From Challenge # 64 
November-December 2000

Economic Separation: The Last Thing Israel Wants

The notion of economic separation that Barak has been touting of late is nothing more than a threat, the purpose of which is to pressure the Palestinians to make political concessions. In fact, Israel wants to keep the Palestinian economy tightly in its embrace. Economic separation could only lead to political separation, i.e. real Palestinian independence. Israel's strategic interests demand that it have absolute control over what goes on in the Territories, whether a final agreement is reached or not. The Israeli dictionary has only two terms: either direct occupation, such as it exerted from 1967 till 1993, or neocolonialism - i.e., remote control by means of a Palestinian partner - as was agreed at Oslo.

On October 24, as stones and bullets flew, the Barak government adopted a written plan for unilateral separation from the Occupied Territories. The Israeli public likes to hear about separation - "Them there, us here," in the words of a Barak campaign slogan. In practical terms, however, this document specifies very limited goals. It provides, in essence, that the old relationships should continue. 

The details of the plan were published by Aluf Ben in Ha'aretz (October 25) and by Ron Ben Ishai in Yediot Aharonot (October 27). It provides for augmenting inspection procedures at the borders and limiting the number of Palestinians working in Israel. This is to be done without harming cooperation with the PA (Palestinian Authority). On no account, ordained the government, will it take extreme measures such as cutting off the flow of electricity or gasoline to the Territories. (To say that you will not do something, however, is to imply that you can.) The reason for Israel's restraint, writes Ben Ishai, is not only that Israel makes good profits from the sale of these necessities. There is also a security consideration. Israel's working assumption is that every improvement in the economic situation of the Palestinians will moderate their tendency toward violence. 

Despite differences within Israel's top echelon about how to respond to the new intifada, there is a broad consensus against making the divorce from the Palestinians complete. The concept of economic separation is largely a bluff, but it serves a double purpose:

1) It poses a threat to the Palestinian side, saying, in effect, "If you don't accept our political dictates, we can turn off your life-support system." The threat is aimed especially at Yasser Arafat, who is to understand that if he makes a unilateral declaration of statehood, he and his friends at the top may suddenly find life very difficult.

2) The second purpose is more practical. The concept provides a policy framework for increasing the supervision on goods and workers entering Israel - but without any basic departure from the status quo ante.

The intifada has created a new situation

Says Dror Shlomi, Economic Assistant to the Coordinator of Government Activities in the Territories: "We're no longer talking about a temporary situation that will cease to exist once the disturbances stop. Life will not go back to what it was before." Ha'aretz October 19. 

The new reality will exert influence on three levels:

1) Before the upheaval, 120,000 Palestinians worked in Israel. This number will probably drop sharply. In a New York Times interview (October 22), Israeli Treasury Director Ben Bassat predicted that it would plunge to 25,000.

2) The fate of the joint industrial parks at the borders (Erez and Carni in Gaza, Tulkarem and Jenin in the West Bank) is now in doubt. Ora Koren wrote in Ha'aretz on October 19: "Business people and Israeli officials agree: the notion of the border points as keys to economic growth is dead and buried. No Israeli or foreign entrepreneur, now or in the foreseeable future, is going to invest in these places."

3) In the Palestinian areas themselves, the recent turmoil has caused much damage. Some of this is direct and immediate: the destruction wrought by the battles; the Israeli closure around each locality, preventing commerce; the loss of jobs in Israel; the drop in consumption. There is also long-term damage: the sudden loss of stability has placed the Territories among the last places in the world that anyone would want to invest in. The Palestinian economy is now at a standstill. What makes matters worse is that the expectations of investors and donors had risen quite high in the nineties - who will be willing to risk entrapment again?

Israel to Keep Control

One example of the absolute dependence on Israel is the supply of electricity. According to figures cited by Amiram Cohen (Ha'aretz October 24), in 1999 the PA imported more than two billion kilowatt hours at a cost of half a billion shekels (about $125 million). "The electric grids in the West Bank and Gaza depend entirely on the output of Israel's power company. Plans for independent electric production in the PA areas are still in diapers."

The Paris Protocol of 1994, an economic addendum to Oslo, forbids the PA to mint its own currency. Economist Esther Alexander, writing in Ha'aretz (October 30), points out how problematic this measure is: "As long as the shekel remains the legal means of exchange in the Territories, there is no possibility of separation, economic or military." Opponents of separation say that the Palestinians should remain tied to Israel, since this is their way of earning shekels. "That's precisely the problem," writes Alexander. "The number of shekels at the disposal of the [Israeli] government and the Israeli economy depends on the considerations and decisions of no one except the Israeli government. 

The Palestinians, on the contrary, have to earn the shekel as if it were foreign currency: that is, in exchange for work in Israel or for the export of goods to Israel, or in exchange for grants from abroad that they sell for shekels in the Bank of Israel... Without a local currency, it is impossible to carry out either fiscal or monetary policies. Under these conditions, the PA hasn't enough money to maintain an orderly administration, a health system or a reasonable educational system. Nor does it have enough to invest in infrastructure or the elimination of unemployment." 

Chronic instability

The economic factor weighs heavily in Israel's strategic thinking. Its policy in this regard results not merely from immediate military considerations, but also from the need to keep long-range leverage over the West Bank and Gaza. Israel's endeavor since 1967, as envisaged by then Defense Minister Moshe Dayan, has been to bind the Territories to its economy both as a source of cheap labor and as a captive market for its goods. Even today, despite Israel's shift toward hi-tech, the Territories make up the third biggest buyer for its exports. They import $2 billion worth of Israeli goods annually, while exporting to it only the equivalent of $250 million. In order to preserve this lopsided balance of trade, Israel prevents all economic development there - despite the pronouncements, mentioned above, of enlightened self-interest. Palestinian workers commuting to Israel are the PA's principal source of income. In 1999 these 120,000 laborers contributed $1.3 billion to the GNP - a fourth of the total. (Thus Muhammad Shtayyeh, Director of the Palestinian Economic Council for Development and Reconstruction, in Ha'aretz October 26.) The drastic cut in the number of workers entering Israel will deliver a serious blow to the Palestinian economy.

The Oslo Accord did not alter the basic character of Palestinian subjection. Dependence under the compulsion of Occupation became, instead, dependence by agreement, attained through the offices of the PA. In the last few years, a group of Israeli and Palestinian economists conducted far-reaching discussions about what the final arrangement should look like. They formulated their conclusions in what they called the EPS model: "a possible set of Israeli-Palestinian economic understandings for permanent status." These provided that the cooperation between the two unequal partners ought to continue for a long time to come as part of the final-status agreement. (The [Israel] Economic Quarterly, March 2000.)

Because of the military clashes, such an agreement looks unlikely. Yet the Israeli side does not entertain for a moment the notion of allowing the Palestinians economic and political independence. The spectrum of possibilities, in Israel's handbook, is narrowly circumscribed between the neocolonialism it wants and the direct occupation it had. The latter is no longer an option: Israelis cannot stomach the thought of sending their boys back to re-occupy Nablus and Gaza. The Israeli economic system winds up with three million Palestinians, whom it can neither ingest nor cough up.