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Israeli-palestinian Conflict Spills from Battlefield to the Pocketbook

February 5, 2002
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Israeli-Palestinian violence is spilling over from the battlefield to a new venue — the pocketbook.

Bank accounts, accounting books, checks and cash are being recruited against the other side. And like much in this bitter conflict, even accounting systems have become emotionally laden.

Israel is considering dipping into tax funds it has withheld from the Palestinian Authority to make up for losses due to the ongoing intifada.

Eager to find every available shekel to shrink Israel’s growing government deficit, Finance Minister Silvan Shalom first raised the idea last month. Although Foreign Minister Shimon Peres opposes adding a financial aspect to the conflict, Prime Minister Ariel Sharon last week ordered Israeli Cabinet Minister Dan Naveh to tally the cost of the 16-month-old Palestinian offensive.

On the other hand, the Palestinian Authority — ignoring the fact that it initiated hostilities — claims Israel owes it $8 billion for damages the intifada has caused to Palestinian trade and wages lost from workers barred from their jobs in Israel due to security measures.

Complicating matters further, the European Union now says Israeli retaliation against Palestinian targets has damaged some $17 million in E.U.-financed infrastructure projects. Israeli officials worry that the E.U. announcement may be a prelude to a formal claim for compensation.

Naveh’s team met last week to assess the economic damage of the intifada. Initial estimates, he said, indicate that the Israeli economy has suffered billions of shekels of direct and indirect damage since September 2000, according to reports.

In addition, the National Insurance Institute reportedly paid some $50 million to terror victims last year. Actual damages may be much higher, but a thorough accounting job would be needed to come up with more exact figures.

Naveh requested that within the next few days the different government offices collect economic data, which will be reviewed by a subcommittee representing the Prime Minister’s Office, the Treasury and the Bank of Israel.

Naveh’s investigation coincided with a lawsuit 22 Israeli companies filed last week for compensation for $4.4 million in unpaid Palestinian bills. The firms charge the Palestinians are refusing to pay their bills for political reasons, and are demanding that the Israeli government make good from some $400 million in tax funds it owes the Palestinian Authority.

The money comes from income taxes and Social Security payments for some 100,000 Palestinians who worked in Israel before the fighting began, along with custom duties and sales taxes on items such as gas and cigarettes.

Israel froze the tax transfers shortly after the intifada began, arguing that the Palestinian Authority would use the money to pay the salaries of its security services, which have aided and at times led the attacks on Israel.

The Palestinians, too, have their share of economic grievances, particularly over the frozen tax money. Before the intifada, Israel used to transfer the payments to the Palestinian Treasury each month. The amount — more than $50 million a month, on average — was enough to meet the entire Palestinian government payroll, from doctors and schoolteachers to bureaucrats and policemen.

The Palestinian minister for economy and trade, Maher Al-Masri, warned Israel against dipping into the funds.

“This would be sheer robbery,” Al-Masri said. “The Israelis have no right to take our money.”

Evidently, there is no end to the list of mutual claims. According to U.N. reports, which have followed the Palestinian economy since the early days of the intifada, Israeli restrictions on Palestinian goods and workers have cost the Palestinians hundreds of millions of dollars in lost wages and sales.

Unemployment in the Palestinian areas has climbed to approximately 60 percent since the outbreak of fighting, and more than half the Palestinian population now lives in poverty, double the rate before the intifada, according to official figures.

The violence also has taken a serious economic toll on Israel production. Before the intifada, Israel’s Treasury predicted annual economic growth of about 4 percent. Those estimates now have fallen to 1 percent or less.

Tourism has vanished and foreign investors have quit, leaving the Tel Aviv stock exchanges to fluctuate nervously according to the general mood of economic uncertainty.

Farmers and contractors who used to employ Palestinian workers have switched to foreign workers — but the government, in its fight against unemployment, is trying to cut down on the number of foreigners in Israel, leaving farmers without workers.

Last week, the Labor Ministry was forced to reverse a decision to send home 4,000 foreign workers after citrus growers staged a violent demonstration in front of the Prime Minister’s Office.

Several factors argue against presenting a bill for intifada damages. For one, every claim raised seems likely to be faced with a counterclaim. For example, if the Palestinians file a bill for damages to the Gaza airport — Israeli bulldozers destroyed the runway in response to a terror attack — Israel can reply that the Palestinian Authority is responsible for allowing the terror.

Likewise, if Israel uses the Palestinians’ tax money, the Palestinians likely will argue that this contradicts international law, as well as agreements between Israel and the Palestinian Authority.

In addition, humanitarian considerations may serve as a brake. For example, the Palestinian Authority owes the Israel Electric Company and the Bezeq telephone company tens of millions of dollars, but service is not likely to be cut off because of the hardship it would cause.

Israel’s national infrastructures minister, Avigdor Lieberman, one of the hawks in Sharon’s Cabinet, recently suggested halting power supply to the Palestinians, but his proposal was rejected.

Whatever financial claims the Israelis and Palestinians put forward primarily are intended for symbolic purposes. Because of the fragility of the P.A.’s budget, the withholding of tax funds is the most serious sanction Israel has used against the Palestinians — but it has been balanced by increased contributions from Europe and the Arab world.

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