|GDP real growth rate (%)||2||4.6||4|
|GNP (US$ million)||4,509||3.6||5,017|
|GDP per capita ($)||1,380||1.387||1,595|
|Workers in Israel (‘000)||44||50.6||47.3|
Growing frustration over stalled negotiations with Israel, combined with new dynamics in south Lebanon has created signals that violence may soon flare up in the West Bank. There has also been increasing evidence of stepped-up arms trafficking and coordination between Hezbollah guerillas in Lebanon and the opposition Hamas organization located in the West Bank. No longer able to challenge Israel in Lebanon, Hezbollah appears to be attempting to shift the battlefield to the West Bank.
Towards the end of June feverish diplomatic wrangling was taking place to secure a three-way summit in Washington between Arafat, Clinton and Barak. The ultimate goal of such a summit would be a Camp David-style accord that would put an official end to the Israeli-Palestinian conflict. Arafat set strict conditions as prerequisites for his attending a three-way summit in Washington. He is demanding the completion of the third redeployment, the release of Palestinian prisoners and guarantees from U.S. officials on critical final status issues, including borders, Jerusalem and refugees. Barak is willing to consider transfering three villages on the outskirts of the city prior to the summit, but refuses to comply with the demands posed by Arafat. Still, the thrust of remarks by Palestinian officials is not optimistic. They have warned grimly about deteriorating relations with Israel, which might provoke violent skirmishes. The Palestinian leadership insists that it will declare a state unilaterally in September if an agreement has not been reached at that point.
The Palestinian economy’s performance exceeded expectations in 1999. Initial estimates for 1999 real GDP and GNP growth – 4.5 and 4.6 percent respectively – were revised to 6 and 7 percent. Most macroeconomic indicators showed improvements: Labour flows to Israel expanded by 15 percent; registered Israeli-Palestinian trade rose 9 percent; planned construction grew 14 percent; and donor assistance increased 12 percent. Nevertheless, two vital 1999 indicators revealed more disturbing results: the value of approved investment projects dropped in both the West Bank and Gaza; and the value of registered Palestinian exports to Israel fell in real terms.
A detailed report, drafted by the Palestinian Authority with the help of the International Monetary Fund, was submitted to a donor conference in Lisbon, Portugal in June 2000. According to this report, good governance, clean financial management and disclosure have improved within the Palestinian Finance Ministry. Since late April 2000, increased income has streamed into the public PA treasury, and this financial injection should assist the Finance Ministry to curb an accumulated budget that has reached roughly $150 million. Several sources of PA income have recently been relocated to their appropriate public coffers, a commitment Arafat pledged to donor states at a conference held last year in Tokyo. Within this framework, in early January, Arafat signed a presidential decree mandating basic reform in Palestinian financial management and the gradual elimination of economic monopolies that the PA itself had established in the past.
A critical period looms ahead for the future of the Palestinian entity. As U.S. President Clinton’s term in power nears its end, time is of an essence for both the Palestinian and Israeli sides in reaching a final status settlement. If diplomatic channels fail, the possibilities of a unilateral declaration of Palestinian statehood and an upsurge in violence are strong. Such occurrences could deter investment activity and erase the tangible progress the Palestinian economy has made over the past few years. However, if relative calm persists, recent moves towards greater financial accountability will have a positive effect on private investment, a key ingredient for sustained growth and development.