Now, Arafat Has To Deliver The Milk And Honey

A successful vote may set the stage for an economic rebound

The peaceful and enthusiastic Palestinian election of Jan. 21 was yet another sign that after a rough beginning, progress toward Palestinian self-rule is moving along better than many analysts expected. Voter turnout of almost 70% in the West Bank and close to 90% in Gaza amounts to an impressive endorsement of the peace process--even though some candidates were critical of the series of deals that have been struck in the last two years between the Palestine Liberation Organization and Israel.

The election may set the stage for the economic rebound needed to further stabilize the Palestinian areas. The beginnings of such a trend are already there. Although figures are sketchy, the Palestinian economies probably reached double-digit growth in each of the last two years. A construction miniboom has created 30,000 jobs in Gaza alone, by some estimates. Now it's up to newly elected Palestinian Authority President Yasser Arafat to preserve and accelerate the momentum.

INVESTORS WELCOME. The hope among Palestinians, Israelis, and American negotiators is that the elections will help create a more stable, legitimate government than the ad hoc affair that Arafat has run since 1994. That shift is, in turn, intended to convince wealthy Palestinian expatriates and foreign investors that the Palestinian areas are a reasonably safe bet for projects. "We have hundreds of millionaires who want to come but are still waiting because of the uncertainty," says Samir Abdullah, a former Palestinian Authority economic official.

One question is whether Arafat will be able to tolerate criticism from the 88-member Palestinian Council, whose role is still largely undefined. Although Arafat's Fatah faction will likely gain two-thirds of the seats, voters rejected many of his hand-picked candidates including Zakaria al-Agha, a prominent Gazan who served as Housing Minister in the outgoing Palestinian administration. "Arafat will not have an easy time as he will be faced with different views on many issues even within Fatah," says Samir Houlele, an official in the Palestinian Economy & Trade Ministry.

But perhaps a more crucial problem is management of the economy. Arafat is still slowing down development by reserving too many decisions for himself. One result is that only $85 million of the $2.3 billion in international aid pledged to help cement the Palestinian-Israeli peace has been spent on development, according to a recent study. An additional $130 million has gone to cover the Palestinian Authority's budget deficit. Turf fights between economic chiefs--Planning & International Cooperation Minister Nabil Shaath and Economy Minister Ahmed Qorei (Abu Alaa)--have delayed bringing AT&T and other interested multinationals in to help lay down infrastructure, reports a U.S. diplomat.

The Palestinians say they plan to greatly accelerate development spending this year, with $500 million going to infrastructure projects, including a port and airport in Gaza. The European Community recently promised an additional $865 million in aid for development projects.

FEW MARKETS. Arafat will be under pressure to persuade Israel to honor its commitments on greater access to the Israeli market for Palestinian agricultural goods and other products. It is also important for Israel to admit more than the present 50,000 Palestinian workers to help ease the unemployment that is estimated at 50% in Gaza and 35% in the West Bank. Palestinian entrepreneurs say that as things stand, Israelis are getting the best of the economic relationship. For example, they say that 70% of the building materials used in the territories come from Israel. And the powerful Israeli agricultural lobby is keeping such Palestinian products as tomatoes and cucumbers out.

Still, some Palestinians already are seeing a big change in business conditions. Yehya Kadamani, who directs the Bank of Jordan's operations in the West Bank and Gaza, reports that his bank and the 11 others in the territories have taken in more than $1 billion in deposits locally. The Jordanian bank heads an Arab group that has bought 250 acres of West Bank land near Jenin--not far from the so-called Green Line with Israel. Cigarette and aluminum factories are planned at the site. The Bank of Jordan also has set up a $50 million investment company with two other banks. While such steps are small, they are far more auspicious than the rock-throwing and constant strikes of the recent past.

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