"We will do our utmost for the mission to suc-
ceed, but we see very clearly the difficulties ahead,"
Peres told reporters.
The Bush administration is trying not to raise
expectations. "It's very difficult for the process to get
started," State Department -spokesman Richard
Boucher said Monday. "We would not expect
instant results."
Yet there are reasons to believe this U.S. mission
might yield tangible results where others have failed.
The Bush administration wants solid Arab backing
for its war on terror. Ending Israeli-Palestinian vio-
lence with a peace accord that the Arab world con-
siders fair would help advance American interests.
Moreover, many have come to see the continuing
Israeli-Palestinian conflict as fertile ground for the
extremism that breeds terror. With many in the
Arab world criticizing U.S. support for Israel, which
allegedly comes at the Palestinians' expense,
American officials have an added incentive to get the
two sides to end violence.
In addition, Sharon will head to Washington over
the weekend to see President Bush and Powell, and
may wish to avoid the kind of public dressing-down
that soured his last visit.
Another reason is the losses Israel and the
Palestinians already have suffered. More than 700
Palestinians and nearly 200 Israelis have died since
the uprising began.
Then there are the financial losses: Israeli officials
earlier this month declared that the nation is official-
ly in a state of recession. The Palestinian economy
has been absolutely decimated.

Palestinians Tire

The cost of the violence provides a strong motiva-
tion to reach a cease-fire. There was some evidence
PEACE EFFORT on page 34

intifada in the fall of 2000.
• Maintain a continual intifada to discourage Jewish
immigration to Israel and encourage Israelis to emigrate.
• Build worldwide condemnation of Israel as a "racist"
state to prevent Israeli pressure on Arabs to leave Israel or
to reduce their birthrate. The U.N. World Conference
Against Racism in Durban, South Africa, in Auigust and
September was the apex of this effort to date.
• Promote an influx of Arabs into pre-1967 Israel
through infiltration and marriage. This also is occur-
ring, according to Israeli media reports.
Maguid proposes that future anti-Israeli actions be
spearheaded by Arab citizens of Israel and be coordi-
nated with the Palestinians and other Arab states.
He believes Arab infiltrators into Israel should focus
on marrying Israeli Arabs, making it virtually impossi-
ble for Israel to expel the illegal immigrants — at least
without opening itself to charges of racism.

Arab Influx

The population battle already has been joined.
According to Israeli estimates, more than 50,000
Arabs have moved into Israel since the signing of the
DEMOGRAPHY on page 35

Recession Kicks In

Intifada, world events help sink Israel's economy.

LARRY DERFNER

Israel Correspondent

Jerusalem

n top of being in a mil-
itary state of emergency
for over a year, Israel is
0 now in an "economic
state of emergency" as well, Prime
Minister Ariel Sharon announced
last week. He was about the last
person in the country to say the
words out loud.
The arrival of Israel's
economic crisis was
something like the
NASDAQ crash of last year —
everybody knew it was coming,
they just didn't know when. The
veils began falling from Israelis'
eyes last week when the economic
growth figures for the third quar-
ter of the year came in — 2.8%
in the red, the second straight
quarter of economic contraction.
It's no mystery what's caused
the recession. The NASDAQ
crash hobbled Israel's high-tech
sector, the turbo jet of the econo-
my. Then the intifada (Palestinian
uprising) came along and devas-
tated the tourism industry, at the
same time burdening the state
with the cost of fighting a new,
mass-scale guerrilla war. The
intifada, combined with the bur-
geoning world economic slump,
chased foreign investment away.
All this comes against the back-
ground of a construction industry
that's been in the doldrums now
for five years.
The economy was hit so hard in
so many places that the ripple
effect has touched virtually every-
one in the country. Then came
Sept. 11, and there was nothing
much left to do except wait for
the bleak statistics to confirm the
consensus expectations.
In a country where the prime
minister and the political echelon
get blamed for the weather, it's no
surprise that Israelis are blaming
the bad economy on Sharon. A
poll in Yediot Aharonot last week-
end found 73% of the public gave
the prime minister a failing grade
on economic performance.

The problem is that emerging
from this recession is probably
out of the hands of the prime
minister and the rest of the gov-
ernment. It wasn't government
economic policy that crashed the
NASDAQ, or started the intifada,
or chased away tourists and for-
eign investors. These are objective
conditions that drained the Israeli
economy of billions upon billions
of dollars; government policy, be
it liberal or conserva-
tive, can't replace it.

ANAL YSIS

Bleak Outlook

And while it is no mystery how
Israel got into this fix, it is a total
mystery how and when Israel will
get out of it.
The upshot is that lean times
are coming. People are going to
have to learn to make do with
less. But nobody — not govern-
ment, not business, not labor, and
certainly not special interests like
the Orthodox community — is
ready for that.
Begin with the government.
Cutting public services and bene-
fits alienates voters, so for Finance
Minister Silvan Shalom, who has
his eye on the prime ministership,
it's business as usual. He's drawn
up a budget for next year based
on the notion that the govern-
ment will have greatly increased
tax revenues, which will come as a
result of 4% economic growth.
Nobody believes Israel's econo-
my will grow by anything close to
that figure, but cutting back
expectations would mean cutting
back spending, which Shalom is
loathe to do. So while govern-
ment leaders may talk of an eco-
nomic emergency, they're spend-
ing as if the country's on easy
street.
As for labor, social security
workers have been striking for
weeks, joined by university pro-
fessors, and now the firemen.
Public sector strikes are as Israeli
as falafel, and no economic state
of emergency is going to change
that.
With unemployment rising and

government aid about to decrease,
social solidarity is being battered,
which is a mighty dangerous
thing when terror threatens every-
one and the army is fully engaged.

Self-Serving

Yet manufacturers aren't willing to
hold off on firings; in fact they
want a tax cut and a promise that
the minimum wage will not go up.
"Industry is the engine of the
economy. The country depends
on the taxes that industry pays,"
said Oded Tyrah, head of the
Israel Manufacturers Association,
arguing the industrialists'
demands. In fact, the majority of
government revenues come from
taxes on individuals, not industry.
But probably the greatest anom-
aly of this military and economic
state of emergency is that the sec-
tor of the Israeli population that,
by and large, neither works nor
serves in the army — the
Orthodox — continues to
demand more welfare. They
threaten to bolt Sharon's govern-
ment if they do not win passage of
a bill that would sharply increase
government aid to families with
five or more children — a law tai-
lored for Orthodox needs.
The good news is that Israel is
fundamentally a middle-class soci-
ety; a deep recession will hurt, but
will not drive the country into
poverty.
The restaurants and theaters
remain full and one out of every
five Israelis still travels abroad
each year. Even while three-quar-
ters of Israelis rated Sharon's eco-
nomic management poor, two-
thirds rated their own personal
economic situation as good.
The bottom third, however,
stand to get considerably poorer
in the near future. This will put a
severe social strain on the coun-
try; advocates in the poor towns
of the Negev and Galilee warn of
an intifada of the unemployed. If
that happens, maybe then Israeli
decision-makers will understand
the meaning of an economic state
of emergency. D

WItit

11/3C
2001

33

