Conflict devastates Middle East economy

Since the latest violence began 20 months ago, Palestinians and Israelis have seen their death toll rise, military costs soar and economies sink. \nAs business media and local experts say, the Middle Eastern conflict has lasting, negative economic repercussions. Documents show the fighting has brought a financial instability to the region, where Palestinians -- whose economy has fluctuated more violently than Israel's -- seems to have bore the blunt. A political settlement may end the violence, but one expert says that unless it promises cooperation on economic issues, financial prosperity would greet Israelis only.\nThe Palestinian economy appears "more like a humanitarian disaster than a business prospect," BusinessWeek reported in early April. Income fell 19 percent in 2001 to $1,375 per capita, one-twenty-fourths of the U.S. average. Unemployment hovered around 35 percent at the end of 2001. Before the conflict, half of Palestinians lived on less than $2 a day. \nEconomic indicators show that Israeli unemployment is over 10 percent. Hotel occupancy rates dropped to 10 percent. Restaurants, which often witness suicide bombers, fared no better. And last year, gross domestic product contracted 0.6 percent, the first decline in three decades.\nJoshua Stein, the assistant director at the Helene G. Simon Hillel Center in Bloomington, said he saw grim signs of the Israeli economy a year and half ago.\nIn January 2001, Stein flew with 2,000 Americans to Israel, on a five-day mission run by the United Jewish Communities, an umbrella group for Jewish organizations across North America, he said. The mission was designed to show American support for Israelis, who felt depressed and globally isolated, he said.\nStein spent the whole trip in Jerusalem, touring café-lined Ben Yehuda Street and he felt disturbed at what he saw. \n"It was quiet," he said. "Many of the stores were out of business. Cafés were closed." \nHotels and restaurants had few customers to serve and Israelis looked disheartened and insecure, he said.\n"Usually, when I had been to Israel, I felt like having been at a birthday party," Stein said, recounting the previous seven trips.\n"I felt like the whole country was just in a funeral," he said after a January visit.\nStein stressed that neither Israelis nor Palestinians will economically benefit from the Middle Eastern flare-ups. \n"The reality is, on both sides, the cost is too high," he said.\nIf the conflict drags on, it'll continue to strain Israel's economy, said David Fidler, IU associate professor of law.\n"(Israel's) foreign trading and business partners will be wary of deepening commercial contacts with a country in the midst of a violent and unstable situation," said Fidler, who has served the World Bank as an international legal consultant, specializing in foreign investment in Palestine. Foreigners may find the region unattractive for investment, and buyers of Israeli goods may seek other suppliers in politically stable countries, he said. \n"The Palestinian economy is in ruins," Fidler said, "and the economic plight of the Palestinian people is already dire and desperate. If the violence continues, the economic fate of the Palestinians is tragic, both in the short term and in the longer term."\nSoon after the violence began in 2000, Palestinians lost 100,000 jobs in Israel, 77 percent of the total jobs they had held in the region excluding East Jerusalem, according to documents published by the World Bank.\nThe Palestinian economy needs Israel, but it's not the other way around, Fidler said.\n"Israel has increasingly sophisticated and globalized economic capabilities, while Palestinians remain utterly dependent on the Israeli economy," he said.\nIn July 2000 Fidler visited the Gaza Strip, the West Bank city of Ramallah and various other places, as part of his duties with the World Bank. \n"Walking through both the Gaza city and then Tel Aviv was a street-level education on the state of Palestinian and Israel economic prospects," he said.\nIsrael sells products to Palestinians and buys their cheap labor, but these activities aren't driving Israel's economic growth, he said. \n"Israel has, since the early 1990s, pursued a policy of decreasing reliance on Palestinian workers. Israel has also pursued an export-driven strategy to secure benefits from globalization."\nWithout economic cooperation from Israel, the Palestinian economy may falter, Fidler said.\n"Only a political settlement will provide the foundation for development of the Palestinian economy," he said. "The problem is that the political solution, which now seems most popular with Israelis, is separating the Israeli and Palestinian peoples entirely."\n The "separation approach" will make it impossible for Palestinians to build an economy that works well in the globalized world, he said.\n"The short-term prospects for the Palestinian economy, with or without continued violence are very, very grim," he said.\nThe gloomy economic backdrop may worry Palestinians. Yet, an economic downturn isn't a major concern for average Israelis, said Zvi Gilboa, a professional student in the IU School of Music who came to Bloomington from Israel three years ago.\n"I've been in touch with many of my friends in Israel," he said. "No one has ever mentioned to me financial situations."\nThey always talk about security and peace, not the economy, Gilboa said. \n"When you are afraid of going to restaurants because you are afraid of terrorist attacks, you don't think about money. You think about your life," he said.