Why The Mideast Peace Dividend Remains A Mirage

When Middle East politicians mark the third anniversary of the historic White House handshake by the late Yitzhak Rabin and Palestinian leader Yassir Arafat on Sept. 13, it will be a wistful ceremony. Despite the hoopla, there's still no Mideast free-trade zone, major projects haven't gotten off the ground, and most of the region's economies are limping along. Euphoria has given way to the realization that the peace dividend is a long way off.

Consider Jordan, often viewed as one of the region's most stable countries. A weekend of riots on Aug. 16-18, in which residents of the city of Karak burned schools, government buildings, and banks, was a stark reminder of what happens when governments can't deliver jobs and growth. Amman blamed outside agitators, but most experts pointed to frustration over the spiraling cost of living. Bread prices had doubled after the government withdrew subsidies.

Jordan isn't alone. Egypt and the Palestinian territories also have yet to see a payoff from new investment. The situation is most severe in Gaza, where joblessness tops 60% and gross domestic product is half of its 1987 level. Only Israel is enjoying a boom. "There's a pressure cooker building up in the territories," says Commerce Under Secretary for International Trade Stuart E. Eizenstat, who met with officials in Israel, Jordan, Gaza, and Egypt recently.

The dismal outlook is far from what the Clinton Administration expected three years ago, when it sought to cement the peace accord with cash. The $1.05 billion doled out so far in aid has failed to jump-start infrastructure projects and lure investment. Says University of Virginia Professor William B. Quandt: "The notion that you can pave the way for peace with economic cooperation has been debunked."

What happened? Political instability surely cooled the investment climate. Rabin's murder, terrorist attacks in Israel, the Lebanon bombing campaign, and the election of hardliner Benjamin Netanyahu have moved officials on all sides to rethink cooperative projects.

Some aid never materialized. A regional development bank has yet to get off the ground, largely because the U.S. Congress has stalled the authorization of $262 million in startup funds. The Overseas Private Investment Corp. (OPIC) has made just one $1.1 million loan from its $125 million fund to underwrite business in the West Bank and Gaza. And money for energy and transportation deals has been diverted to pay for Arafat's Palestinian Authority.

"STONEWALLING." Israeli policies have worsened the situation. When Israel closed off the territories after attacks, it threw Palestinians out of work and drove up business costs. Some barriers seem aimed at shielding Israel's monopoly of West Bank and Gazan markets. Jordanian truckers, for example, must unload goods at the Allenby Bridge, where they are reloaded onto other trucks for delivery to the territories. "The Israelis are stonewalling Jordan on trade," says a Western diplomat.

A few cooperative deals are moving ahead. Jordan's Century Investment Group assembles garments with Israel's Delta Galil Industries, which exports them to U.S. retailers such as Gap. And Clintonites are crossing their fingers that an Egyptian-Israeli gas pipeline and a free-trade zone for Gaza will win Israeli approval before a November economic summit in Cairo. U.S. officials, worried they're losing momentum, are lobbying American CEOs to attend the summit.

But hopes for the promised new era of economic cooperation are fading. Until political mistrust abates, they are not likely to revive.

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