Palestinians’ UN Statehood Effort Puts Their Economy in Jeopardy
The Palestinians’ economy may fall apart if Israel retaliates against their bid for statehood at the United Nations by withholding revenue collected on their behalf, economic adviser Mohammad Mustafa said.
The danger of financial collapse won’t deter Palestinian Authority President Mahmoud Abbas from seeking full UN membership from the Security Council, said Mustafa, head of the Palestine Investment Fund and a senior Abbas adviser.
“There is always a trade-off between pain and achievement,” Mustafa said yesterday in an interview with Bloomberg Television in Washington. He said the Palestinian economy could collapse within weeks without the funds from Israel.
Israeli Finance Minister Yuval Steinitz said his government may withhold at least part of the $1.2 billion in funds it collects for the Palestinian Authority -- as much as 40 percent of its financial revenue -- if Abbas pushes for a UN vote.
Under the terms of the Oslo peace accords, Israel collects customs duties on behalf of the Palestinian Authority and forwards the money to it monthly. The transfer of the money, which belongs to the Palestinians, requires approval from the finance minister.
“It will be very difficult for us to continue to collaborate with a hostile Palestinian entity,” Steinitz said in an interview Sept. 20 in New York.
U.S. President Barack Obama told the annual meeting of the UN General Assembly that Palestinians must reach a negotiated accord with Israel rather than seeking statehood through the UN.
‘Unbearable’ Dangers
Israel has withheld the money in the past during disputes with the Palestinians.
The U.S. House of Representatives and the Senate have called on Obama to reduce the Palestinians’ annual $500 million in foreign aid if they proceed at the UN.
“If the financial situation gets worse, the level of frustration will go up and the dangers will be unbearable, so I hope that we will not get to that level of frustration and that people will get paid and the economy will continue to prosper,” Mustafa said.
Economic growth in the West Bank probably will slow to 4 percent this year from 7.6 percent last year, according to the International Monetary Fund. Gaza’s growth is likely to accelerate to 17 percent this year from 15.2 percent last year, following the easing of some import controls by Israel in mid- 2010.
Saudi Arabia said on Sept. 20 that it would pay $200 million to help ease a financial crisis that has left the Palestinian Authority struggling to pay employees and reliant on foreign aid to narrow a budget deficit of about $1 billion.
If Israel cuts the funds, “growth would go down to zero very quickly,” Mustafa said. “The growth has been driven primarily by external assistance and government spending. If that disappears, the growth would disappear too.”
To contact the reporters on this story: Jonathan Ferziger in Tel Aviv at jferziger@bloomberg.net; Lara Setrakian in Dubai at lsetrakian1@bloomberg.net
To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net
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