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Building a Thriving Economy and a Strong Democracy

Monday, April 23, 2007

Edited Transcript of Remarks by Salam Fayyad
"For the Record" No. 277 (23 April 2007)

Palestinian Minister of Finance, Dr. Salam Fayyad, argued during a Palestine Center briefing that the 60-year-old Palestinian-Israeli conflict is of a political, not economic, nature. He explained that Palestinians do not want to forever rely on international assistance and are working toward becoming a self-sustaining entity. This event was covered by C-SPAN.

The Palestine Center
Washington, DC
17 April 2007

Samar Assad:

Before we start I would like to convey our condolences to the families and friends of those who lost their lives on the campus of Virginia Tech yesterday. May God give them the power to endure this tragedy.

We are honored to have with us today Dr. Salam Fayyad, Minister of Finance of the Palestinian Authority. Dr. Fayyad needs no introduction, especially to the DC community where he worked at the World Bank from 1987-1995. Born in the West Bank, he holds a Ph.D. in economics from the University of Texas at Austin. He was appointed Finance Minister in 2002, a position he held until 2005. During that time, he introduced reforms that brought a higher level of professionalism, accountability and transparency to the PA's finances. Last month, he was asked to return to the post and tasked with the "simple" job of rescuing an economy that is on the brink of collapse after a year of sanctions. He is an elected member of the Palestinian Legislative Council representing the Third Way bloc, which he founded and leads. On behalf of Dr. Subhi Ali, chairman of the Board of Directors of the Jerusalem Fund and its educational program, the Palestine Center, on behalf of all the Board of Directors of the Jerusalem Fund and staff welcome to the Palestine Center.

Salam Fayyad:

Thank you very much. Good afternoon to all of you. Thank you, Samar, very much for the kind, warm introduction. And I would like to start by extending my thanks to The Palestine Center and to Samar Assad for inviting me to speak before you today. It is always a delight for me to come to Washington. I see a lot of friends here. The Center and its success, actually, is a product of one of Palestine's stars, Hisham Sharabi, the foremost intellectual who contributed much to research and scholarship on Palestine. He both understood the necessity of education on the Middle East and the importance of providing a forum for opinion and thought on Palestine. Hisham left behind many footprints, including the Center. Thus, it is a pleasure for me to address you here today.

With this introduction, I'm going to skip some remarks here to try to limit the time I speak to about 20 or so minutes and try to leave as much time as possible for interaction to take questions and comments. This is an educated crowd, well-versed on the question of the Middle East, Middle East issues and Arab-Israeli conflict. So, I would not want to spend too much time talking but rather devote more time to taking questions.

I would like to begin my remarks by saying a few words about the economic situation. That is something that people may not be sufficiently familiar with, the extent of the deterioration of living standards generally in what I term by way of index of human condition in Palestine these days, particularly after the intensification of restrictions over the course of the past year. And I say intensification of restrictions not restrictions because restrictions have been in place for quite some time, and a lot of people associate the imposition of sanctions or restrictions with just what happened over the course of the past year, which is not true in many ways. Actually, as you all know, the Palestinian economy, the Palestinian people, both in the West Bank and Gaza, have been subject to living under conditions of a tight closure regime that's stepped up or eased from time to time dependent on what's going on but generally speaking the state of economic suffocation, if you will, that makes normal economic life virtually impossible. Conditions became more difficult over the course of the past year after the general 2006 elections, and in some ways, there are actually new restrictions that were not there before. And here I'm referring to banking restrictions that curtailed the ability of banks to deal with government or under government business.

The international community tried to intervene in a very substantial way with the intent of trying to prevent humanitarian crisis at a large scale from occurring in the West Bank and Gaza Strip. And that effort was largely successful to the extent of what it intended to accomplish, which is to prevent a humanitarian crisis on a large scale from occurring in the West Bank and Gaza. If measured by the bottom not having fallen off, I think, to the extent that there has been substantial assistance in the course of the past year, that was a contribution. That's what happened. Indeed, what is not known among people who talk about restrictions, the siege and intensification of restrictions is that at least and so far as volume of assistance is concerned, the donor community extended a lot more assistance in the course of 2006 than it did in the past two years. In fact, by way of comparison and when we look at all budget support, the international community, mainly European countries and Arab countries, provided at least 250 percent more in 2006 than the international community provided in 2005. In fact, what was received by the PA [Palestinian Authority] in the course of 2006 by way of budget support or something that looks like budget support is equal to about what the PA had received over the period of 2003-2005, a three year period. And it was not policy based intervention in the sense of it being tied to policy changes or adjustments or improvements or anything like that. It was motivated by the need as well as to intervene to prevent humanitarian crisis. And that effort in that sense, I think was successful in it contributed to preventing the humanitarian crisis.

Where donors unintentionally contributed too low, given the way in which they chose to do business with the Palestinian Authority in the course of the past year was a state of institutional degradation because given the fact that the donor community did not wish to deal with the government that took office after the first quarter of last year toward the end of March of last year, to be precise. Donors gave them money, but they chose to do it in a manner that bypassed the government and specifically the Minister of Finance of the Palestinian Authority, which under our law is suppose to be the only address for handling public funds, whether on the receipt side or the expenditure side. In fact, much of the reforms that the PA was able to introduce over the period of 2002-2005 with a lot of encouragement, support and assistance by the international community was intended to accomplish that - to bring into better alignment what existed, what should exist by way of international norms with the Minister of Finance being the only address for managing public funds - and that was accomplished, completely. Unfortunately, given the effort to bypass the Minister of Finance, what that led to was a reemergence of a lot of the problems that I personally thought we had settled and we dealt with definitively and finally. What we had reemerge in the course of the past year was, for example, phenomena like extra budget of spending, multiplicity of spending centers, the Minister of Finance not in control of the receipts of the PA and a state of fragmentation. That is how I can best describe to you the system of public finance or the state in which I found the system of public finance when I joined the government about almost now a month ago.

So, there is a good deal of repair work that has to take place on the administration side to really get things back going again and get the system back up in line with a fairly high international standard as we should do. And I would like to tell you that work has indeed begun in earnest effort to repair the system, fix it and get it ready again to do what it should do right: manage public funds in a fully transparent and accountable fashion.

We started out by doing something I recall vividly having done as my first act as minister when I first joined the PA in 2002, which is try to consolidate all of the PA revenue under the control of the Ministry of Finance. So far as domestic revenue is concerned, that task has been accomplished already in the first few days of joining government. It was important to do, but quite frankly I was a little bit emotional about it when I did this because that was the first thing I also did when I started in 2002. I thought we got that problem dealt with definitively and finally, only to find that we had to do this again. What remains is to try to actually get control of the rest of the resources coming to the PA. Here, of course, I'm talking about external assistance of which we need a lot, quite frankly. What stands in the way of being able to manage that part of the revenue or resources of the PA are the banking restrictions which curtail/limit the banks ability commercially - banks' ability or willingness to deal with the government, to handle government business and deal with the Minister of Finance.

We are in discussion on this issue with the U.S. authorities, and we're making progress. I hope we'll be able to resolve this matter fairly soon. And when that happens, we will be in position again to be able to manage public funds in a way similar to that which we are able to accomplish with a good deal of support and encouragement and promotion from the international community.

I say this to you because I wanted to highlight to you the priorities as we see them. We do need a lot of assistance, but we also need to start by trying to help ourselves as best as we can to the extent that we can do it on issues where the administration's key priority is to manage in a good adequate way, in a way that is seen as adequate and acceptable first and foremost by the Palestinian people and surely of course by the international community, which has been generous with us over the years in terms of its willingness to act in support of our effort to build institutions and to fund deficits in our budgets consistently, year in and year out.

To be completely frank and open about this, not all of this need is cyclical in nature. A good part of it has to do with the context in which we are operating. Often times when we talk about institutional building, when we talk about financial policies and adequacy of governments, we tend to forget the context in which we are operating - the context of occupation and what comes with that by way of practices that actually limit the scope for normal economic life and possibility of managing a normal setting. That is something we don't have. I don't feel we have ever had the privilege or the opportunity to manage something that looks like a normal situation, quite frankly.

Nevertheless, I for one would never use occupation as an excuse for putting off the responsibility of having to do all we can to put together institutions that would form the core of our future state. That's our goal - as a product of a peace process leading to independence, leading to creating an independent state of Palestine living side by side next to the state of Israel. That's the goal of this process, and what we see as our obligation and commitment as far as that is concerned, at least in part, is to do all we can to build the institutions necessary and to run the affairs of that state when it happens, which I hope we will not have to wait forever for.

That goal looks to be difficult to attain, and unfortunately we are going through a period where everyday the simple question "How is it going?" when asked, the answer most of the time is "Not too good." This deterioration has to be arrested if there is ever going to be a positive conclusion to this process. But in any event, again, we have to do what we have to do to build those institutions to have adequate governance as seen adequate by our people.

Occupation, again, is context that limits the scope for what one can do given the practices and closure and destruction of mobility for people or groups. It creates or contributes to creating a financing need. It adds to our financial requirement, but that has always been there. It's a problem that will not disappear unless these practices are stopped related to restricting mobility of both goods and people.

That's one dimension of the deficit or the financing requirement that we face. Another relates to policy, international policy. That is our responsibility. What we really need to do as a matter of priority is to try to put together a budget for the immediate term covering the period of 2008-2010, one in which we would like to see convergence, using the technical definition. In common language, what we would really like to see over the immediate term is reduced reliance, in a gradual way, on external assistance.

Our vision for the future state of Palestine is not one for a nation of beggars. That's not what we're really building towards. We want to build a self-sustaining entity, one that has the promise of relying a lot more on our own resources, particularly to fund our current expenditure needs. The need for exceptional support to cover our current expenditure need is something that we should graduate from as soon as we possibly can to the extent permitted by the context in which we are operating. So, that's a change in policy. In order to be able to do that, we need to get a little bit of an idea as to what kind of financing possibilities may be out there, and it is for that reason we are in discussion with the donor community to see the extent to which they are prepared to fund us in the remainder of this year and forward after 2007. We are in the midst of trying to do so. We are getting indications of support. The extent to which that will happen remains to be seen. The extent to which our gross financing requirements as we currently estimated and the extent which will be covered remains to be seen.

What we are trying to do is to come up with one-third of the resources necessary to manage on our own. Part of that money will come from revenues that we collect directly as the Palestinian Authority, and part actually comes from the revenues collected by the government of Israel on behalf of the Palestinian Authority in the context of the protocol on economic relations that governs the trade and economic relations between the Palestinian Authority and the Israel. That money, as you know, has been withheld by the government of Israel since March of last year and that continues until today. We cannot but count that money as part of our budget submission. When we actually put budget proposals together, we cannot but count it as a legal matter that is Palestinian money. The agreement stipulates that the money be transferred in a regular way to the Palestinian Authority. That's something that happened before and happened consistently after a period of freeze over the period of late 2000 through late 2002. After that, the flow was resumed, and the stock withheld was released.

We're hoping that we'll be able to get to that point of getting access to those funds because quite frankly without that, we cannot function. It is difficult to expect the international community to fund into a gap like that. It's plausible that donors will help us cover some of our financial need, but to expect the international community is willing to cover that part of the gap indefinitely, I think, would be expecting too much. So I hope that it would be possible to resolve this issue, and it's critical that this issue be resolved.

Economic and social conditions - most of you are familiar with the indicators without belaboring the point too much. Poverty is well spread in Palestine these days. Nearly two-thirds of the population in the West Bank and Gaza live under the poverty line. Unemployment has risen somewhat over the course of last year but not by as much as one has expected given the economic decline that has occurred in the course of that year. That, perhaps, is more of a reflection of the fact that people are getting discouraged given the longevity of the recession and conditions, and they're not looking for work anymore. The way unemployment is measured, actually, abstracts from this category of workers - discouraged workers. I think there is, out there today in Palestine, a lot of discouraged workers and a lot of discouraged people and a lot of people who have lost hope and are not seeing at all anymore a sense of possibility about this process.

This leads me to the last segment of my opening remarks, which is political. Yes, I have confined my remarks so far to the economic sphere, financial conditions and the difficulty of managing under the conditions we have been trying to manage under. I have said it before and I say it again today; this is not an economic conflict that is requiring of an economic solution. The conflict that exists today and has existed for a long time now, this 60-year-old conflict, in its nature is not an economic conflict. It's not there because there is a divide somewhere on one side where there are rich people and on another side there are poor people. It's not that. This is at its core a political conflict requiring a political resolution; there is no question. Economic intervention or intervention in the economic sphere helps facilitate, but it does not really solve the problem that this requires a resolution.

The process, as you all know and are familiar with, has stumbled badly over the past years from one failure to another. A lot of people look at us and blame us for that failure in varying degrees, and they look at what happened in 2006 - the elections that we had then and call to them as having led to an outcome that caused the process to stumble. But that, I think, clearly ignores the obvious fact that the stumbling began before the elections of 2006, and there are a lot of reasons for that.

I think unless and until there is a framework that is capable of dealing simultaneously with the issues of here and today, the day-to-day issues that face the Palestinian people and deal with the day to day need of the Palestinian people while simultaneously addressing the longer term political issues, we're not going to get there. For much of the period since Oslo, the discussions and meetings and interactions focused almost excessively at times exclusively on matters of day to day life in Palestine and on issues of security - important issues no doubt - but did not give adequate attention, sometimes no attention at all, to the longer terms issues which are defined as the elements necessary to agree on if there is going to be a solution.

What is required, in my view, is a bifocal strategy. Something that does both at the same time, not one without the other, unless there is a framework that is capable of dealing with that and one that sees as two sides of the same coin issues of lack of security on the one hand and lack of freedom on the other. I'm afraid it's going to take us a lot longer than it should to really bring this issue to a resolution.

I hope that there will be enough sense based on the experience and devastation that has occurred on both sides of this conflict over the years, and I would not want to rely on competition for pain and suffering of who is pained more by this. There is a lot of pain and suffering to go around, and I was touched by the introductory remarks that Samar made in reference to the massacre that occurred yesterday on the college campus yesterday. We definitely feel for the families. There is pain and suffering everywhere, quite frankly, and it's not the question of who is pained more by this. Time has come for this issue to be resolved. I think this requires a lot of wisdom, courage, determination and a good deal of facilitation on the part of the international community, including in particular the United States of America.

We are encouraged by the effort that [U.S.] Secretary [of State Condoleezza] Rice is making and her attempts at re-engaging the parties in a process we think is important. We're hoping that this will lead to something, as I believe the effort should, of the recent reaffirmation by all Arab leaders meeting in Riyadh of the Arab peace initiative. That's an important initiative which did not receive the attention it should have when it was agreed to in Beirut in 2002. Time has come, and I think the Arab leaders have given us something there by reaffirming this in the most recent summit in Riyadh. I hope that this can be worked into what the United States and the rest of the international community are trying to do to help bring this issue to a resolution. 

Questions and Answers

Samar Assad:

Thank you, Dr. Fayyad. We will open it up to questions. But first, I would like to start with the journalists.

Tammam Albarazi, Alwatan Alarabi Magazine: 

Dr. Fayyad, I heard on National Public Radio that you are struggling this time to meet American officials compared to [when] President Bush met [with] you last time you came to Washington. So, tell us, are they still shunning you because you are part of this cabinet? They call it the Hamas cabinet. What's happening here? And secondly, how much money really - since you are putting it in the budget - which Israel is confiscating? How much money are we talking about?

Salam Fayyad:

To answer the second question first and this will reflect the state of affairs we are in, I do not know with precision that number. This in itself is indicative of a problem because there is no interaction between the government of Israel and our government on information about transferring money. Based on what I perceive to be realistic expectations and given what has been deducted from the money actually as it was collected to pay for electricity bills on behalf of municipalities in the West Bank and the electricity distribution company in Gaza, I think the stock is maybe around the figure of $400 billion dollars in terms of amount of standing. I say this without prejudice to anything because we were just estimating this, if not guesstimating it. Under normal conditions and given what the agreement that governs the relationship between the sites stipulates, we're suppose to meet every month to exchange invoices. This is a customs union arrangement for those who know the system. The customs union arrangement whereby the sides have to meet regularly every month to exchange invoices and money then is transferred - the meetings where information is exchanged - that's not happening. But that's what I estimated it to be. At present, I estimate the monthly collection at somewhere between $50-$55 million dollars, and this is significantly below what it used to be back in 2005, mainly because of the economic decline. And by the way, that's another constraint that we have to deal with. Because of the economic decline, our own revenue collection is down relative to what it used to be in 2005. Domestic revenue, for example - we're collecting now $15-$20 million dollars a month only compared to $30-$35 million dollars a month. So, that's the state of affairs so far as money is concerned.

As to your first question, I do not know if I remember correctly you saying if I'm still struggling to meet with U.S. officials. No, I am not struggling because I have been meeting with U.S. officials consistently and that has happened also in the course of my visit to Washington, which was to actually take part in the spring meetings with the IMF [International Monetary Fund] and the World Bank. But my interactions with U.S. authorities has continued, including on this trip beginning yesterday as well as today at the State Department. I did have a meeting with David Welch, and Secretary Rice showed up for a good part of that meeting. So, no I am not actually struggling in terms of meetings, but your question raises an important issue, one of substance. That is the time that is spent talking about contact policies - who says hello to whom and when and how. I cannot but tell you that I'm really depressed about this. Not so much because there are sides or parties who have chosen to boycott the government or officials on it, but think of the regression that actually has taken [place]. A simple meeting or a simple contact, hand shake or something like that - for that to become news is depressing. And when you think about what has to happen actually to do the kinds of things I just was talking about in terms of doing what we have to do and really trying to bring this conflict to a resolution. If now a handshake or a meeting or talk about contact is news, this must be depressing, quite frankly. So in that sense, it pains me to think about this as an issue, and we will continue to be consumed by it. And the other thought I have on this is the following: I honestly believe that the issue should not be contact or no contact or who says hello to whom. I thought we crossed that threshold more than a decade ago, actually. The issue is what do we do with that contact? What do you do with the process? It's not so the object of this should not be seen as normalization meaning you have hand shakes and meetings only. It should be a lot more than that. It should be about what to do with that. So, I hope, it will be possible to really move on as they say here in the United States and begin to address the issues and not really stay happily confined with the argument about who's contacting whom and who's waving at whom and who's saying hi to whom.

Glen Kessler, Washington Post:

Just to follow up on that. Could you talk a little bit about what you were discussing with David Welch and Secretary Rice? What were some of the issues that particularly you were talking about with the Secretary? I was also wondering if Elliot Abrams was at that meeting.


Actually, it was basically a continuation of discussion that we were having. As I said, there was no interruption so far as contact and discussion with U.S. authorities are concerned. It was much about the same issues we were talking about today and issues that relate to enabling us to perform. Because, quite frankly, a good deal of time has been spent looking at the platform of the Palestinian government, the national unity government [and] the efforts that led to its formation. But as a practical matter, that has given way or will give way, by time, to performance as being more of standard by which to judge this rather than actually the formulation. I would not want to be dismissive of words or nothing like that. It's just that with the nature of this, whether consciously or otherwise, performance becomes to be center stage. And that I think is alright in my point of view, and that I think is what we should be judged by, including first by our own people. This is about governance. This is about time to provide for the well-being and welfare of the Palestinian people, and performance is key. We accept that as the standard. We need to be enabled to do so. In much of my discussion with officials around the world, including in Washington, relates to that, and it should not come as a surprise to you that, actually, it touched on a number of issues we talked about today - on things that could be done to make it possible for us to perform. So, that's what I can say about it.

Oh, you did ask about [Elliot Abrams]. I understood that he was going to be there when I got the notice of the meeting, but there was a change in the schedule of the meeting and he was not there. I understood that he was planning to be there. But there was a change in the schedule, and this meeting was supposed to take place first this afternoon. It was moved to the morning, and that's probably what happened.

Alexander Panov, Russian TV International:

Dr. Fayyad, what could you say about the role Russia plays in the Middle East crisis not only as a member of [the] international Quartet but maybe as one of  the biggest arms dealers and one of the very few direct negotiators to Hamas? And my second question again is about international recognition of [the] new Palestine cabinet. Except for Norway and [the] League of Arabic countries, what are the positive movements you could say were done recently?


The process is an evolutionary one. It's not a light switch coming off. Anyone who followed the process leading to the formation of the government, national unity government, to the work that went into putting together a platform and was following that closely would have predicted probably towards the end of that process that it was going to be more of an evolution rather than an abrupt normalization of immediate normalization. We had hope for immediate normalization, which is necessary among other things to make it possible for us to perform because our ability to perform is not independent of the tools and the means that could be made available to enable us to perform. That's not the case. We knew that was not the case. I'll be completely candid with you if I said I expect immediate normalization given the discourse that accompanied the latter stages of the formulation of the government platform. But things are evolving, and they're evolving in a fairly positive and encouraging way.

You mentioned the League of Arab States, and we would like to take this opportunity to say that we are grateful for the support that is given to us and provided to us over the years, not only financial and economic but political as well. You mentioned Norway, and that's true. But there is evolution. On the way to Washington, I stopped in Brussels. It was a first international stop for me after joining the government but after the Riyadh summit - I attended that. We talked also about many of the issues that we talked about today.

One of the things that I find actually helpful in public life is to have one speech - the same speech for closed rooms and open rooms. You don't have to worry about leaks this way, and I sleep well at night not having to worry about that. And I find, as a matter of fact, that even though different people come at this from different angles, politically with certain political disposition, as to what kind of domestic political outcome in Palestine they favor - one way or another - they are sensitive to the political argument that we're making because no one can be indifferent as to the fate of the system that was promoted by the international community and was put together with assistance and the expertise of the international community. So, they are sensitive to this institutional degradation that I told you about, and they are looking into ways in which they can begin to normalize. For example, as I said, this is an evolution and not a light switch kind of operation. Brussels has decided, and the EU, to begin to have their staff deal with us directly. You know, for the past year, they were executing and implementing this TIM mechanism - it's called a Temporary International Mechanism - which they got the Quartet to endorse. I call it the temporary thing, myself, to indicate bias. Actually, we would like to see this phased out in favor of a normal financial dealing, which I understand is dependent on our own technical capacity to receive the funds. But [it's of] critical importance for us to find a way to deal with the banking restrictions that I talked to you about. So, they are waiting for things like this to happen. So, I think it's fair to say that I have no problem representing this position as being what I understood. It's fair to say that they had mobilization as a shared objective because of these considerations that I mentioned. There are political elements associated with this, but that's a judgment they will reach when they reach. But in so far as these other issues are concerned, they have commonality of views in terms of normalization being the objective.

Russia, of course, I don't know about the characterization about being the largest arms sellers or exporters or how this is related to our neck of the woods. You may know something about that that I don't. But Russia has been very active, and you mentioned the Quartet. The Quartet has become an important mechanism/forum/framework, if you will, and the role that Russia is playing there is definitely helpful. It's not the entire international community that sits there. Nevertheless, Russia's presence in the Quartet has been very helpful. Russia, of course, has good relations with various players in the region, and I think they have made an effort to try to facilitate things as far as we're concerned, and we appreciate that.

Barry Schweid, Associated Press:

Mr. Minister, you said earlier that we are encouraged with the efforts that Secretary Rice has been making. What specifically, if you can, has Secretary Rice been doing that her predecessors hadn't done? [Former U.S.] Secretary [of State Colin] Powell wanted to reengage. What's new here and when you say the discussion, it's not clear to me was it today or yesterday?




To make it possible for you to function - you mean largely your economic problems, the remittances and all that - is that what the topic primarily is? But what is, comparatively speaking, I know you don't want to be impolite, but I'm having trouble noticing any great differences. She makes more trips, but what has she been doing that has not been done before?


Well, each era in this long and arduous process can be looked at and compared to other periods in which there were failures and some progress here and setbacks there. There are general reasons that could explain the downward trend that characterized and accompanied the long path to peace so far. There maybe also period specific reasons as to why certain periods are different from others. So, I wouldn't want to judge this in relation to what Dr. Rice's predecessors did or did not do. But what I know is that given the context in which this effort was conceived of, it was a very difficult period, and people were definitely not talking to each other at all. And there were, in what she was talking about as a strategy to try to deal with this issue, elements - these are my words not hers, I should make that clear - that take care of what I had mentioned as needed to be able to deal with this issue. Something that would not ignore the critical long term issues that had to be addressed while at the same time addressing the issues of the here and now. So conceptually, I think, this is an important advance because prior to that, we were stuck essentially in the context of the discussion on the Road Map, and it was like who goes first unless this is done, this is not going to be done and a lot of that, and that produces a certain dynamic that led to stagnation. I'm not here to point fingers or blame for who is responsible for what. I look at what I have and after a period of trying, that's probably what the Secretary saw. We basically looked at stagnation.

Here, you have a secretary of state in the United States taking it upon herself to launch an attempt, an effort, an initiative to try and move things. That in itself is a good thing. Diplomacy is necessary and it puts you sometimes in position to take advantage of things that could happen along the way. It could create its own opportunity as well. When this effort was launched, the attempt at trying to deal with these issues in a comprehensive way - longer term, shorter term and getting the parties to reengage at the time, for example - the Arab League Peace Initiative had not been reaffirmed, if you will, in a way that it was in Riyadh. Here, you have enough of this already underway diplomatically with the Secretary making trips and trying to make parties engage. Then, something like this happens. That's an important variable. Look, this is a very difficult issue and if it were easy, it would have been settled a long time ago. The choice between sitting on one hand doing nothing and waiting for a perfect alignment out there is definitely a poor choice and this round of diplomacy, I think, proves my point in some way. The alignment is not perfect. There is reticence. There is not really enthusiasm certainly, as I see things, on the part of Israel to engage on longer term issues. That's not a secret. Nevertheless, to really wait until everything is ready will not be the right choice. In that sense, I'm encouraged by what the Secretary has been trying to do.

Ori Nir, Americans for Peace Now

Dr. Fayyad, I'd like to ask you a couple of questions about the banking restrictions. Given the fact, that the banking restrictions are anchored in American law, what is it that you expect the administration do to? That is first. Second, other than the fact that there is a Minister of Finance now in the Palestinian Authority that is considered kosher but still in a government that the U.S. considers un-kosher, why is it that the U.S. should change those restrictions?


Well although you mentioned this in passing, nevertheless, I should not pass the opportunity to say that I do not agree with the characterization so far as government paying faction A, faction B, white, black, blue, yellow. This is one government. It's a coalition government, and by definition coalition government are governments made up of people of different persuasion, parties of different persuasion. Otherwise, it would have been one to begin with, but that's what we have. And yes, I'm the Palestinian Minister of Finance, and I'm serving on this government. There is nothing personal about this, quite frankly. I'm an official for this government. As far as the restrictions are concerned, yes it is an American issue. There are banking restrictions imposed by the U.S. government, the regulators here. So as I said, what we are trying to do is to find a way of dealing with these restrictions in a manner that makes it possible for the Minister of Finance, who under Palestinian law is in charge of controlling the Treasury, to be able to manage the funds of the Palestinian Authority, working through the institution. I think it's possible to do that and as I mentioned, the discussion currently underway is promising. I would not want to really take it more than that, beyond that. But I am encouraged by the direction this is taking and I'm hoping that this issue will be settled.

George Hishmeh, Board of Directors, The Jerusalem Fund:

In light of your description that the Palestinians are living through the state of economic suffocation, I have two questions. I have read that the West Bank and Gaza is really a captive market for Israel. How much is the trade between the Palestinian territories and Israel? I've read figures as much as $2 billion dollars at one time. Also, are Palestinian products allowed to be exported outside of these areas, let's say to Jordan or to Egypt? Do you get any revenue from tourism? What is the main source of revenue for us as a state, if you could discuss this in a little bit of detail?


Whatever sources of revenue we have, they are not producing enough revenue these days. I can tell you that for sure, unfortunately. And so far as trade with Israel, you're right in characterizing trade value as fairly high, actually a lot higher, not only $3 billion dollars. If you're talking about imports into West Bank and Gaza from Israel, they're in excess of $3 billion dollar exports from Palestine. So far as exports, whether to Israel or through Israel to the rest of the international community, it's much less than that, actually - four to five hundred million dollars in goods and services. There is a large imbalance there. In terms of what I describe as economic suffocation, I meant it. It is intended to refer to the restrictions of mobility within the West Bank, between the West Bank and Gaza and from the West Bank and Gaza to the rest of the world and vice versa; that's what you have. This is an issue that could be discussed maybe at some length in a different kind of setting - maybe one day if you invite me to talk about trade issues. It's an interesting subject for the future that we can talk about.

It's not really in the agreement. I mean none of this is in the agreement. None of this is a matter of agreement that's saying that this is what Israel can do and this is how the Palestinians are supposed to do business. These are practices. It's not a question of what the agreement produces. If the reference here is to the economic agreement between the sides, a lot of the ins associated with poor economic performance are attribution to the agreement per say. I don't think, personally, from a technical point of view, that's a fair characterization; that's not true. Like any arrangement, it has its pluses and minuses, but it's not the reason why Palestine has underperformed economically. And when I say underperformed economically, I mean if you look at the distribution of resources of GDP, our gross domestic product, you will find, for example, the share of industry is very, very small and employment firms are very, very small signs of underdevelopment, actually, that haven't really changed much. And compared to other countries in the region, for example, if you look at Jordan, industry makes up about 3 percent of GDP. Palestine is little over 10 percent only. We can't blame all of this only on the agreement itself. There are practices mainly and issues of access or lack thereof. What amazes me is when we talk about access in a Palestinian context when most of the time passages are closed and when it's closed more often than it is open. I think we should look for different terminology, different words to describe a passage, where a passage is supposed to go. That's the problem, and these are practices and reflection of policy, implementation of policy, but it's not the agreement itself.

I think, going forward, a lot can be done to improve the prospects of the Palestinian economy. But the most important determinant of growth in Palestine, given that it is a small economy, is the issue of access and openness to the extent that we are able to be open and to interact with the international community. The extent which we're able to do that will have a lot more to say as a determinant of economics in Palestine more than anything else. I do not want to make little of the importance of other factors that bear importantly on growth and development. Here, I would like to highlight the importance of adequate governance - confidence that people could have in the integrity of the systems of governance, including especially of the judiciary matters of law and order. If you ask me today these are the issues - lawlessness in Palestine - tell me, who's going to come invest in an environment like this? I mean where is growth going to come from? It cannot be the government going forever because government is bloated already. We have major structural deficit that we really need to try to deal with over the immediate term. Government cannot provide the answer. It's the private sector. It's investment by the private sector. Who's going to invest in an environment like this with all of this uncertainty with the lawlessness that exists and with limitational access in the way that I described? And by the way, these are not just words. When I say limitational access to a businessman or businesswoman, this translates into dollars or cents costs of doing business. Cost of doing business associated with these restrictions is enormously high. It's prohibitedly high, and that's what's putting the clamp on the prospects of the Palestinian economy. That's the sense in which I described it as suffocation.

Hoda Tawfiq, Al Ahram Newspaper:

Mr. Minister, you mentioned the Arab Initiative. Now, the Prime Minister from Israel is suggesting to have contacts with some of the committees of the Arab Initiative. Would this enhance or would this help to end the occupation, taking into consideration that he's meeting with [Palestinian President Mahmoud] Abbas and he's not willing to discuss the final solution? I have another question about the new National Security Council. How does this contradict with the Cabinet or does it contradict the Cabinet? How things can go?


First of all on the Arab peace initiative, I remind you and everyone, the initiative is about normalization to come when occupation ends. That defines, essentially, the key architecture of the initiative. That's what it is - normalization with the world as a whole. That's what it really is. To use your words, can this help end the occupation? It surely can if it is accepted as a framework for dealing with this issue. And I think it's most constructive and it will be helpful - interaction on the basis of that. And as you know, part of what the Arab leaders decided everywhere was to have a follow-up mechanism to discuss this and promote it and to see how it could be integrated better in the overall scheme of things. But surely it offers that prospect. There is no question.

As far as the National Security Council is concerned, the answer is no. I don't think it really is a contradiction or causes a conflict of any kind. If anything, actually, it provides a mechanism for coordination to really ensure that performance in the security sphere is coordinated. Some of the security forces or agencies in Palestine are, as stated in the Basic Law, under the authority of the President while others are under the authority of the Cabinet through the Minister of Interior. Up until recently, I thought this kind of creation was uniquely a Palestinian phenomenon until I heard about problems in other countries. I don't like to mention names of countries where I perceive to be problems. But when you have a system like this, you clearly have a problem of coordinating or the need to coordinate performance. If different chiefs report to different agencies or different muscles, you have a problem with coordination. I think the National Security Council provides a sensible way in which this can be done. That's one. Two, it provides a forum in which strategic issues, in terms of security mission, what it's supposed to be and key tasks that need to be performed. It provides a forum in which all of this is discussed. And you know, this is not only comprised of people with security backgrounds. It has on it officials who are there because they are required to be there in terms of contribution to decision making. I, as Finance Minister, sit on that council to tell them how much money we have or don't have to do the kinds of things we feel we have to do. In that event, I think it's a sensible framework and it's necessary given the issue that I described to you earlier in terms of the fact that different agencies report to different bosses. I think it's a step forward not the other way around.


Unfortunately, that's all the time we have. Dr. Fayyad, thank you again.

Dr. Salam Fayyad, a highly respected reformer, holds a Ph.D. in economics from the University of Texas at Austin. An economist and a former World Bank official (1987-1995), Fayyad was the International Monetary Fund representative to Palestine until 2001, before becoming Finance Minister of the Palestinian National Authority in 2002. In 2006, Fayyad was elected to the Palestinian Legislative Council, representing the Third Way party which he leads. On 18 March 2007, he was appointed as Finance Minister of the Palestinian unity government. 

This "For the Record" transcript may be used without permission but with proper attribution to The Palestine Center. The speaker's views do not necessarily reflect the views of The Jerusalem Fund.

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