Wednesday, August 8, 2012

Gatestone Update :: Michael Curtis: Is a Palestinian State Today Economically Viable?, and more


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Is a Palestinian State Today Economically Viable?

by Michael Curtis
August 8, 2012 at 5:00 am
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The Report of the World Bank is a bitter commentary on the Palestinian economy, currently in a self-inflicted decline induced by the violence it brought on itself by launching the Second Intifada in 2000. Above all, the fundamental requisite for economic and political progress is to end the violence.
Over the last year Palestinian authorities have spent a great deal of time calling for a unilateral declaration of a Palestinian state while refusing to resume peace negotiations with Israel. Although they garnered political support for this in the UN General Assembly in September 2011, a new report from the World Bank, from April 2012, and made public in July 2012, indicates that the efforts of the Palestinians and their supporters would have been more usefully employed in thinking about the economic viability of such a future state.
The conclusion of this sobering report, which contradicts the more optimistic picture of the Palestinian economy presented by the IMF in 2011, is that although the Palestinian Authority [PA], the official representative group established in 1994, has made steady progress in many areas towards establishing the institutions required by a future state, the economy is currently not strong enough to support such a country. The report is a bitter commentary on the the Palestinian economy -- especially compared to the economies of Israel and even Jordan -- currently in a self-inflicted decline induced by the violence it brought on itself by launching the Second Intifada in September 2000.
The crucial problem according to the report is that the Palestinian economy has become increasingly dependent on foreign aid to drive its growth, a means of generating income that is insufficient for economic sustainability. Foreign aid has given the Palestinians billions of dollars -- by 2008 about 56% of GDP. This led to a GDP growth of 7.7% between 2007 and 2011; in some years its growth even reached 9% a year.
But that growth is artificial and is not sustainable for three reasons. Foreign donations have funded government expenditures and been largely in the area of government services, real estate, and other non-tradable sectors. The productive sectors have declined in importance: there has been a decrease in manufacturing, down from 13% to 10%, and in agriculture from 9% to 6%.
The inflow of foreign aid in 2007 led to some improvement in GDP in the West Bank. Gaza experienced growth because of the foreign aid and the expansion of trade through tunnels from Egypt. However, the Palestinians now face a crisis because important donor countries have so far not sent aid or have sent less aid in 2012. The PA now has a deficit of $1.5 billion in its budget of about $4 billion, and a cash shortfall of $500 million. It has been promised $100 million from Saudi Arabia which is insufficient to end the crisis.
Those who admired the second Intifada, heralded by Yasser Arafat but which generated violence for over two years and halted progress to peace negotiations, will now realize that it was a disaster, a severe blow to the Palestinian economy. The violence only resulted in the West Bank and Gaza suffering a severe economic contraction. Between 1999 and 2002, real GDP fell by 27%. In 2007 real per capita GDP was 23% below the 1999 level. Industry, agriculture, tourism, and some other services declined. Public administration, defense, and public services such as health and education grew from 20% of GDP to more than 27%.
The report argues that the PA must increase private sector growth, must improve its trade infrastructure to lower costs and increase efficiency, must improve the investment climate and must improve the quality of the workforce. Sustained economic growth entails a strong dynamic private sector that can generate jobs both to employ a rapidly growing population and to provide resources for government to provide services.
This necessary dynamism is lacking. The Palestinian private sector is overwhelmingly dominated by small family-owned businesses. The high cost of doing business lowers competitiveness. The Palestinian businesses mostly focus on the local market. In addition, relatively high wages, compared to other countries such as Turkey and India, high transportation costs, and low level of innovation also reduce competitiveness.
Yet, even with significant growth, it is unlikely that the PA can support an administration of its current size. It must reduce costs, raise revenues, and move to fiscal sustainability. Politically, the report recognizes that investment would be increased if a peace agreement were reached between the Palestinians and Israel.
The Palestinian economy over the last decade has been characterized by high levels of unemployment and underemployment, some of the highest rates in the world. These have varied between 20% and 30%. Those rates are accompanied by low levels of labor force participation, about 41%. Even more troubling has been the decline in youth employment and economic participation, and the extremely low level of female labor participation. In 2010 youth unemployment in general was about 34%, and 53% in Gaza. During the last decade, the rate for women participating in the labor force was below 16%. The result of this high unemployment and the decline in private sector wages relative to government wages, has led to high levels of poverty: in 2009 it was 22% in the West Bank and 33% in Gaza.
The report makes the obligatory criticisms that Israeli restrictions significantly impact Palestinian's ability to trade and remain the biggest impediment to investing because they create high uncertainty and risk, and that Palestinian goods have difficulty entering the Israeli market. But it ignores that this damage is also self-inflicted as these restrictions are due to Israel's security needs as a defense against further Palestinian violence. The Report also says nothing about the climate of innovation in the Israeli culture, and how it has continually overcome adversity -- factors that help explain the large disparity between the GDP per capita of Israelis and Palestinians.
How can the viability of the Palestinians be increased? Clearly, there are problems to be resolved besides the acute one of differences between the Fatah control of the West Bank and the Hamas rule of Gaza since 2007.
If the Palestinian narrative has gained some resonance in the political realm, the PA has lacked competence in economic matters and not been devoid of corruption. It could try to build a better business and investment environment by reforming the legal system, especially relating to land, now composed of a disparate group of layers of Ottoman, British Mandate, Jordanian, Egyptian, Palestinian laws which differ between Gaza and the West Bank, and Israeli military concerns. Although the report speaks of the well educated, entrepreneurial population in the West Bank, it is apparent that the skill level of Palestinian workers needs to be improved by more emphasis on cognitive and behavioral skills, such as discipline and work effort.
Most importantly, and not sufficiently stressed by the World Bank report, are the benefits that would accrue to the Palestinians were there a peace settlement. Economically, these would include a well-balanced customs union between a future Palestinian state and Israel, and a non-discriminatory policy of free trade agreements. Above all, the fundamental requisite for economic and political progress is to end the violence.
Michael Curtis is author of Should Israel Exist? A Sovereign Nation under attack by the International Community.
Related Topics:  Michael Curtis

Is the Syrian Civil War Hindering a Strike on Iran?

by Yaakov Lappin
August 8, 2012 at 4:00 am
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The loss of its major regional ally, Syria, could be a blow to Iran that might even induce it to speed up its nuclear program.
Is an Israeli or American strike on Iran's nuclear weapons program being held up by the raging Syrian war, and the unstable status of Syria's chemical weapons?
Syria possesses the Middle East's largest stockpiles of chemical weapons, which include deadly VX nerve gas, sarin, and mustard gas. It has also developed an advanced Scud missile program to serve as a delivery mechanism.
In addition, Damascus has a reported biological weapons program.
There are several factors currently at play in Syria and the region indicating that the future of those weapons is uncertain -- a factor that could prompt military planners to push back a strike on Iran to ensure that resources are available to deal with these threats from Syria if necessary, including jihadi organizations of all stripes who could try to snatch these incredibly dangerous arms.
Further, as Syrian rebels continue their country-wide military assault on the Assad regime, pro-Assad elements have taken to the airwaves in recent days to openly threaten outside forces with unconventional weapons.
While Israel has openly been singled out as the target of their devastation, the messages are directed just as much, if not more, at Turkey and other NATO forces who are contemplating a limited invasion of northern Syria.
An invasion would be aimed at setting up safe havens for displaced Syrians, thereby stemming the flood of Syrian refugees who are flowing into Turkey.
"Let me tell you something. I cannot tell a lie. We have biological weapons. What's the problem? We have advanced weapons. Why lie to the people? We have them. That is what's known as the balance of power. You [Israel] have nuclear weapons, and we have advanced biological weapons," Syrian MP Ahmad Shlash, deputy chairman of the Foreign Affairs Committee, recently told Hezbollah's Al-Manar television in a clip translated by MEMRI.
The same MP said that Syria has "all types of missiles. All types of missiles! Let them bear in mind and take into consideration that Syria has both chemical and biological weapons".
In another TV appearance, Syrian MP Sharif Shehade said: "If the Syrian government has weapons of that type – of course they will use them against any attacker. What should we do with them? Make tabouleh or fattoush salads? Of course we will use them against our attackers. That's only natural."
The threats emanating out of Syria and Turkey's posture regarding a potential intervention mean that the civil war could escalate into a regional international conflict involving the possible use of unconventional weapons -- a contingency that could also place plans for a military strike on Iran's nuclear sites on temporary hold.
A military operation targeting Iran at this time could also tempt Assad to join an Iranian and Hezbollah counter-strike that would involve firing of thousands of rockets and missiles at the Israeli home front.
Although Assad would be risking a lethal Israeli knockout blow to his regime by joining a counter-strike, he could reason that if he survived the confrontation, he would regain legitimacy at home and in the Arab world, thereby regaining at least some of his crumbling position. The more desperate and embattled Assad is, the more likely he might be to involve Syria in an Iranian counter-strike.
Waiting until Assad is overthrown would eliminate the most dangerous potential war front that could open up after a strike on Iran.
In the estimate of many Syria experts, once the Assad regime falls, Syria will fracture into warring ethnic-sectarian provinces for a considerable period of time, meaning that Syria would have no ability to initiate conflict with its neighbors.
Even if a new government managed to come to power in Syria, it would in all likelihood be a Sunni-dominated entity, hostile to Shi'ite Iran and its southern Lebanese ally, Hezbollah, both of which have been accessories to the war crimes being perpetuated against Syrian Sunnis. A Sunni-led Syria would go from being an Iranian ally to a hostile foe of the Shi'ite theocracy.
The loss of its major regional ally, Syria, could be a blow to Iran that might even induce it to speed up its nuclear program.
The coming weeks and months will determine if Assad will be overthrown and if Iran will reach the point of no return -- and the consequences to the region.
Related Topics:  Iran, Syria  |  Yaakov Lappin

Iran and Israeli Politics

by Rotem Sella  •  Aug 7, 2012 at 1:15 pm
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Most analysts, for some reason, have been analyzing the military perspective. Does the Israeli army have the capability to pursue such a complicated operation against Iran while managing potential responses from Iran and her proxies and allies (Hezbollah, Hamas, and, to some extent, parts of Syria)? While the purely military question is important, I would like to suggest that questions of timing and capacity depend not so much on the capacity of the army as on delicate political calculations – both internal and international – currently being assessed by Israel.
Let us assume Israel can damage or destroy Iranian nuclear facilities, postponing Iranian ambitions for at least a year while absorbing any rockets or other attacks by Iranian proxies. The question of attack still remains delicate and problematic within the political sphere.
Western media has been quick to pounce on generals who have aired public skepticism about an Israeli attack. But political opposition is perhaps more important. When Menachem Begin ordered the successful attack on the Iraqi reactor at Osirak in August 1981, the Israeli opposition, along with the 'world community', was unimpressed. A certain Shimon Peres, then head of the HaMa'arakh (The 'Allignment Party', main opposition to Begin's Likud at the time), claimed that the attack, coming as it did three weeks before an election, was purely political, designed to win elections and would draw more world criticism against Israel. Peres said it was a 'sensitive moment', with Ronald Reagan (prompted especially by his Secretary of Defense, Casper Weinberger), supporting the UN denunciation. That same Shimon Peres remains vocally against an attack today. Ha'aretz reported in late February that Peres told Obama that Israel "should not attack Iran," and that Israelis are overly paranoid הפחדה עצמית בלתי פוסקת" (Incessant-Self-Scaring) (http://www.haaretz.co.il/news/world/middle-east/1.1648254).
This wasn't the first or the last time that the irrepressible Shimon aired his opinion against a strike. Just last Friday, Ari Shavit, the Ha'aretz political columnist, reported on Israeli television that Pers remained the real head of the opposition to an Israeli strike:
"The real fight is not between the Political leadership and the army leadership, but between
The political leadership and the president's house… The president uses all means to try to stop Barak and Netanyahu from striking Iran"
Peres, of course, has no 'formal' political power, but he enjoys the reputation of an elder statesman, has connections to world leaders, and has nothing to lose and no one to unseat him. There is further a large constituency for what Peres has to say.
Reuters/Ipsos reported in March that 56% of Americans supported a strike against Irael, 39% opposing it. When questioned about whether they would let Israel do it, support went up to 62%.
(http://www.reuters.com/article/2012/03/13/us-usa-iran-poll-idUSBRE82C19Y20120313) In Israel on the other hand the picture is very different. Tel Aviv University's INSS (The Institute for national security studies) polled Israeli support for attack at 48%. 52% of Israelis prefer "political actions" to stop Iran from acquiring the bomb. (http://www.inn.co.il/News/News.aspx/238981) These polls are consistent with other polls that show that while there is a wide support for a strike in the US, The Israeli population is more cautious.
While the Israelis are cautious, the media is resolutely decided – against. Ha'aretz, Israel's leading intellectual broadsheet, four of the five recent op-eds on Iran oppose an Israeli strike. In an op-ed titled "An Iranian bomb will contribute to a peaceful Iran" Prof. Emeritus Ben-Ami Shiloni, following some prominent US 'realists', said that a bomb would make the Mullahs more rational. The piece was "liked" on facebook 364 times, and at least half of the 221 "talkbacks" supported the thesis. Nachum Barnea, the so-called "dean" of Israeli political commentary, even claims that the Iraq operation in 1981 is a "subject of controversy", i.e. not a clear cut success. Apparently, the only newspaper which favors a strike is Israel Ha'yom, Israel's most read tabloid. This is not enough.
The Israeli political sphere assumes that any strike on Iran – successful or not—will lead to elections. Netanyahu, who would like another four years in office, does, for better or worse, take the opposition to the strike in media and public opinion into consideration.
Another important political calculation for Netanyahu is the US presidential election. Netanyahu, his closes advisors and Israeli "conservatives" all see President Obama as a serious threat to both Israeli interests and stability in the region. A successful strike on Iran before November might force Obama to back Israel in the short term. "War President" Obama could help his re-election, something Netanyahu, if he can help it, would try to avoid. Even if Israelis are over-estimating the extent to which they can influence this election, this calculation is still being made by Israeli officials.
The decision to attack Iranian facilities, then, is not just a military problem, but a political one. Israelis are thinking not only about 'potential' Iranian responses – the closing of the Gulf, oil prices, -- and so on, but the domestic arena, President Obama, and also any political cards which Iran might play after a strike (calling for a binding non proliferation treaty and so on). A not marginal part of the Israeli leadership has persuaded itself that the diplomatic and political consequences of a strike might be a bigger threat to Israel than the capabilities of Hezbollah, Iranian missiles, and Hamas. The various voices, of generals, of politicians, aired in public about to strike or not to strike, represent, with rare exceptions, just confusion rather than "sophisticated psychological warfare" for Iranian or American consumption.

Slouching Towards Greater Kurdistan?

by Pepe Escobar  •  Aug 7, 2012 at 11:43 am
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Of course I'm just scratching the (Martian) surface. In fact this is much more complex than Curiosity landing in Mars. And we have no CalTech geniuses to guide us.
In this article I'm trying to make sense of Syria from the Pipelineistan angle.
http://www.aljazeera.com/indepth/opinion/2012/08/201285133440424621.html#disqus_thread
The cast of characters is worthy of Tinker, Tailor, Soldier, Spy - from Syria, Turkey, Iraq, Iran, the US and Europe to Alawites, Wahhabis, Syrian Kurds, Iraqi Kurds and Turkish Kurds.
Here are some excerpts.
On Syria's energy strategy:
"The centerpiece of Syria's energy strategy is the "Four Seas Policy" - a concept introduced by Bashar al-Assad in early 2011, two months before the start of the uprising. It's like a mini-Turkish power play - an energy network linking the Mediterranean, the Caspian, the Black Sea and the Gulf.
Damascus and Ankara soon got down to business - integrating their gas grids, linking them with the AGP and, crucially, planning the AGP's extension from Aleppo to Kilis in Turkey; this could later link to the perennial Pipelineistan opera, the Nabucco, assuming this fat lady ever sings (and that's far from given).
Damascus was also getting ready to go one up on the IPC; in late 2010 it signed a memorandum of understanding with Baghdad to build one gas and two oil pipelines. Target market, once again: Europe.
Then all hell broke loose. But even while the uprising was underway, the $10 billion Iran-Iraq-Syria Pipelineistan deal was clinched. If finished, it will carry at least 30 per cent more gas than the bound-to-be-scrapped Nabucco.
Aye, there's the rub. What is sometimes referred to as the Islamic Gas Pipeline bypasses Turkey."
On the Greater Kurdistan surge:
"In Ankara's worldview, nothing can stand in the way of its dream of becoming the ultimate energy bridge between East and West. That implies an extremely complex relationship with no fewer than nine countries; Russia, Azerbaijan, Georgia, Armenia, Iran, Iraq, Syria, Lebanon and Egypt.
As for the wider Arab world, even before the Arab Spring, an Arab Pipelineistan that could link Cairo, Amman, Damascus, Beirut and Baghdad was being seriously discussed. That would do more to unify and develop a new Middle East than any "peace process", "regime change" or peaceful or militarised uprising.
Into this delicate equation, the dream of a Greater Kurdistan is now back in play. And the Kurds may have a reason to smile; Washington appears to be silently backing them - a very quiet strategic alliance."
A suggestion to enterprising US reporters soon to be hitting the campaign trail. What about this question: "Mr. President (or Governor), what is your position on Greater Kurdistan?" Now THAT would be more entertaining - and revealing - than landing in Mars.
Related Topics:  Pepe Escobar
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