Israeli and Palestinian Economies Get Caught in the Cross-Fire

Across Israel, the economic impact of more than a month of violent clashes between Israeli troops and Palestinian protesters is easy to see.

Normally busy tourist hotels stand empty, and some have even closed, laying off thousands of workers. The olive harvest is rotting on the trees, and construction sites have been idled because Palestinian laborers are forbidden to cross from the West Bank and Gaza Strip into Israel. Nervous investors have weakened the value of the shekel and caused the stock market to dip. The government estimates that the first month of unrest cost the economy about $1.2 billion, and some businesses already are asking to be compensated for their losses.

If the unrest continues much longer, said Gilad Soreq, an economist for the Federation of Chambers of Commerce in Israel, foreign investors could start pulling out of the Israeli market and there could be a further devaluation of the shekel.

“Investors will take back their money and look for more attractive, safer places to invest,” he said.

But Israel’s Ministry of Finance insists that the economy, fueled by a booming high-tech industry, remains healthy despite the collapse of Israeli-Palestinian peace negotiations.

“Our economy today is stronger than ever,” said Finance Ministry Director General Avraham Ben Bassat. “The rate of inflation is around zero, and the budget deficit is less than 2 percentage points of the gross domestic product.”

Israel expects that the growth in its gross domestic product this year will be just 1 percentage point less than it had expected--a still robust 5%--despite the unrest. Although Arab states have downgraded their relations with Israel, trade with those states is negligible, Ben Bassat said, and has so far been unaffected by the crisis. And the crucial high-tech industry--located in the center of the country, where there has been little violence--continues to thrive.

Never before has Israel faced a security crisis with its economy in such relatively good shape, Ben Bassat said. Still, he said: “If this goes on a very long time--more than another month or two months--the situation will be more serious. We are going to pay a price, but it is very hard to assess what that price is.”

Palestinians Feel the Squeeze

A few miles from Ben Bassat’s office in Jerusalem, Palestinian Authority officials in the West Bank city of Ramallah paint a sharply different picture of what a month of daily confrontations between troops and protesters has done to the economy.

“Our whole economic life has almost come to a stop,” said Maher Masri, minister of trade and economy for the Palestinian Authority, speaking at a news conference Sunday.

Israel’s blockade of the West Bank and Gaza is keeping about 120,000 Palestinians from their jobs inside Israel, preventing imports from reaching the Palestinian territories and strangling economic activity in the West Bank and Gaza, according to Masri and Mohammed Shtayyeh, director general of the Palestinian Economic Council for Development and Reconstruction.

Masri warned that if Israel continues what he described as its economic siege much longer, “it is a call for more violence in this land.”

The Palestinian economy is losing about $10 million a day because of the disturbances, according to Shtayyeh, who said the losses are accelerating. The unemployment rate in the territories was about 13% before the unrest erupted, he said. Now, it is 45% in Gaza and at least 31% in the West Bank, while the GDP is down 4%.

The figures show “how dependent, how fragile our economy is,” Shtayyeh said.

Noting that Arab countries pledged at a summit in Cairo earlier this month to provide $1 billion in aid to the Palestinian Authority, he pleaded with them to move quickly.

“There is an immediate need of quick cash to be injected into the economy,” Shtayyeh said.

But in Gaza on Sunday morning, Palestinian Authority President Yasser Arafat told reporters that the Palestinian uprising will continue until “a boy or a girl raises the Palestinian flag above Al Quds [Jerusalem], the capital of our Palestinian state.”

And there was no sign that the violence will abate soon. Five more Palestinians reportedly were shot dead in clashes with Israeli troops Sunday in the West Bank and Gaza, including a 14-year-old boy, and dozens were wounded.

Israel sent a column of tanks and armored personnel carriers lumbering into Gaza after troops clashed with demonstrators who blocked an Israeli-controlled road to the settlement of Netzarim, hurling stones and Molotov cocktails at soldiers. The Israelis fired machine guns mounted on the tanks at Palestinians who were shooting rifles, and the fighting continued for nine hours at the Karni crossing, where normally goods travel in and out of Gaza.

At least 10 Palestinians were wounded when troops fired rubber-coated metal bullets and live ammunition into the crowds, and one was killed. Palestinians also were wounded in clashes that erupted in several West Bank towns.

Facing the opening of the winter parliamentary session today without a working coalition, his peacemaking efforts a shambles and a shooting war continuing in the Palestinian territories, Prime Minister Ehud Barak continued to woo Ariel Sharon, leader of the right-wing opposition Likud Party. Barak has asked the Likud to join him in forming a broad-based government, which he says is needed to tackle Israel’s security problems. Without the Likud, he might not survive a vote of no confidence.

Barak and Sharon failed to reach agreement after a two-hour lunch at the prime minister’s official residence in Jerusalem. But Israel Radio reported this morning that negotiators for the two leaders reached an agreement Sunday night on forming a coalition that would give Sharon veto power over some decisions, including restarting peace talks with the Palestinians. Such an agreement would have to be approved by the governing bodies of the Likud and Labor parties.

Senior members of Barak’s Cabinet and Palestinian officials have warned that bringing Sharon into the Cabinet could kill any hope of renewed peace talks. Palestinians despise Sharon as the architect of Israel’s June 1982 invasion of Lebanon. It was Sharon’s Sept. 28 visit to a contested holy site in Jerusalem’s Old City that Palestinians say triggered the current wave of violence.

Barak also met Sunday with his Cabinet and warned that terror attacks can be expected inside Israel at any moment. It was the sort of dire prediction that the tourism industry here has come to dread.

“It doesn’t help us,” said Oren Drori, spokesman for the Israeli Ministry of Tourism. “Sometimes our messages contradict each other because we urge people to come and the army says that it is not safe.”

Tourism Takes a Tumble

The number of tourists traveling to Israel fell by 50% this month, Drori said. Groups and individuals have canceled trips into December. About 15,000 workers in the tourism industry have lost their jobs or been put on unpaid leave, Drori said.

“We estimate the loss of foreign currency from tourism in the last three weeks to be around $1 billion,” he said, which would make that the bulk of the losses the economy has suffered so far. “Even if everything becomes quiet again in the next few days, there was also almost a complete stop in new booking.”

The ministry has pulled all its advertising until the unrest ends, Drori said, but it has hired a public relations firm to devise a marketing strategy. It is also hosting Jewish and Christian fundamentalist leaders on “solidarity” tours, hoping that they will encourage others to come. And it is paying travel agents and tour operators abroad to keep Israel in their brochures for 2001.

“The idea is simply to not disappear from being a shelf product” for travel agents and tour operators, Drori said. “Even though the picture is a very bad picture now, tourism recovers well. People’s memories, fortunately enough for us, are short.”