Palestine's Peace Dividend Doesn't Include Prosperity

The Middle East peace process is finally moving. Palestine Liberation Organization chief Yassir Arafat has begun to impose law and order on the tumultuous Gaza Strip. The Israelis and Palestinians will soon ink an agreement for Palestinian elections and an Israeli troop pullback from West Bank towns. Syrian and Israeli military commanders recently held substantive talks on security arrangements.

Still, the Clinton Administration and the Middle East players are well aware that any peace agreements will be extremely precarious without an economic payoff--in a region that, except for Israel, has seen hard times since the end of the oil boom of the 1970s. So far, the peace process has brought the Palestinians penury, not prosperity, and that's hardly an enticing example for Syria as it contemplates peace.

Gaza has been pounded particularly hard. Although the prospect of a brighter future has sparked a small construction boom, the unemployment rate is approaching 50%, largely because Israel is keeping out most Palestinian laborers.

The U.S., Japan, and other countries are pushing hard to turn the region's troubled economies around. A major business conference is set for Amman in October. The U.S. is hoping to announce plans for a $5 billion regional development bank there.

BORDER CLOSINGS. Both private and public development efforts have been agonizingly slow, however. One problem has been that the Palestinian self-governing authority is only just gaining the competence to process projects. More serious problems are the lack of a commercial code and the continuing political instability. For instance, the Palestinians' best economic hope is probably export-oriented plants in their areas, but the prospect of disruptions from frequent Israeli border closings is chilling such investments. Mohammad R. Oweis, president of Amtec International Inc., a furniture maker in Greenville, S.C., recently shelved plans for plants in the West Bank and Gaza. The thought of inventory sitting idle "gave me cold feet," he says. He has built some apartment houses and a clothing factory near Nablus in the West Bank.

A lack of viable projects and frustrations with Palestinian authorities have also cut into foreign aid flows to the territories. Samir Abdullah, a top Palestinian economic official, estimates that only $300 million of the promised $850 million in foreign aid was distributed in 1994. The U.S. Overseas Private Investment Corp. (OPIC) hasn't found a single deal to finance, despite a $125 million five-year pledge.

In what could be something of a breakthrough, OPIC is inching toward approving a $36.5 million loan for a flagship project known as the Gaza Marriott Business Center. Marriott International Inc. would run the $80 million hotel on the beach near Gaza City, but the guiding force behind the project is Ziad O. Karram, a hotel developer based in Fairfax, Va. OPIC officials have been squirming over the numbers and the feasibility of a luxury hotel in squalid Gaza. Congressional pressure prompted by a July 13 hearing may light a fire under the bureaucrats.

If OPIC cuts a deal, it could break the ice for other U.S. enterprises. OPIC is sponsoring a business mission to the region soon. More than a dozen American companies plan to go, including Astrum International Corp. in Fisher Island, Fla., which wants to build a bottled-water project in Jericho, and Siguler Guff & Co., a New York money manager that is putting together a $250 million OPIC-guaranteed Middle East investment fund. It seems unlikely there is going to be any boom soon, but these baby steps could set the stage for the kind of investment and economic integration needed to cement the peace.

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