* Palestinian Authority's financial problems grow
* Public sector, international aid concentrate wealth
* Occupation, poor planning have stifled growth
By Noah Browning
RAMALLAH, West Bank, July 4 Past the Israeli
sentry towers blackened by firebombs and the entrance to a
refugee camp emblazoned with posters of rifle-clenching
militants, downtown Ramallah sparkles.
The scars of an intractable conflict and occupation melt
away: cafes bustle with smartly dressed patrons, water-pipe
smoke perfumes the air and basslines from trendy clubs shake the
night. New model BMWs ply leafy avenues beneath villas and tall
apartment blocks sprout from the West Bank hills.
But it's more mirage than miracle.
"Thank God for loans," said Ibrahim el-Far, owner of the
newly-opened branch of the upscale Italian cafe chain Segafredo
Zanetti in Ramallah, the Palestinians' commercial capital and
headquarters of their government in the Israeli-occupied West
Growth in the West Bank is concentrated in Ramallah and in
real estate and services even as many sectors like agriculture
and construction languish.
Government spending and living on credit at all levels of
Palestinian society is rampant and, as the euro zone crisis has
shown, may prove to be the economy's undoing.
Bank lending for personal consumption in the Palestinian
territories has risen five-fold in the last two years to $417
million. Total credit for cars alone accounts for a further $119
million, according to the Palestinian Monetary Authority.
"If you're immersed in troubles, why not try to live well,
have night life and good coffee? If we've been slapped once by
occupation, the slap from the credit bill won't hurt as much,"
Aid for the donor-dependent Palestinian Authority (PA),
which exercises limited self-rule in the West Bank under interim
peace deals with Israel, has slowed to a trickle.
Salaries for a swollen public sector again cannot be paid in
full this month. The productive base for the economy is
shrivelling while unemployment climbs along with poverty.
An economic crisis has deepened - growth is down from a peak
of 9 percent in 2010 after the lows of the Intifada to 5.4
percent in the first quarter of 2012 from the same 2011 period.
The Palestinian Authority accounts for almost a third of the
$3.5 billion in credit given by banks in the Palestinian
territories but, with donor aid flagging and revenues down, it
is not clear how much longer that can last.
A Palestinian request for a $1 billion loan from the
International Monetary Fund was turned down, officials said this
week. And foreign aid is waning partly because of global
economic conditions and partly in a backlash to the
Palestinians' abortive bid for statehood at the United Nations
Israeli-Palestinian violence has dropped off dramatically
since the end of a 2000-2005 Palestinian uprising. But peace and
coveted statehood remain elusive. Negotiations with Israel have
been frozen since 2010 amidst bitter misgivings among
Palestinians over Jewish settlement building in the West Bank.
LOOKING TO THE LAND
The appeal of property becomes clear by looking out the
windows of the stately 10th-floor office of Kareem Abdul Hadi, a
manager in Palestine Development and Investment Inc., or PADICO,
the biggest privately-owned enterprise in the Palestinian
territories and a holding company for everything from swish
eateries and luxury hotels to real estate and construction.
Cement highrises surge from the ground in the middle of
verdant patches of nothing - "bald spots", Abdul Hadi dubs them
- rendered largely out of bounds to Palestinian administration
and construction as per the 1994 Oslo agreements setting out
different zones of control in the West Bank.
The wall built by Israel winds across the landscape - part
of a barrier Israel says ensures its security against suicide
bombers but the international court of justice says is illegal
and Palestinians decry as a land grab. While Israel's controls
hamstring commerce, they are a boon to the property market.
"Land in Palestine is one of the only safe investments, both
because the Oslo agreements made it more scarce and because it
has historically never gone down in value," Abdul Hadi said.
"The same doesn't apply for real estate, and while value
hasn't dropped, some housing projects are sitting empty, and
people haven't bought them up yet."
Abdul Hadi's firm is investing in a members-only executive
club and spa with views of the sweeping Mediterranean littoral
below, and importing a luxury restaurant from Jordan, but
prospects for undertakings that would create a substantial
number of jobs and spur growth have dimmed.
Sectors like agriculture, manufacturing, and construction
actually contracted in the first quarter of this year, according
to preliminary figures from the World Bank.
"The problem is an unfriendly investment environment, caused
by the Israeli occupation's wall and restricted access. It makes
investors unsure about putting money into Palestine," said
Mohammed Shtayyeh, a minister in charge of the Palestinian
Economic Council for Development and Reconstruction.
Around two-thirds of the West Bank is policed and
administered exclusively by Israel, and the Palestinian-run
cantons float precariously in an interstice of Israeli
settlements, military bases and roads.
But Shtayyeh admits his government also deserves blame.
"The PA is not the owner of the means of production, but it
should have encouraged more interest by the private sector and
foreign direct investment in developing the productive base
here," he said.
Beyond occupied land and limited water, even the air waves
in the West Bank offer no safe outlet for economic growth.
Israeli authorities deny the Palestinian Authority and
therefore Palestinian mobile phone providers access to the
high-tech 3G frequency, while granting it even to Jewish
Sam Bahour, a telecoms entrepreneur-turned-business
consultant, said any potential for a high-tech industry had been
stymied by that move.
"Israel is in total control of the assets that could make
for a real economy, and we've been left to manage the crumbs,"
he said. "It's a donor-driven economy and will remain one until
the occupation ends."
International organisations and the public sector
concentrate in Ramallah, where 75,000 people live, pulling jobs
and wealth from the rest of the West Bank into its orbit and
leaving other towns and cities in its shadow.
Poverty and joblessness have increased in the West Bank in
2012, both hovering at around a fifth of the population of 2.6
"The government focuses on growth regardless of how it is
achieved so that it will get some compliments abroad," Nasser
Abdul Kareem, an economic analyst, told Reuters.
"Unfortunately, too much of it depends on government
spending, which is neutral, and doesn't distribute wealth among
people and geography," he said.
As division festers between the Gaza Strip, which is run by
Hamas Islamists, and Palestinian President Mahmoud Abbas's
dominant Fatah party in the West Bank, wealth disparities and
the preoccupation with making ends meet are breeding alienation
among a people already in no short supply of it.
"Indebtedness and financial problems are taking a toll on
society, and making people 'Americanised' in a way," noted
Bahour, the consultant.
"The focus on the individual and his ownership is
increasing, and the sense of community and the collective