock holders to evaluate their riskiness. ment on the portion of deposits lent locally Pension funds and insurance companies, which account for a significant share of investable funds in Financing Micro-entrepreneurs many countries, do not presently play important roles in Despite their recent decline, lending NGOs still have an the WBGS financial system and their roles are not important role to play in the WBGS financial system. expected to increase significantly in the near future. The Unlike other NGOs, such as those involved in health insurance business is dominated by auto insurance and education, lending NGOs serve a function that has which does not generate long-term investable funds; life not been assumed by the PA. Lending NGOs extend insurance hardly exists. Pension funds do not represent loans to small enterprises that lack collateral and cred- a major source of investment funds. The pensions of civil it history and, therefore, are not of interest to commer- servants are financed on a pay-as-you-go basis, and the cial banks. If small enterprises are to become sustain- UNRWA employees' fund is invested entirely outside the 28 Developrrent Under Adversity: The Palestinian Economy in Transition WBGS. In the private sector, very few firms have any especially in infrastructure, construction, tourism, and kind of pension fund for their employees and existing at a much smaller scale, manufacturing. pension funds are invested mostly in bank accounts. In Infrastructure provision is characterized by important the absence of sufficient retirement benefits from the risks, including expropriation, the ability to convert and workplace, children and other family members repre- transfer currency, and regulatory reversals that render the sent the main source of financial support for the present enterprise financially not viable. In the WBGS, the risks generation of retirees This type of inter-generational associated with setbacks to the peace process are an addi- support, however, may not be as viable in the future tional, perhaps, critical concern. These risks limit entry because of changing family structures and decreased j ob of private providers even where large profits potentially opportunities abroad. In this environment, serious con- can be made. Thus, risk mitigation and management sideration should be given to setting up a national social must form a crucial element of government and donor security system. This would also provide a major source strategies. A transitional mechanism for attracting of long-term investable funds, provided that it is kept finance to infrastructure, and one that significantly lever- financially independent from the central government. ages donor sources, is a co-financing facility. Such a facil- Large holding companies have emerged recently as ity which utilizes concessional resources to share risks an attempt by large investors to deal with the difficult with the private sector was used in Pakistan for financ- conditions. Several large funds were established start- ing pnvate power investments, and in Sri Lanka for all ing in 1993, mainly by Palestinian businessmen from infrastructure investments. Another possible mechanism the Diaspora, e.g., the Akkad Group and PADICO (Box to mitigate risk is to provide private investors with guar- 5). These funds share various characteristics. They have antees. Such guarantees have been offered in most coun- managed to provide a broad base of risk-sharing for the tries where private financing of infrastructure has investments undertaken. Typically, the funds take a 25- occurred (including in some developed countries such as percent share, another 25 percent is sold over-the- Australia) to provide assurances to private sponsors and counter to the public, and the remaining 50 percent is lenders against country and policy risks. The most received from banks in the form of medium-term loans. promising route for the WBGS is to rely on guarantees This structure provides enough risk capital to ride a provided by multinational institutions, such as the World quite rocky investment climate, yet manages to attract Bank's Multilateral Investment Guarantee Agency many large investors by coordinating their actions into (MIGA), and by bilateral agencies, such as export credit long-term investment plans. The funds also reduce risk agencies and specialized insurance entities, such as the by diversifying across various sectors of the economy, Overseas Private Investment Corporation (OPIC). Box 5. PADIC The Palestina DvlpetItrainlCmay srpiniJue19.ADCwsstupas a holding (PADC) hseegdine199 astelretpiae cmayi hc t netr w 9pretof the var- sectr inestmnt cmpan intheWGwihoe$1b- iossbii oprtncmaiswillcl invesors PADC wa one ysm ftems rmnn h rmr i fPDC st netdirectly or Diaspr aetna uiese,adtoo h an truhsbiir compne,jitvtus,mrrso palestna ak,teAa akadeCioAmn aflain with ohr compaisi ies rjcsta fieounes s~h uteac n eeomn fte saeodr.PDC~ urn invetmet psratey objetiveand acre tas." Te copanyhas n agregae inustr andmanuactuing,incldingindutria aesttes value of $200 million 2a;(d;t;t ; ;A;; ;l\othar wa offered in a puli sub fn poe gnao a t Source: Zw ie an f:Xt;f$0SAbdou S ( ;1996). 00WTSS gtffat ffaS;Wl f SSfl fff.0:iW0 iSfES0fCSdf ft02 ff fft$ ;CfX ff tXtSa S09aff0 lDdN S:C; A Sectoral View: Policies to Generate Growthl 29 DEVELOPING HUMAN RESOURCES There are important growth opportunities in education ciently Several key factors present challenges for and health-two sectors that are essential for long- improving and managing the system. term growth. In both sectors, there is a need for reform * The average student:teacher ratio is 46: 1, with aver- and modernization. The role of the state is crucial since age class size in the high thirties at all levels. These market forces are unlikely to lead to an ideal situation. are acceptable figures by international standards. A focus on a systems view-with partnerships between Faced with high unemployment, the greatest danger providers and beneficiaries, grounded in a regulatory is that the PA will use the civil service, including the framework, enforcement mechanisms, and feedback teaching force, as a jobs program. The case of Egypt loops-will be crucial to successful development in the shows how disastrous this policy can be. With wages education and health sectors. so low, Egyptian civil servants often have to work two or three jobs, having little commitment to their Education civil service job. Teachers, not infrequently, supple- The population and labor force of the WBGS is high- ment their incomes with well-paid private lessons, ly educated by regional standards, with relatively an income source that operates as a disincentive for high literacy rates at 84 percent for those 15 years or quality teaching in the public schools. older (different rates by gender, urban/rural, or * In relation to students from other countries, refugees, are primarily attributable to differences Palestinian students perform relatively poorly in the more among older members of the population). In contrast, complex cognitive processes of problem-solving and the Middle East and North Africa (MENA) region, as integration. The main goal of an educational policy a whole, has an estimated adult literacy rate of only directed toward the future is to achieve the qualita- 57 percent. tive reform to match labor force needs. Palestinians The major challenge of the education system is to need to be competent across the range of occupations continue to ensure high access to primary and sec- that correlate to manufacturing and service opportu- ondary education for the rapidly increasing number of nities for their economy to become attractive as a students. More importantly, as the Palestinian econo- commercial center for the Middle East. As enterpris- my reorients itself to the export of goods and services, es change in response to the demands of intemation- it is the quality of educating workers that must be al customers, traditional pedagogy begins to fail, emphasized. To move forward on the quality front, the especially in creating the higher-order cognitive skills educational system needs reforms that define such an valued in newworkplaces. In organizingteachingand objective, and develop the processes of governance, leaming that better fits the skill requirements of new finance, and management to serve these objectives effi- workplaces, there is a need to place more responsi- bility on the student for his or her leaming. A > . . ;t M ii .- * Since the West Bank and the Gaza Strip use differ- ent curricula and secondary school leaving exami- nations, curriculum and textbooks pose several prob- lems. In the interest of creating a Palestinian identity, it is critical to integrate the curriculum for the two territories. It is not efficient, however, for Palestinians to create their ovvn curriculum and text- books for subjects in which country-specific expe- riences are less relevant, such as mathematics and the sciences. The education system needs to deliver a curriculum that instills in students the foundation Palestinian students at a mixed government primary school, skills and higher-order cognitive thinking skills 30 Development Under Adversity: The Palestinian Economy in Transition required to implement a long-term economic devel- serious problem that will take years to solve. Teacher opment strategy. quality is a function of the selection standards for * The PA inherits a sector with a history of diversified entering pre-service training, the quality of that train- funding and provision at all levels of education. In sev- ing, and the quality of in-service professional develop- eral MENA countries, all levels of the education sys- ment. For entry into teaching, national teacher licens- tem are seriously distorted and quality is visibly com- ing examinations to assess both content knowledge promised because governments have been reluctant and pedagogic practice must be introduced. Good cre- to diversify funding and provision between the pub- dentialling assessments, once developed, rather than lic and private sectors, especially at the expensive accreditation procedures, could provide more effective post-secondary level. Pressures could cause the PA to standard-setting signals to universities and communi- make similar mistakes. The donor community is ty colleges that prepare future teachers. already reducing its support of the university sector. To be able to face these challenges, the education The decline in NGO funding and political tensions system will have to change from a maintenance mode between the NGO sector and PA could result in dis- to a continuous improvement mode with appropriate placing NGOs as providers and financiers. An incentives and feedback loops. Quality reforms have a important challenge is to continue to encourage that particular and difficult political economy, especially diversity, especially at post-secondary levels. when compared with reforms that increase access to What are the ingredients of success? The first step in education. Increasing access requires adding inputs- a reformist package is to develop a long-term strategy that building new schools, hiring more teachers, and pur- sets goals, priorities, and accountabilities. Most countries chasing more textbooks and equipment. This kind of in the region define accountability in the education sec- reform usually enjoys broad political support, as the tor as following rules and regulations. The lack of focus benefits are visible, broadly distributed, rapid, and fair- on student learning is particularly damaging. Setting up ly certain. However, as quality reforms take much an accountability system requires performance objec- longer, their results are less visible and much less cer- tives, measurable indicators of their achievement, a sys- tain. Implementing quality reforms places greater tem of positive and negative incentives, and the political demand on the system's management capacity It also will to enforce sanctions. Establishing a financing frame- requires changes in classroom behavior of thousands work for the system is also a high priority Financing deci- of teachers, which underlines the importance of sions for the post-secondary level can create student teacher training and incentives. incentives and fiscal pressures that distort the compulso- ry and secondary levels and undermine their quality. Health Public finance for the tertiary level needs to be kept as The health conditions of Palestinians are good in rela- limited and targeted as possible. tion to the prevailing income levels and to countries at Another challenge for the institutional infrastruc- comparable levels of development. According to the ture is to acquire and maintain the human and physi- PCBS demographic survey) the infant mortality rate for cal assets that the system needs to produce learning. those less than one-year old was 28 deaths per thou- Major inputs include teachers, school buildings, cur- sand live births in 1995 (Table 2). These rates were cut ricular frameworks with associated textbooks and in half during the 1980-95 period, are now compara- teacher guides, and equipment. The efficient use of ble to Jordan, and are lower than in most MENA coun- teachers and the quality of their knowledge and teach- tries. Similarly, the child mortality rate for those less ing practice are two main issues. There is an urgent than five years-old stood at 36 deaths per thousand in need to determine whether net savings can be realized 1995, down from 73 deaths per thousand in 1980. by increasing the teaching loads, increasing teacher These low mortality rates are reflected in a fairly high salaries in compensation for the additional work, and life expectancy at birth, which stood over 70 years- reducing the rate at which new teachers are hired to higher than most MENA countries, and comparable to meet enrollment pressures. Teacher quality is a very that of upper middle-income economies. A Secto -vl View: Policies to Generatc Growth 31 This favorable situation is the result of an emphasis the budget, as well as for the delivery system, insur- on primary care at the household level for the past two ance coverage, and costs. decades. This has been achieved in spite of low invest- Currently, at least half of the West Bank and one- ment in and poor quality of public infrastructure in third of Gaza Strip's population do not have health water supply, solid waste disposal, and sanitation faci]- insuraince of any type, not even basic insurance. A ities. Whether health indicators can be maintained (or household is covered by the government health insur- improved) is a serious challenge. The high population ance if it has a member that is a government employ- growth rate implies a rapidly increasing demand for ee, a worker in Israel, a social welfare recipient, or ex- health services, especially in primary health care for detainee. Refugee households are covered for basic mothers and children. The NGO sector has maniaged services by UNRWA. Only a smiall niumber of people- to satisfy key needs in the past. Yet, both the primary not exceeding 2 percent of the population-have pri- care NGO clinics and the Jerusalem hospitals are mar- vate insurance. The self-insured households are par- ginalized in the new environment. Border closures ticularly vulnerable in the face of major shocks to their have increased in intensity and frequency and pose incomes. But there, is no simple solution. In particular, special difficulties, especially for some of the key insti- broadening the mandate of public insurance will not tutions located in East Jerusalem. Finally, there are work given the implied fiscal costs. instead, interven- important choices that arise with public sector involve- tions to help the poor should be finely targeted, and ment in the health system, which have implications for possibly subcontracted to specialized NGOs. The government-run system which covers civil ser- vants is already losing money, and its deficit is increas- ing, with insurance premiums and co-payments cover- ->, _ g ing only 40 percent of the PA's health expenditure in 1995. In the interest of the sustainability of the system, ¼~ _ ; ^some improvement needs to be made in raising the pre- mium and user fees, and controlling costs. Generally, there are four broad areas in which costs should be con- trolled: (i) use of medication and drugs for treatment should be reduced from currently excessive levels; (ii) expensive treatment abroad, especially in Israeli hospi- -,~ ii t W ; -tals, should be linmited in favor of building local capac- ity; (iii) expansion of hospital facilities should be exam- n. med in the context of long-term planning; and (iv) expansion in secondary and tertiary care should not come at the cost of reduced primary health care. The health sector is rich in its diversity and institu- tional structure. Health care-an industry that accounts for about 8-9 percent of GDP-is provided by four major groups: the PA spends 3 1 percent of total health care, UNRWA 12 percent, NGO providers 17 percent, and the private sector 40 percent. In the past, the NGOs have generally filled a need not satisfied either by the government or UNRWA. NGOs have pro- vided curative and preventive services in primary health care clinics targeted to communities not well Favorable health conditions in the WBGS are the result of an served by the official providers. In addition, the NGOs emphasis on primary care for the past two decades. are a major provider of secondary health services 32 Development Under Adversity: The Palestinian Economy in Transition through six general hospitals, and the only Palestinian 546 beds, provide essential secondary- and tertiary-care hospital providing tertiary services is the Al-Makassed services. During periods of "total closure," the entry of Hospital in East Jerusalem. WBGS medical staff to Jerusalem is much more uncer- However, the NGOs suffered serious setbacks fol- tain even with the proper Israeli-issued permits. The lowing the 1991 Gulf War, which effectively eliminat- entry of patients is even more difficult. This places the ed external Arab support. The establishment of the PA health needs of the WBGS population at great risk. in 1994 caused donors to divert their support to the PA Closures doom the long-run financial viability of the and UNRWA. As a result, NGO clinics in the rural West Jerusalem hospitals. Bed occupancy and the number of Bank declined from 210 in 1992 to 145 in 1994, and outpatients decline substantially during periods of total to 128 in June 1996. Rather than build new capacity closure, causing financial losses to these hospitals. For to deliver health services in the public sector, it would example, bed occupancy at Al-Makassed Hospital in be advantageous for the public sector to enter into part- Jerusalem declined from 63 percent in March 1995 (a nerships with NGOs and tap into existing managerial period of no border closure in the West Bank) to 30 per- capacity In commissioning NGOs to deliver health ser- cent during the March 1996 closure. The number of vices, it is important for the PA develop the appropri- outpatients fell by 53 percent over the same period. The ate regulatory framework. separation and difficult access between the RWBGS and The difficulties in mobility resulting from border clo- Jerusalem will likely produce new hospitals and med- sures create further challenges for the management and ical facilities throughout the WBGS. This hospital delivery of health services. The most dramatic impact expansion however would likely doom the financial of permit and closure policies is the difficulty in access- viability of the Jerusalem hospitals that have served the ing Palestinian hospitals in East Jerusalem which, with Palestinians for many years. Risks and the Role of Donors With strong assets but equally burdensome liabilities, the Palestinian economy is on a knife' edge between take-off and collapse. Much will depend on the evolution of the peace process. However, in the meanwhile, donor strategies can make a big difference in stabilizing the economy and allowing it to sustain the liveli- hood of households. Three areas of concentration need to be addressed simultaneously: (i) long-term finance to support infrastructure reconstruction, and especially in newforms that draw in private sector participation; (ii) supportfor the WBGS' needforfree access to the outside world and improved trans- portation and communications; and (iii) support that builds a lean and efficient public sector The range of possible economic outcomes is wide and ic and political conditions. This would lead to heavily leveraged on the fluid political situation. This is reduced investment and would keep Diaspora reflected in wide gyrations in attitudes toward the peace Palestinians out. An important related risk is that the process. According to relatively accurate attitude sur- PA, with the help of donors, would try to reduce veys, expectations have swung between very optimistic unemployment by creating a low-wage, large civil and very pessimistic several times in the past four years. service, like the Egyptian strategy. This could ulti- Under good circumstances, it is perfectly realistic to mately corrupt the education system as well. expect the economy to leap-frog and become a high- Both sources of risk would make the WBGS a poor tech center in the Middle East, attract back Palestinian assisted economy, with a fragmented internal market Diaspora skills and capital, and link up with the East cut off from the rest of the world. Social dislocations and West. At the other end of the spectrum, the con- and limited economic opportunities could generate tinuation of the present status quo could produce a ou[-migration, especially of the educated, and scare off socio-economic disaster. capital. Ultimately donor assistance would be dissi- • The main risk for the WBGS economy is the contin- pated on short-term support (or it would stop) and uation of the present status quo, particularly with infrastructure would remain in shambles, eliminating respect to restrictions on the mobility of people and the chances for sustained long-term growth. goods across borders. Unless a massive amount of In these circumstances, the donor community has jobs is created in Israel, domestic production will important roles to play in financing reconstruction; need to absorb the unemployed and new entrants in ensuring free access of the economy and free mobility the job market. However, this cannot occur under of people and goods; helping to find a solution to the the current border situation. Without jobs abroad, jobs dilemma, either within the Palestinian economy and under the impossibility of creating jobs inside, or in Israel, and helping the civil service sector and civil the standard of living for the WBGS population is society to adopt better forms of organization. doomed to decline. In the past, the donors' role has been much too * Without renewed emphasis on public sector mod- biased toward resolving short-term financial crises. ernization and effective institution-building, there is Donors have responded to negative shocks (notably a risk of deteriorating governance, with further weak- closures) by shifting assistance to emergency efforts, ening in the rule of law, and a more fragmented civil such as jobs creation and public sector recurrent costs, society, especially in light of deteriorating econom- to cushion their impact. The expenditure and time 33 34 Development Under Adversity: The Palestinian Economy in Transition required to set up the PA have also been larger than crucial projects has not even started because long-term expected. The need for recurrent budget and other investment projects are almost always subject to con- short-term support over a much longer period and in troversy between the PA and Israel. In particular, the larger amounts than originally envisioned is mirrored construction of a Palestinian port and the implemen- by a delay in the flow of donor support for investment. tation of the agreed "safe passage" between the West As a result of the donors' obliging response to short- Bank and Gaza Strip have not yet started. While an air- term crises, the impact on living standards from large port in Gaza Strip has been built, it cannot operate until negative shocks has been partly mitigated. At the same Israel approves the security arrangement and manage- time, a unique opportunity to lay the foundation for ment procedures of the facility. sustained medium-term economic growth seems to Similarly complex issues arise in relation to physi- have been lost. cal access to external markets, the modalities of border crossing, and the operation of trans-border industrial Short-term Support versus Investment estates. A host of issues relating to water and land rights An important issue concerns the right future balance underlying many project proposals are inherently sen- in donor financing between short-term support and sitive. While donor financial support of these key pro- investment. In the absence of new negative shocks, the jects is essential, the active involvement of the donor need for recurrent support will be lower and may even community in overcoming the political obstacles for disappear altogether as the PA further consolidates its implementing these projects is required as well. revenue collection effort and starts to produce sur- While smoothing large negative shocks remains an pluses. The critical issue is the extent to which future important objective, the donors' focus should now be shocks should be smoothed. Theoretically, there is a squarely set on removing impediments to the imple- strong case for a tilt toward lower consumption and mentation of public investment projects. In the higher investment support. absence of progress in the peace process, donor dis- * It is not feasible in the long-run to compensate bursements may slow down, as has apparently hap- households for the reduction in income from loss of pened in the first half of 1997. But increasingly, more employment in Israel through subsidies. Rather, the clarity and resolution on where the peace process is only way of generating future incomes in a sustain- going is required to sustain the donor effort. Without able way is to raise investment. progress on the resolution of key political issues, it will * Security checks are now concentrated at the border be difficult to avoid reticence among the donor com- (in the past under the ICA they were more diffuse). munity toward supplying subsidies that allow an As a result, borders are now less porous. This unstable political situation to continue. increases the urgency of projects that connect the A related issue is whether donors will renew funding WBGS to the rest of the world and that foster more commitments as the initial five-year period for which efficient operations at the border. pledges were made approaches. In the near future, It is not evident that the bias against investment has donors will have to take a collective decision on a been due solely (or mainly) to higher demand for renewal of funding commitments as the five-year short-term support. Disbursements for investment pledge period (1994-98) draws to a close. In the inter- projects would have been low even without the con- im, the Consultative Group on the West Bank and Gaza current increase in disbursements for consumption- Strip (CG) meeting in late 1997 did result in new oriented activities because of the underlying impedi- pledges as a last push toward the final status in the peace ments facing the implementation of investment process. Ideally, these donor pledges should closely projects. The shift away from infrastructure was also reflect the PAs investment plan as outlined in the due to the difficulties faced by projects. On the ground, Palestinian Development Plan, which is now underway. the investment program has been slowed down by The sustainability of donor assistance will also Israeli-imposed closures and by institutional weak- depend on the evolving relations between donors, the nesses on the Palestinian side. In addition, a host of PA, and the private sector. A crucial issue is how to sup- Risks and the Role of Donors 35 port investment projects to ensure sustained growth and managed merely on a day-to-day basis during the occu- poverty alleviation without relying solely on public pation rather than with a long view. These include cen- finance. The challenge will be to assist and encourage tral and local government institutions that manage the private sector to undertake projects, with donors expenditures and raise revenue; a legal apparatus to offering complementary finance, political risk guaran- enforce contracts and defend property rights; a well-reg- tees, or insurance. Likewise, more attention should be ulated and confidence-inspiring financial sector; a flex- given to building capacity within the PA to ensure a ible and fair labor market; well-formulated regulations capable entity with the means to foster and complement that allow for efficient private provision of public goods private sector-driven growth. Also critical is the reform and services; and effectively performing health and edu- and redynamization of a host of organizations that were cation systems that take advantage of NGO activism. Bibliography BACKGROUND PAPERS Abu Dagga, Husam. "Gaza's High Value-Added Crops." 1996. Brynen, Rex. "Recent Political Developments" 1997. Abu-Duhou, Ibtisam. "Education for Development in Claudet, Sophie. "The Changing Role of Palestinian NGOs Palestine." 1996. Since the Establishment of the Palestinian Authority Abu-Ghaida, Dina. "Palestinian Entrepreneurs in the (1994-96)." 1996. Diaspora." July 1996. Hamed, Osama. "The Palestinian Banking System: Reality and Al-Qudsi, Sulaytman S. and Radwan A. Shaban. "The Economic Potential." December 1996. Returns to Schooling in the West Bank and Gaza Strip- Hooper, Rick. "Donor Aid and Donor Coordination." 1996. Revisited." August 1996. Mody, Ashoka. "West Bank and Gaza: Infrastructure, Arnon, Arie. "Links Between the Israeli and Palestinian Institutions, and Growth." August 1996. Economies." June 1996. Panagariya, Arvind and Ishac Diwan. "Trade Policy Options for Askalan, Hanan. "Information Infrastructure and Technology the West Bank and Gaza Strip."January 1997. Status in West Bank and Gaza." September 1996. Pissarides, Chris. "Unnecessary Labor Adjustment: The West Barghouthi, Mustafa and Jean Lennock. "Health in the W\Nest Bank and Gaza under Border CLosure." 1996. Bank and Gaza Strip." 1997. Shaban, Radwan A. "Living Standards in the West Bank and Berryman, Sue. "The Education Story." 1996. Gaza Strip During the Transition." 1997. Jerusalem: Palestine Birzeit University Women's Studies Center. "Gender Economic Policy Research Institute (MAS). Segmentation in Palestinian Economic Life." 1997. Silsby, Susan. "Governance: NGOs Private Sector and Public Birzeit University Women's Studies Center. "Country Economic Sector in the Occupied Territory." June 1996. Memorandum on Palestine Gender Gaps in Palestinian Wijnbergen, Sweder van. "Macroeconomic and Financial Sector Economic and Social Life." Issues in the West Bank and Gaza Strip." 1996. REFERENCES Abdallah, Samir 1994. "The Palestinian Public Sector." The June 9-12. Arab Economists Association, Ramallah, West Economic Research Forum Newsletter Vol. 2. No. 2. Bank. Abdulhadi, Rami. 1992. Prospects for Sustained Economic Abou-Shokor, Abdel-Fattah. 1996. "Human Resources in Development in the Occupied Palestinian Territory: Construction Palestine Present and Future." Paper prepared for conference on and Housing, UNCTAD. The Palestinian Economy: Towards a Vision, Birzeit University, Abed, George and Abdelali Tazi. 1994. "Laying the Foundation: 9-12June. Arab Economists Association, Ramallah, West Bank. a Fiscal System for Palestinian Autonomy" Finance and Al-Botmeh, Samia and Edward Sayre. 1996. "Employment Development. Vol. 31. No. 3. Generation Schemes in the West Bank and Gaza Strip." Abed, George T. 1996. "The Prospects for Long-run Jerusalem: Palestine Economic Policy Research Institute,July Sustainable Growth." Paper prepared for conference on The Ad Hoc Liaison Committee Secretariat. 1996. Donor Matrix, Palestinian Economy: Towards a Vision, Birzeit University, update, November. Note: The complete bibliography for the book, Development Under Adversity: The Palestinian Economy in Transition, accompanies this Summary. 36 Bibliography 37 Arab Economists Association. 1996. "The Conclusions of the sponsored by Economic Research Forum for the Arab Conference and Opening Speeches." Papers presented at Countries, Iran and Turkey 16-18 September. conference on The Palestinian Economy: Towards a Vision, Foreign Investment Advisory Service. 1995. "West Bank and Birzeit University, 9-12 June. Ramallah, West Bank. Gaza Creating a Framework for Foreign Direct Investment." Arab Economists Association (and Palestinian Trade Promotion International Finance Corporation and The World Bank, Organization). 1997. "Financing Female Farmers." Palestine Washington, DC, June. Economic Pulse. Vol. 11, No. 1. Ramallah, West Bank, Gotlieb, Daniel. 1996. "On the Economic Implications of the January-February. Peace Process for Israel." Bank of Israel, November. Amon, Arie and Jimmy Wienblatt. 1994. "The Potential for Government Finance Statistics Yearbook. 1995. Trade Between Israel, The Palestinians, and Jordan." Halevi, Nadav and Ephraim Kleinman. 1994. "Middle East Discussion Paper No. 94.10. Bank of Israel Research Regional Trade Study: Israel's Trade and Payments Regimes." Department, Jerusalem. Paper prepared for a conference on Middle East Regional Asfour, Edmond. 1996. "Respective Roles of Private, Public, Trade, by the Institute for Economic and Social Policy, and NGO Sectors." Paper prepared for conference on The Harvard University, 10-11 August. Palestinian Economy: Towards a Vision, Birzeit University, Hamed, Osama A. 1997. "Monetary Policy Without National 9-12 June. Arab Economists Association, Ramallah, West Currency" Draft. Jerusalem: Palestine Economic Policy Bank. Research Institute. Balaj, Barbara, Ishac Diwan et Bernard Philippe. 1996. "Aide Hamed, Osama A. and Radwan A. Shaban. 1993. "One-Sided exterieure aux Palestiniens: ce qui n'a pas fonctionne." Customs and Monetary Union: The Case of the West Bank Politique Etrangere, pp. 753-67. and Gaza Strip under Israeli Occupation." In Stanley Fischer, Barro, Robert J., and Jong Wha Lee. 1996. 'International Dani Rodrik and Elias Tuma, eds., The Economics of Middle Measures of Schooling Years and Schooling Quality." East Peace: Views from the Region. Cambridge: Massachusetts American Economic Review Vol. 86, pp. 218-23, May Institute Technology Center for Policy Research and Studies. 1997. Public Opinion Hamed, Osama A. and Radwan A. Shaban. 1995. "Banking Polls, 1993-1997, Nablus. Regulation in the West Bank and Gaza Strip." MAS report Clark, John D. and Barbara S. Balaj. 1994. "The West Bank and submitted to Palestinian Monetary Authority Gaza in Transition: The Role of NGOs in the Peace Process." Human Rights Watch-Middle East. 1996 "Israel's Closure of the World Bank, Washington, DC, December. West Bank and Gaza Strip." New York, July Dabbagh, Ossama. 1996. "Trade Prospects for Palestine." Paper International Monetary Fund. 1994. "Taxation in Israel, the prepared for conference on The Palestinian Economy: NWest Bank and the Gaza Strip: Policy and Administration for Towards a Vision, Birzeit University, 9-12 June. Arab the Transition." Washington, DC. April. Economists Association, Ramallah, West Bank. International Monetary Fund. 1994. "The West Bank and the Data, Horizon, and Economic Cooperation Foundation. 1996. Gaza Strip: Proposals for Establishing a Public Expenditure "Total Cumulating of Rules of Origin in Exporting to the EU Management System." Washington, DC. April. from Israel, Jordan, Egypt & the PNA." Israeli-Palestinian- International Monetary Fund. 1994. "The West Bank and the Jordanian Industrial Cooperation, June. Gaza Strip: Improving Fiscal Administration in the Gaza Strip Diwan, Ishac and Radwan A. Shaban, eds. Development Under and Jericho Areas." Washington, DC. October. Adversity: The Palestinian Economy in Transition. Palestine International Monetary Fund. 1995. "The West Bank and the Economic Policy Research Institute and World Bank, forth- Gaza Strip: Consolidating Improvements in Fiscal coming (1999). Administration." Washington, DC. March. Ebel, Robert D. 1995. "West Bank & Gaza Strip: International Monetary Fund. 1995. "The West Bank and the lntergovernmental Relations and Municipal Finance" World Gaza Strip: Tariff, Trade, and Customs Administration Bank Memorandum (Back-to-Office Report), March. Issues." Washington, DC. September. El-Jafari, Mahmoud. 1995. "Potential Merchandise Trade ofThe International Monetary Fund. 1996. "The West Bank and the West Bank and Gaza Strip." Paper prepared for conference on Gaza Strip: Improving Fiscal Management." Washington, Liberalization of Trade and Foreign Investment, Istanbul, DC. March. 38 Development Under Adversity: The Paleslinian Economy in Transition International Monetary Fund. 1997. "The West Bank and the MAS Policy Notes. 1996f. "Gaps in Palestinian Economic and Gaza Strip: Pension Reform Issues for the Palestinian Social Life-Determinants and Trends in the Status of Authority" Washington, DC. January. Palestinian Women: Fertility, Labor and Social Support." International Yearbooks of Telecommunications Statistics, Issue No. 6. Jerusalem: Palestine Economic Policy Research Electricity Statistics, Road Statistics. Institute, November. Israeli Central Bureau of Statistics. 1995. Statistical Abstract of MAS Policy Notes. 1996g. "A Preliminary Evaluation of the Tax Israel, no. 46. System in West Bank and Gaza Strip." Issue No.7. Jerusalem: Israeli Ministry of Health. 1994. Health inJudea, Samaria, and Palestine Economic Policy Research Institute, December. Gaza 1967-94. Mattin, and Palestinian Trade Promotion Organization. 1996. lyyada, Reem Abu, Jane Hannon and Ard El Insan (Terre des "Set of Case Studies of the Impact of Spring 1996 Closure on Hommes). July 1996. "Food Security: A Study to Assess the Firms in the West Bank and Gaza Strip." Commissioned by Impact of the Closure on Household Food Security" Development Alternatives International. Jawhary, Muna. 1995. The Palestinian-Israeli Trade Arrangements: Ministry of Planning and International Cooperation (MOPIC). Searching for Fair Revenue-Sharing. Jerusalem: Palestine 1997. First Quarterly Monitoring Report of Donor Assistance, Economic Policy Research Institute, September. June. Kanafani, Nu'man. 1996. Trade Relations Between Palestine and Mayo, Stephen K. 1995. "Housing Sector Performance and Housing Israel: Free Trade Area or Customs Union?Jerusalem: Palestine Strategy in Gaza and the West Bank." Urban Development Economic Policy Research Institute, December. Division, The World Bank, June, unpublished manuscript. Kassis, Nabeel. 1996. "Permanent Status Agreements and Mustafa, Mohammed. 1996. "The Palestinian Diaspora." Paper Economic Development." Paper prepared for conference on prepared for conference on The Palestinian Economy: The Palestinian Economy: Towards a Vision, Birzeit University, Towards a Vision, Birzeit University, 9-12 June. Arab 9-12 June. Amb Economists Association, Ramallah, West Bank. Economists Association, Ramallah, West Bank. Khadr, Ali M. 1996. "The Economics of Peace in the Middle Naqib, Fadle Al. 1996. "A Preliminary Evaluation of the Tax East: Has Donor Assistance to the Palestinian Territories Been System in the West Bank and Gaza Strip." Jerusalem: Slow to Flow?" Paper prepared for the European Economic Palestine Economic Policy Research Institute. Association Congress, August. National Center for Educational Research and Development Khano, Mark and Edward Sayre. 1997. The Palestinian Tourism (NCERD). 1993. "Student Achievement in Jordan and the Sector: Present State and Future Prospects. Jerusalem: Palestine West Bank: A Comparative Perspective," March. Economic Policy Research Institute. Nelson, E Howard and T. O'Brien. 1993. How US Teachers Lahmeyer International and Verbund-Plan. 1995. Measure Up Internationally. American Federation of Teachers, MAS Policy Notes. 1996a. "Palestinian-Israeli Trade Relations (1): AFL-CIO, Washington, DC, July Free Trade Area or Customs Union?" Issue No. 1. Jerusalem: Palestinian Central Bureau of Statistics. 1994. Demography of the Palestine Economic Policy Research Institute, August. Palestinian Population in the West Bank and Gaza Strip, Current MAS Policy Notes. 1996b. "Palestinian-Israeli Trade Relations Status Report No. 1, December. Ramallah, West Bank. (2): Trade Policy Options for the West Bank and Gaza Strip." Palestinian Central Bureau of Statistics. 1995. Education Issue No. 2. Jerusalem: Palestine Economic Policy Research Statistics in the West Bank and Gaza Strip. Current Status Institute, September. Report 5, August. Ramallah, West Bank. MAS Policy Notes. 1996c. "The Legal Framework for Business Palestinian Central Bureau of Statistics. 1996a. Demographic in the West Bank and Gaza Strip." Issue No. 3. Jerusalem: Survey in the West Bank and Gaza Strip, Preliminary Results, Palestine Economic Policy Research Institute, September. March 1996. Ramallah, West Bank. MAS Policy Notes. 1996d. "Standards of Living in the West Palestinian Central Bureau of Statistics. 1996b. Expenditure Bank and Gaza Strip." Issue No. 4. Jerusalem: Palestine Consumption Surveys, October-September 1996 and April- Economic Policy Research Institute, September. May 1996. Ramallah, West Bank. MAS Policy Notes. 1996e. "The Palestinian Banking System: Palestinian Central Bureau of Statistics. 1996c. Labor Force Reality and Potential." Issue No. 5. Jerusalem: Palestine Survey Report Series: No. 1, April; and No. 2, August. Economic Policy Research Institute, November. Ramallah, West Bank. Bibliography 39 Palestinian Central Bureau of Statistics. 1996d. Labour Force (NCHRD). 1994. "Comparative Math & Science Survey: Maiu Findings (September-October 1995) Round. Achievement Across the UNRWA Fields of Gaza Strip, Ramallah, West Bank, April 1996. Lebanon, Syria, Jordan & the West Bank." Palestinian Central Bureau of Statistics. 1996e. Labour Force US Department of Education. 1993. The Condition of Survey: Main Findings (April-Mao 1996) Round. Ramallah, Education. National Center for Education Statistics, West Bank, August 1996. Washington, DC. Palestinian Ministry of Health. 1996. Financial Report 1995, Gaza. Valverde, G. A., W H. Schmidt, and L. J. Bianchi. 1996. "An Pannier, Dominique. 1996. "West Bank and Gaza Civil Service Exploratory Analysis of the Content and Expectations for Study, Presentation and Technical Assistance Supervision." Student Performance in Selected Mathematics and Biology World Bank Memorandum, Washington, DC, July School-Leaving Examinations from the Middle East and Pannier, Dominique and Ngy Hanna. 1996. "West Bank and North Africa." World Bank, Washington, DC, July Gaza-Public Sector Adjustment Program and Institutional Volcker, Paul A. 1996. "Trade Arrangements in the Middle East Development Trust Fund." World Bank Memorandum, & North Africa-Report of the Middle East Economic Washington, DC, July Strategy Group." Council on Foreign Relations, New York, Shaban, Radwan A. 1993. 'Palestinian Labour Mobility" November. Intetnational Labour Review, 1993, Vol. 134, no. 5-6, pp. World Bank. 1993. Developing the Occupied Territories: An 655-72. Investment in Peace. Volumes 1-6. Washington, DC. Shaban. Radwan A. 1995. "Role of Private Sector in World Bank. 1993. The East Asian Miracle: Public Policy and Development of Palestine." Paper presented at seminar on the Economic Growth. Policy Research Report. Washington, DC: Reconstruction and Development of Palestine, November World Bank and Oxford University Press. 7-9. Jerusalem Palestine Economic Policy Research World Bank. 1994a. "Thie West Bank and Gaza: The Next Two Institute, November. Years and Beyond." Country Operations Division, Country Shaban, Radwan A. and Samia Al-Botmeh. 1995. Poverty in the Department II. Middle East and North Africa Region, (White West Bank and Gaza Strip. Jerusalem: Palestine Economic Cover Second Draft), Washington, DC, June. Policy Research Institute, November. World Bank. 1994b. "West Bank-Gaza Strip Reconnaissance Shaban, Radwan A. 1996. Toward a Vision of Palestinian of the Issues Municipal Finance and Management" Draft Economic Development. Jerusalem: Palestine Economic Policy Report. Washington, DC, October. Research Institute, September. World Bank. 1994c. World Development Report 1994. Shabaneh, Luay 1996. "Palestinian Labor Market and Wages." World Bank. 1995a. "From Scarcity to Security: Averting a PCBS, March. Water Crisis in the Middle East and North Africa." Thomas, Vinod and Yan Wang. 1993. The Lessons of East Asia: Washington, DC, December. Government Policy and Productivity Growth. Is East Asia an World Bank. 1995b. World Development Report 1995: Workers in Exception? Washington, DC: World Bank. an Integrating World. New York: Oxford University Press. United Nations. 1996. "Local Aid Coordination in the West World Bank. 1996a. The Demographic Survey in the West Bank Bank and Gaza Strip." Presentation to Informal Ad Hoc and Gaza Strip, Preliminary Report, World Development Liaison Committee Meeting. Washington, DC. Report, Washington, DC, March. United Nations Office of the Special Coordinator in the World Bank. 1996b. Report on Palestinian Civil Service, October. Occupied Territories (UNSCO). 1996a. "Aggregate Trends in World Bank. 1996c. Staff Appraisal Report: West Bank and Gazu the West Bank and Gaza Strip Economy," Gaza, 23 October. Palestinian Housing Initiative. Washington, DC. UNSCO. 1996b. "Economic and Social Conditions in the West World Bank. 1996d. World Development Report 1996. Bank and Gaza Strip." Quarterly Report, Autumn. World Bank. 1997. Draft "Medium-term Development Strategy UNSCO. 1996c. Putting Peace ro Work. October. and Public Financing Priorities for the Health Sector in West UNSCO. 1997. Quarterly Report, Spring. Bank and Gaza," Washington, DC. UNSCO-World Bank. 1996. Partners in Peace. July Zuaiter, Ahmad F and Hassan M. Abdou. 1996. "Palestine: The United Nations Relief and Works Agency (UNRWA) and Competitive Positioning of a Nation." Final report, indepen- National Center for Human Resources Development dent study, Harvard Business School, May. 40 Development Under Adversity: The Palestinian Economy in Transition AGREEMENTS Agreement on the Gaza Strip and the Jericho Area, between the The Israeli-Palestinian Interim Agreement on the Wiest Bank and the Government of the State of Israel and the Palestinian Gaza Strip, between the Government of the State of Israel and Liberation Organization, 4 May 1994, Cairo. the Palestinian Liberation Organization, 28 September 1995, Agreement on the Preparatory Transfer of Powers and Responsibilities, Washington, DC. between the Government of the State of Israel and the Protocol Concerning the Redeployment in Hebron, between the Palestinian Liberation Organization, 29 August 1994, Erez. Government of the State of Israel and the Palestinian Declaration of Principles on Interim Self-Government Liberation Organization, 17 January 1997, Jerusalem. Arrangements, between the Government of the State of Israel Protocol on Economic Relations-Annex IV of the Gaza-Jericho and the Palestinian Liberation Organization, 13 September Agreement, between the Government of the State of Israel and 1993, Washington, DC. the Palestinian Liberation Organization, 29 April 1994, Paris. Development Under Adversity The Palestinian Economy in Transition Table of Contents for Book Foreword by Nabeel Kassis, Director, Palestine Economic Policy Research Institute (MAS) Foreword by Joseph Stiglitz, Senior Vice President and Chief Economist, The World Bank Part I. Recent Developments: New Constraints and Frustrated Developments Chapter 1 Introduction and Background Ishac Diwan, The World Bank Radwan A. Shaban, MAS and Georgia Institute of Technology Chapter 2 Worsening Economic Outcomes Since 1994 Despite Elements of Improvement Radwan A. Shaban, MAS and Georgia Institute of Technology Chapter 3 Recent Political Developments Rex Brynen, McGill University Chapter 4 The Harsh Reality of Closure Radwan A. Shaban, MAS and Georgia Institute of Technology Part II. Policies for Growth and Job Creation under Adverse Conditions Chapter 5 Private Investment Osama Hamed, MAS Chapter 6 International Economic Relations: Access, Trade Regime, and Development Strategy Ishac Diwan, The World Bank Chapter 7 Financial Intermediation Osama Hamed, MAS Chapter 8 Fiscal Management Ali Khadr, The World Bank Chapter 9 Shocks and Stabilization Osama Hamed, MAS Chapter 10 Donor Assistance Ali Khadr, The World Bank Part III. Building the Enabling Environment for Long-term Growth Chapter 11 Improving the Education System Sue Berryman, The World Bank Chapter 12 Managing the Growth of the Health Sector Mustafa Barghouthi, Health Development Information Project Jean Lennock, Health Development Information Project Radwan A. Shaban, MAS and Georgia Institute of Technology Chapter 13 Infrastructure for Growth Ashoka Mody, The World Bank and University of Pennsylvania Annex Bibliography Index , S. WI CUSTOMERS IN THE UNITED STATES CUSTOMERS OUTSIDE THE UNITED Complete this coupon and return to: STATES The World Bank Contact your local Bank publications distributor for P.O. Box 960 information on prices in local currency and payment Herndon, VA 20172-0960, USA tertns. You can find a complete list of distributors at our Internet address- To have your order shipped faster, charge by credit www.worldbank.org/htmUextpb/distdir.htm card by calling (703) 661-1580 or send this completed If no distributor is listed for your country, use this order coupon by facsimile by dialing (703) 661-1501. order form and return it to the U.S. address. Quantity Title Stock # Price Total Price Development Under Adversity: The Palestinian Economy in Transition 14418 $30.00 * SHIPPING AND HANDLING charges are $5.00 Subtotal cost US$ per order. If a purchase order is used, actual shipping will be charged. For air mail delivery outside the Shipping and handling* US$ United States, add $13.00 for first item plus $6.00 for each additional item. Total US$ CHECK METHOD OF PAYMENT O Enclosed is my check payable to the World Bank. O Charge my O VISA L MasterCard O American Express Credit card account number Expiration date Signature (required to validate all orders) L Bill me. (Institutional customers only. Purchase order must be included.) PLEASE PRINT CLEARLY Name Address City State _ _ Postal Code Country Telephone Distributors of World COLOMBIA Tol- 149 228) 949020 Tel (972 3) 5285-397 MEXICO POLAND SWEDIEN loFIo` ae (da Faa (49 228) 247492 Faa (97 3) 3283-397 IN, TO lsos-ori- Fobhlnloo Seanc We-oogeooJ-,oiau AB Bank Publications Conrer 6 N. 51-21 URL hop 'mxoo-oelg de Ac. San Fernado No.,37 Ul Pickno 31(97 F 0 Boo 1309 Prtos and creditt termBs raryfrott, Apanado Anro 9427') F-mail nooraB oR 0.0 ioeroox..nl Col Tooell Ono-- 00-677 W -rnmaS-171 25 Solon CoUntrp' 20 cOUntytJ Conult your W 05do DIo) ) PCi Boo 130956 14091 TMe-o., DOF Tel. (48 21628-6089 Tel (46 8) 705-97-50 ioca ditribte,befoe PaCin an TL 571) 285-2798 GHANA Tel Ael 61191 Tel (52 5) 624-2800 Fon (48 21 621-7255 Fan (46 8) 27-00-71 local ditributorbefore pacing an Fo (57 11285-2798 (pp Books Seeoo Tel (972~) 64979469 F-a 1)2)) 62-1-2822 E-mai 1,ookmhipnsikp aecmpi 0-aii ogws orde,r PO Boo 44 Foe, (972 3) 648 6039 F-mal- roece n,f- oo - FRL hop (Imo- pug maw ,pIpsoopo,N COTE DIVOULE TUC F-o oignm ocl CR1- hopI/an-nolm SWrFZERLIAND ARGENTINA C--o dOEdm- 01 de D2100- Afi,-ono A-o POTGLLaboa Payor Se-to ln,nomto-ol World Pnol-ioatioSA5 (CEDA) Tel 223 21 778843 Pnletomo Aorbonty/M7diddl Fo Mod-,Pr-e tM-cn 96A de CY0 Lo,oo Po.-gI Cln)re-do-BM-mr- 30 A, Coidbol 1877 1(4 8.0 5-41 (o 223 21 7799099 loden le --oSevie 01, 10 Paitoco Ill1-Col1m C-aite-- Apai-alo 2681. -o Do Comio 70-a 1002 IA-nnn 7120 Cindad de B-oer Aire Abidon 04 FOB 195012Jnm-n- 06900 M-oco. OF 1200 ljshno Tel (41 21)9041-3229 Tel (94 11) 4819-8156 Tol (2291 24 6510, 24 6511 GREECE Tel (972 2) 6271219 Toi. (52 5) 933-5658 Tel (1) 947-4982 Fnn (41 21) 941-3235 Fa 154 111 4815-0156 Faa (225) 25 0567 FaNp-inn 5. Fno 0172 21 6271631 Fa- 1)2 51 51-6799 Fan (5) 3,47-0264 F--1i wpbooredotoi 3o5o 9 Sr.o-ro Sri AECO Van Die-n- Fdil-ooT-choe- CYPRIIIS 106 82 Admi- rEAFY, UIBERIA NEPAL ROMANIA Cl, de boone~ 41 AUISTRALIA, FIJ, PAUA NEW GUINEA, Ce-ro, For Applind Oo-aoh 6-I' (30 I 364 (826 boo Coormnnionna Sno-oo 5PA Otes Mod Ir oon Sore1-io (F) Fe4 Compam On Fer- B...m-ox S A CH18O7 Blnoo MJLOMUN ISLANDS, VANUATU, AND Cyp-a Collnge Faa (30 11 364-8254 Vto Doo Dr Colab-i I/I GOFF hon 5443 Sn Urpron no 26. -ot- 3 Tel (41 21) 943 2673 SAMO 6, Drag-re Snee, Fegomi C-1 Posbol 592 od-ond. B-oh.-e F.. 141 211 343 360 BA iF-o.oarSnaice P.O. Boa 200,, HAITI 56125 Foonm ToI. (077 11 416 026 Tel (40 1131390695 6488 thIrehorn Road Ni--l Co1- DIOnso-n Tel (39 55) 649-415 (ax (977 1) 224 431 Ion (411 1) 512 8001 OIOILANDT BLircha- 9132 Tel 1397 2)5913-073 5. Ron Copio F-a (39 5)1 6-11-257 Onnool Books DtsI.tn-io Vicrot Fa 1397 21 F6-2051 CFP 297 F-oinil It-oaftho- NErHIFRLANDS RUSSIAN PEDERAILION 906 Silom BRod Tel (61)9210 7777 co-nonrUc R1 hop,/inoflri, lonoD l-rOxmdtenr,-l Pobli,-io IsA-oleo --n Mre Bangkok 1090 Fax (61) 3 9210'778 CZEFH REPUBLIC Tol (5061) 2.3 92606 ho- 9o, Ko1pachniy P-oknll Tel (66 2) 2936930- 9 F-moi --ocedadi-oo co no 099 NIS Pr,oleoa Faa- (5091 23 485n JAMAICK IO. Ron 202. 7400 AF Hoakiseig-n Hiosoo 101831 Fox (66 2) 237-8321 URL hrrp,,sv-sirid-nocoai H-ioo-oo 27 lan -adlo Fboh-ihr lad Tel (31 93) 57i-10(d Tel (7 (J951 317 87 49 130 00 Pogon 3 HONG KONG, CHIINA, MACAD 700 Old Hoipe Rand, Kings-o 6 Faa (31 93) 972-9296 ron (70905) 917 92 59 TIIINBIAD &TDBAGIO AUSTRIA Tel 1420 2) 2423 1406 Asin 200) Lid ToL. 876-927-2009 F-mod lendel-4Bs'dd-dli- ol AND TIHE CARRLIBBEAN ie-ld oed Co Fan (420 2) 2429 1111 Soles & CiooioDeoo-noi Fan 876-977-0243 CR1 ha,p b-w -ookdolino1 n-Iodoha SINGAPORE1 TAIWAN, CHINA SFnSemdoc Sid-n Fd Weehho-ggoi- 26 CR1 h,p,//non ion on! 302 Soobnd Hdons (-mod iepl40-hs com MYANMARI BRUNEI SI Angoski Shoppig Censes 4-1(111 Wino 22-28 Wyndhom im-. Cxo.a[ NEW ZEALAND Hemispher Pn1hlicri- Servce E-o Mom Rand, Si AngRnono Vol. (43 II 512-47-31-0 DENMALRK Hoag Kang. Chin JAPAN FEBSCO Z NL Ed 41 K1los3 PoIddiig Rand #04-113 T-odod A Tohgo, Woo Indr- Fa- (43 11 512-i7-31-29 Sadoliem Tel (8921 253(1-1409 lEntern Bank 5-oe (stea Mail Bag 99I4 Goslde Whlind Boildig Tol. (008) 649-8466 FRL rp,wogil otoln Ronenanre A101 (noF (85)) 2926-1107 3-13 Hoogo 3h-ohm, B-IYky-In New Sloket Segop-m 349916 Pa- (8068)645-8467 DK-1970 Fnedokoh-el C F-mai so1-go-200100- hk Tokyo 113 Anokkand TnI. (65) 741-9106 E-mndr.bo-mlm dod-e RANGLA HTel cO5 35) 351942 CO t//ooasaO(oi i Tol (81 3) 381.17161 Tel (68 91 324 8119 F-n (69) 742-9906 Micro lodo,iie D-elopmo-I Foe- (45 45) 3)7822 Fan 181 3) 3818-0864 F-a (Md 9) 924-8067 (-mod ahgmmooorcanUGANDA An-I-oa,o S0-1y IMIDAS) 1)111 haruiscero slbs dk HUNGARY E(-mo -sd-mso-eh 001p G-s Lid ii_a5' -Fodi6 Eom lofa Seroco lRIt hn0nnwhkknon1lse-h a OfRfi-l SLOVENIA PO Boo 9997. Modhoa BoIidig Dhan.Mon n'A-o ECUADOR Moegirn-0- Fompa Hat PO Ron, 3627 Onospdooki nes-k Pobh~lriog Gmap Plot 16/8 jin1o Rd Dhaka 12)9 Lihi Mondi H-1138 ondoped KENYA Wello,n- Dn-opkn on- 5 Klanpalo Tel (00(2) 326427, bbIhsi lo--c-toa Tel (36 1) 350 80 24. 350 80 25 A(ooo Bank Ser-o (FA ) 140 C (64 4) 499 1591 1000) L4ohljno Tel (206 011 231 467 Fan (8i.0021811108 P0 non 17-61-8029 Faa 136 1)3560 932 Qon..n Hoom, Sla-ga- Sree F- (64 4)49901972 Tel 1386 61) 133 83 47; 132 12 30 Fon (236 41) 251468 Joan boo Her 891 F-mail eomicdoh-L.mA- ho P0 Boo 49245 E-moIl anisBocs g-no Fa- (386 61) 133 (0 90 F-modgoRifiRdo00 BELGrISM Q-oi Na;mb, 68L En -mwoo(oooo-mal. mpoonel6g-nssIk J-o DSn (anny Tol- 1599 21 521-606. 1593 3) 541-185 INDIA, Tel (254 2) 223 641 UNBEED KINGDOM dv dii Rlo 2012 (F (5999 2)5(14-209 Allie PohhL, in ltd Fan (254 2) 330 272 NIGERIA SOLOEI AFRICA, BOTSWANA Miomnto ld 1000 B-san, F-madlioiB m dicoc 791 to-nt Rand Cno--iy Ptent Lmred F-roing HLetl P0 Box 3, Omega (tk. Alron, Tel (32 21 38-9169 F-mal lib--i2olhb-ood,co.o Md-i - 600002 og-yF Bans, TS1-ne Caen B,oidiogle-,hn Oxford Iloo--y P-m Soorhee Ahian tampshio 0638i 2(0 taa (32 21 538-0841 Tol 101 441 852-3930 bin Ho.. Pn-. Mod Bog 5959 Onio Boalo-d, GOnfodnod Eoigiand CODFO F.a (91644) 852-0649 me-nnm I Ihadm PO,. Bon 12119, Nl City 7463 TOn (44 1420) 86848 BP-kmss R- de Casim 763, Edd O>xpo-lo( PO Bon 60077 Tel (234 22) 41-1356 Cope Tom- F-a (41420)898089 PR1hlioo... 6.Foo-- Inreo.otn-- Lid0. PImiec pla.i), Of2 INDONESIA, N-bmh Fa- (234 22) 41-2000 Tol (2) 21) 595 4410( E-msd sdnorkgm-m-o 00 ok Rn. Femolo (orde, 209 Qo-o Pr Lndir boired Tel 1294) 2-3310899, 221426 RF- (27 21) 999 4400 00U n//RL moi(ocn (,1490 Snopoolo. SP TlTOn (593 2) 507-383. 293401 Jolo Bomhodii20 Fan (250) 2-330854,0061650 PAKISTAN F-mad orFonJgoopana 'oI (55 11) 299-6644 F-mail ond-oinpat ne 000. Ens 181 (-mmi bRooyfoa-ne cOin Moan Book Age-y TI - -ormy Off-i Fa- (99 11) 2598-90 Jkhns 10320 65, Shnheh-e,-3od~ -edm F.,nohib50tr- ondot 51 SNe Ohms lon FI,aid pon,A-aesp-.oo br EGYPTr ARAB REIW'URLTC OF Tel (62 2l) 330-4290 KOREA, REBPUBLIC OF (Ahorn 5408010neooa Soho-pno~ Sncom (andon SWB8 SUB FRI hirplnxo oo,h Al 40Am Oteiniob- Age-oy F-a (6d 21) 3900-1289 Doyati (anion Indag Co Tnt (92 42) 791 9601 P.O, Baa 419095 Tel (44 n7l) 873-84(0 Al iGnla Si-ot loteran-s Di-i-n Faa 193 42) 976 3719 C-ngholl (on (44 171) 873-8242 CANADIA Cam RAN 783-20, Pnnghn Boo Doog. Snohi-ka Johon-o-g 2024 UHLI ho,p //noos sh- on nk Renool foPh1is,og Co lad Tol (dii 2) 970-6003 Knioh Sar Co Pah1,slt- Seno Of-od Uoi-nety P0mm Tel (27 11) 800-1448 9369 Co-rk Rood Faa (2) 2) 578-6833 Kholed Eslomhn Axe .6th, SrIer Tn. (02 2) 36-9995 9 Bangalo- Town Fos (27 11) 808-6248 VENEZUELA O---,ca tln-o NI) 933 1)lolan- Ally So 8 F-a (82 25 536-6025 Shme- nto F.- -mod Iio@nna Te-Cie-ot Lb-m, 8 A Tsl (6131 745-266) h Nlntiidle Fast Obioivn P0 Bon 19745-733 F--nd-maapoo.hnlio -et PO Bnn 13033 C .d - 1T. Fan 1613) 745-7660 41, Shedl Stree Teh.n 19117 K-hnoln75350 SPAIN SNoet 02, Cocaca F-moiodco(teolok0o Cair Tel (98 21) 8717819, 8716104 RoLyan Pohl,isin.g Co, Lsd Tel (92 21) 446)07 Mondi-Psenn lhm, 86A Tel (00 2) 9590 9947, 9035, 0816 URL hoip/I moo-cenib,aookm. Tel 120 2)399-9732 Faa (98 21) 8712479 46-1, Sos-g-D-ongJoogm-Ga Faa (92 213 4907646 Costello 37 Fan (98 2)98995636 Faa (2(1 2) 3)3-9732 F-mIl k-enh .-nied-.ee totol F-mod nnppnkOThncOCic-ne 28001 Modod CHINA Tel (82 2) 734-3919 Tel (34 91) 4 063700 ZAMBIA Chin Fm-ncil A Econmi Poblislng FINLAND Komkah ftbhishit Fan (82 21 732-0194 Oak Book CroaoF-a (00491) 9 759308 tl,--entt B3onkhnp, Cmeee- of Tainhi Boom Akomem-ne Ki3konppo P0 Boo 19575-511 Asi, Chambns 21. Qa-e's nood F-mad- lhbanmaOd-pn-o e Gro Es. Rand Comon 8. Do Fo Si D-og(J. PO B-n 128 T,,nhon LEBANON LAho CR1- lhs,p//oomPdOrnaof( Bos 32979 Bnrpsg ~~~~~~~~~~FIN-dOlol Hol-ntl Tel (88 21) 206-3723 labraid do lhon Tel (92 425 836 3222, 636 0885 Lanko 7e1 ((16 1)) 6401-736) Tel 1358 0) 121 4418 F- I198 21) 298-9773 P0 Boo 11-9232 Faa (92 42) 630 2328 Mondi-P-es oclo Tel (266 1) 292 576 Fax (06 10) 6401-7365 Fos (35800) 121-4435 Beim F-mod- phoRhbnn not pk Conr11 do C-nt 391 Faa (2860 1) 299 992 F-moA akxdJ-BnA-km-n.hr IRELAND Tel (361 9( 217 9-14 08009 B-.Ie..t Clioo Book loip-e Ienrr IR hn,p //n-w okoi- -on Gomi-xeieat Soppl-e Ageny (F- (961 91 217 494 PERU Tel. (94 9) 488-9492 ZIMBABWE PD Ron2829 di Duo Snooth- F-ma,Il hanyeghlhblihn -do-lhba oem lh (disosrol lo-1ano 84 On- (34 91 987-7659 Aoad-mi o-d B-1h1, Books (Pot.) ld BeIyeg FRANCE 4-5 H-o-o Rad CR1 hrtp/own lhbine-dnL-lhnm.lh Aponodo 3024, Ion 242 OF 106 k-mod-h elnBodrene 4 C.nnld Rood, Oma.ireid Eddiloxs Esko DR) DoSbin 2 lim 1 (Ft rBn 967 ChI-e Cnrpo--ot lot Pio-oon f0 48. me Flop La-o 01.1 (353 1) 661-3111 MAFAYSIA Tt (91 14) 2853(0 SRI LANiKA, TIHE MACLDIVES tHnoe llnmoottinn ~~~~~~~75009 loon Faa (353 1) 475-2670 Ce-eStiy of MoIopo Coorpen- F-a (91 141 286628 lake Hns- Bankshop Tnl. 269 4 795039 52 Too Fang Ho Tong Tel (33-1) 99-42-73-08 wno,rhop Lonired 100, S.e Ch,iatapolo Iatd-mo MIA-aha (on- 263 4 79191 Soon Net Daje~ F- (35-C) 43-29-91 -7 PO Ron 1127 PHILIPPINTS Conoo2 B01(10g ISRAEL Jolon Paxi Bomlssono Bomknooo Conio lox ToI. (94 1) 32105 Tel (00 11)660 72494 GERMAY-T-mo LaInoo lad 50700 Ko.. L-omp, 1127-4 Aohpolo SI, Bonosgy, Ve-ezoea F.a (94 1) 432104 Fan (86 10) 66(1)72 494 UNi-Orri,g PO2. Boo 50059 Tel (60 3) 756-508 Moko, Oily 0-mad LHLO-sn.lsko e Poppelndotlt Allan 95 3 Yohao- Han-ndlo S-re Fan (60 3) 755-4424 Tol (63 )) 096 6901, 6505, 6907 53115 Bo- TOl Ao 61360 F-md nmkanpAi ne my Fn (63 2) 8(0 1741 51 A& S Palestine Economic Policy Research Institute (MAS) and The World Bank