Prime Minister Ariel Sharon's unilateral disengagement plan from the Gaza Strip will cost billions of shekels. Top economic sources in Jerusalem generally agree that Israel's economic establishment is not ready to carry the plan out in the near term.
The sources said the disengagement plan did not involve a total economic separation, but fences and crossing points would exist between Israel and the Palestinian Authority (PA) for the continued supervised transit of goods, workers, and money.
The sources said the 2004 budget did not currently allocate even one shekel for the unilateral disengagement plan, nor were there any hidden expenditure items or budget reserve for an IDF redeployment, the evacuation of settlements and settlers to the Negev, and compensation for the settlers.
Preliminary estimates for compensation alone total NIS 2.5-5 billion. The sources believe there is little likelihood that the US will provide financial aid to Israel for compensation, and definitely not in the amounts necessary.
The sources note that Israel has not yet received even one dollar from the aid pledged under the 1999 Wye Accords or for the IDF withdrawal from southern Lebanon in 2001. The unilateral disengagement plan will therefore require submitting a new multibillion budget, which will require choosing between three alternatives, or some combination of them:
- Another large across-the-board cut in ministries' budgets, including canceling the NIS 1.6 budget supplement for defense in 2004;
- Imposing new taxes, or canceling the cuts in income tax, VAT, and indirect taxes announced by the government during the past 18 months;
- Raising the budget deficit by 1% of GDP for at least one year, reschedule the debt over many years, hold massive bond issues on the domestic capital market, and raise loans from the public.
The economic sources added that economic disengagement between Israel and the PA is virtually impossible, due to the near total Palestinian economic dependence on Israel.
Partial disengagement is a protracted process
A partial disengagement from the West Bank, in addition to the Gaza Strip, would take a long time, since all electricity, water, and other infrastructures in Gaza are totally dependent on Israel.
Israeli exports to the PA total NIS 5.5 billion a year, and imports total NIS 1.28 billion. The PA's GDP is $3.8 billion, compared with Israel's $120 billion.
Israel collects all the PA's taxes, since it has no seaports, airports, or land border crossings to Egypt or Jordan. 36,000-45,000 Palestinians work in Israel, depending on the season and closures.
Over 60% of Palestinians in the PA live below the poverty line. The unemployment rate is 37%, four times Israel's rate. Unemployment in the Gaza Strip is even higher.
Published by Globes [online] - www.globes.co.il - on February 19, 2004