Erhard A: The Palestinian economy has been made dependent on Is- rael in recent years. It is not easy for the PA to reabsorb these peo- ple from the Israeli labor market because the structure of the Palestinian economy has been distorted; it became dependent and complementary to the Israeli economy rather than au- tonomous. To impose a closure Q: Speaking of foreign in- and end the trade and labor re- vestments, were there any lationship is an impossible situ- specific examples of investors ation, we can't absorb these who were supposed to come Palestinians. The PA has creat- to the West Bank and Gaza ed jobs for about 68,000 people and canceled as a result of since 1994, but how can the PA events such as the first sui- absorb another 120,000? The pri- cide bombings that took vate sector must be given the place in February? room. Israel should realize that A: I can tell you that there has economic development can bring been a freeze of some business peace, and poverty and misery activities, mainly related to the does not lead to peace. While Is- closure. If Israel does not grant rael's economy has flourished investors a right to reside in the over the past three years, the West Bank and Gaza, people will Palestinian side has been sink- not come and invest. Who is go- ing. ing to put their money into a part Q: But the Palestinian of the world where he cannot economy wasn't exactly manage it? strong prior to 1994. Q: How restricted are peo- A: It wasn't, but at least there ple in accessing this area? was no crisis, in the sense that A: It has been extremely diffi- trade was growing, as was the cult to grant resident permits, flow of labor. At least the people and the procedure is very com- were finding jobs. After all, they plicated, even though the law al- are of refugee origin or are dis- lows someone with $150,000 to placed persons. come and apply. Let me give you Q: So far, the donor nations an example of investors being put have contributed only a frac- off: People were very enthusias- tion of what they pledged. tic to come and invest in the PA Why do you believe that is industrial zones, but I think the the case? closure and related measures A: We have to be fair. Some such as the back-to-back trade, donors have actually fulfilled convoy trade system and the lim- ited number of trucks, processed their commitments, but others every day makes private-sector have not. Out of $500 million business life extremely difficult. pledged in 1996, we have re- We have $85 million of projects ceived about $43 million. Some on the ground, but during the do- won't give money because they sure, these have been hit hard. are not ready to finance the clo- We couldn't get cement into sure, and others say the money Gaza. PECDAR has 144 em- is for a successful peace process, ployees — 70 in the head office but the peace process is not suc- — but only 30 can get in from cessful. Nablus, Jenin and Bethlehem, Q: Could it not also be the and this has delayed the public case that potential investors investment program by more are backing away because than a year. they fear corruption in the Q: Just how bad is the eco- PA? nomic situation in the West A: I am not aware of any cor- ruption. All these types of things Bank and Gaza now? A: There is 38 percent unem- were settled long ago. In the past, ployment in the West Bank, 51 a percentage of these revenues percent in Gaza. Per capita in- was going to accounts not under come in the West Bank has de- the direct control of the ministry clined from $2,000 to $950 and in of finance. However, all that has Gaza from $1,200 to about $600. changed. The latest IMF report, There has been a drop of about 25 and finance ministry documen- percent in GDP overall, a decline tation shows that everything is in order. The IMF checks that in foreign investment, a deficit in crease. Tax collection is also in a every penny is accounted for. bad way. If there is no business, Q: A delegation of Israeli there is no tax collection. businessmen is expected to Q: The Palestinian Au- meet in the coming weeks thority's insistence that Is- with Arafat. How large a role rael re-admit Palestinian can the private sector play in workers may be a good short- developing peace? term solution to your prob- A: It can really raise the flag lems, but will that help in the SHAKY page 62 long term? damage to the business environ- ment in Israel. 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