Samir Hleileh, an economist who teaches at Birzeit University, is deputy director of the Palestinian Technical Committees and a liaison with the World Bank and other international agencies. Joe Stork spoke with him in late October 1993.
The Oslo agreement builds in an Israeli economic component to a surprising degree.
The economic protocols are the price we had to pay for the agreement. We are for regional cooperation, we are for Israeli-Palestinian cooperation, but this has to parallel agreements on all issues. I thought it was premature to speak about cooperation in all these aspects and specific joint-venture kinds of work before we solve basic political problems. If Jerusalem, refugees, borders, security and other issues are not addressed, then why are we talking about economic protocols?
To what extent is this Palestinian entity going to be an economic protectorate?
If you know the PLO and our decision making, we never see an agreement as the ceiling but as a starting point for negotiation. When it comes to the details and implementation, we are very cautious and clear that this must go in phases, in conjunction with the political process. We have shortcomings in our economic capabilities to compete or to integrate with a stronger entity. We understand that. If this is the price we have to pay on paper, then on the ground we have to see that we pay something else.
What is the strategy for doing this?
Whatever we agree with Israel has to be consistent with our agreements with Jordan and Egypt. Jordan until now, and maybe others, are not ready to accept such contacts. So implementation would be delayed a little bit.
What is your vision of the Palestinian economy after five years?
We are a small economy that must rely on agreements with its neighbors, first of all Israel and Jordan. And an economy that has to empower the private sector as a main source of investment, know-how and management in order to compete. The human resources we have, the capital that our diaspora has, and the best possible political leadership we could have in economic negotiations with our neighbors — these are the three dimensions that we should use. I see open borders or free trade as a goal in the region, but I see us getting there in phases. What’s more important, it should be based on reciprocity. Until now our relationship with Israel has been a one-way street, and the same with Jordan. We will have tremendous difficulties in managing the coming phase. The next year, year-and-a-half, will be the most important in determining the future of this area.
What are your priorities as a chief economic adviser to the state-in-formation?
In the first phase, our economic planning is completely determined by political reasoning. I’m not excluding economic or social aspects. We want a small emergency program directed to gain popular support for the agreement. Infrastructure, or what we call rehabilitation of our economy and institutions, needs maybe two or three years. This would be phase two.
In the first phase we have to focus on unemployment. We have to focus on already established institutions, that they should survive and continue. I’m not talking about creating jobs for the 130,000 unemployed we now have. This task needs billions of dollars, which we don’t have. The $200-300 million that is available for the coming few months could create something like 10,000 jobs if you invest it in infrastructure. Such a large number of unemployed means that we should focus not just on creating jobs but on income generation and social welfare programs. Think about it in the following way: If we want to have a social welfare program for our unemployed, maybe we need something like $1,500 a year per person to allow a family to survive. If you want to pay salaries to people in existing institutions, you’re talking around $6,000 per person per year. If you want to create a job in the productive sectors, especially agriculture and industry, we are talking about $15-25,000 per job per year. In infrastructure and housing, we are talking about $25-40,000 per job per year.
With the money we have, we have to achieve a balance. If we have 130,000 unemployed, Israel should make it possible for an additional 30,000 to work there, meaning we’d still have 100,000 unemployed. We can target maybe 8,000-10,000 with some job opportunities. We have to target the others with other means. We should be professional from a political point of view, not from an economic point of view. Money spent on salaries doesn’t create development, but it creates survival, it creates momentum for peace and for the agreement.
This could be read cynically as a peace payoff.
We are experiencing a siege on our institutions. What does it mean to provide new buildings for universities when already established institutions cannot pay salaries? It should be understood in that way until there is a government that can collect taxes and distribute public revenues.
In terms of taxation and revenue generation, does the whole system have to be created?
The main issue is whether the rate will be the same as in Israel or lower. In the West Bank, the accord assigns to us the right to manage only income taxes, which doesn’t cover more than 10 or 15 percent of the Civil Administration budget. Indirect taxes — value-added tax (VAT), customs and fees — comprise the bulk of revenues. The Palestinian private sector wants to cancel direct taxes, which we cannot accept. We understand the need to restructure tax brackets, to reform the methods of tax collection, and even a special treatment for the local productive sector in the first few months or years. But the idea of either having or not having taxes should not be an issue for negotiation.
Are you speaking for yourself?
No, I’m speaking for the PLO. A new administration could not survive without the revenues from direct taxation. So the issue is also the trade agreements, which will determine what we can tax and at what rates. If there are open borders, there will be a need for a small difference in the VAT rates. The Benelux countries, for instance, have free trade but also differences in the VAT.
For the purposes of attracting capital?
No. We should not burden our producers when our budget doesn’t have to finance an army, like Israel, or a very big bureaucracy. We may reach a compromise with Israel on a 13 or 14 percent VAT instead of 17 percent. This is compatible with the principle of open borders.
What do you anticipate to be the socioeconomic profile of this society five years down the road? Do you anticipate that Palestinian capital is going to play a leading role?
If it was left to our political parties, the authority would be very centralized. But our diaspora businessmen sit on our different committees and councils. They have a very tight relationship with the leadership, since they were more or less funding the PLO. They will surely have a basic role in determining the future profile of our society for the coming few years. I’ll be relieved if we can strike some kind of balance, at least when it comes to education, health and social programs.
You worry about this, then.
A little bit, yes.
It’s not just an issue of funding?
It’s a political decision. Sufficient funds, of course, would make such decisions easier. I hope that we can use these five years of international assistance to establish the basic mechanisms and procedures.
Five years from now, Palestine may face a structural adjustment issue as severe as anything we’re seeing now in this part of the world.
Again, the issue is decision making. At this point it’s not quite clear if we have a consensus on this that is consistent with a democratic political system and a rule of law, as opposed to a personalistic and authoritarian system. Accountability and credibility are not yet institutionalized.
What is your anticipation regarding the Palestinian Economic Development and Reconstruction Agency (PEDRA)?
Managers need systems, they need institutions. There should be politicians at a certain point to provide policies, and managers who can decide single cases. If we have structures where job descriptions and the division of labor are not clear, and the delegation of authority is not clear, then we are in big trouble. Whatever Arafat’s capabilities are, he cannot do all that, even with advisers. But I believe that in order to go from the first phase to the second, there should be and there will be a crisis, a confrontation. I don’t believe there will be a voluntary withdrawal of the old system and leadership to a new one.
Are you — the professionals and technocrats — being consulted?
Yes, but the issue is not consultation. In Saudi Arabia they have a lot of consultation. The question is: Who makes decisions and how do they make them? The World Bank has recommended specifically how they’d like PEDRA to be, the Americans have recommended how PEDRA should be. We’ll have to see what the results will be.
Do you see the World Bank and the Americans being helpful?
I don’t like it, but they add some professional dimension in formulating their intervention, which is fine for me, because this supports my views and ideas. But I wouldn’t accept, as a principle, intervention which will govern our priorities, our policies. This is a conflict which has to evolve as in any other state. You have politicians and you have technocrats who fight over authority. This is the nature of the process, and it’s a long-term one, but outside intervention and interference are something we will not accept.
Are you, collectively, taking advantage of that?
I’m not comfortable that we are working in this direction. There are problems and conflicts, internal ones, that could provide rationales for others to intervene and to put their ideas here and there.
What has been your experience as deputy head of the Technical Committees?
Our basic goal since they were established has been to provide our negotiators with working papers and policies, and to provide a vision for the kind of infrastructure we need for the governing body, or state. Now we have a completely different task. We are establishing the structures themselves while at the same time continuing negotiations. These additional tasks need different skills. We cannot continue on a voluntary basis.
Building a country is a hell of a job. That’s where the European Community and international agencies have started helping us. The Technical Committees are more central, but there are still questions of how they are related to decision making. We are trying to adapt to new realities as fast as possible, to be helpful, and to be concrete within the process, not outside of it. Not to be academic.
