In the fall of 2000 the economy of the state of Israel was at its peak. It had profited immensely from the late '90s boom in high-tech industry and in the nascent peace agreements between it and the Palestinian Authority (PA) and its neighbor Jordan. But the structural flaws behind the 'peace process' were to reveal themselves at the end of September 2000. The intifada began again, and from that moment Israel's economy began a rapid downturn, of which no end is in sight.

But according to Basel Ghattas, chief executive officer of the Galilee Society, it was not until recently that Israel's economic disaster has become a dominant subject in Israeli political discourse. Although the Israeli Finance Minister Benjamin "Bibi" Netanyahu and Prime Minister Ariel Sharon endeavored to separate the economic and political situations during the last election campaign, Ghattas affirmed at a 20 October 2003 Palestine Center briefing that no one is able to do that anymore. Improvement in one will not occur without simultaneous progress on the other. The situation, Ghattas said, is "terribly bad." The head of Israel's Ben-Gurion University, a former senior official in the World Bank, recently commented that Israel was beginning to resemble a third world country on the economic level. The most recent Israeli Consumer Price Index featured a .5 percent decline - defying the projections of top Israeli economists. This happened despite a depreciation of the shekel against the value of the dollar that had always before signaled at least a slight economic upturn. Israel has proven to be faced with a "deep, chronic" recession that will not be remedied without political solutions.

Many commentators now refer to the "lost decade" of Israel's economy. The economy began to rise in 1994 in the grip of post-Oslo optimism and peaked in 2000. Now, ten years later, it has sunk to its early 1990s level again, and shows little promise of improving. The Israeli State of the Economy index has shown a consistent decline since the start of the intifada, as have the Israeli Index of Trade and Services and the Index of Manufacturing. Tourism, as may be expected, has declined precipitously since September 2000. Ghattas pointed out the Real Wage Indicator particularly, to show the "sharp decline" in buying power Israeli workers in the private and public sector have suffered. And although there have been recent fluctuations in the level of imports and exports in Israel, Ghattas dismisses their relevance, pointing to the basic economic indicators which show consistent decline.

Ghattas argued that the Palestinian citizens of Israel always bear the brunt of economic distress. Statistics provided by the Israeli government tell the story. According to Israel's Central Bureau of Statistics, currently 97 percent of the localities in Israel that suffer from unemployment are majority-Arab areas. In 2001 only 15 localities in Israel were classified as suffering from unemployment, signifying more than 10 percent of the population unemployed. The number of localities had more than doubled by 2003, but the increase occurred almost exclusively in majority-Arab areas. Ghattas believes that unemployment is even higher than that reported in the statistics. Additionally, there has been an almost 50 percent increase in the number of Palestinian families in Israel living below the poverty line. Between 1998 and 2001 the number of Palestinian-Israeli families living below the poverty line rose from 63,000 to over 90,000. More than 50 percent of Palestinian children in Israel live in families under the poverty line. Finally, in an Israeli survey which rated all Israeli areas on their economic prosperity on a scale of 1 to 10, no Arab towns or cities were included in the top three deciles, and only one in the fourth.

One of the major outcomes of the intifada has been a dramatic decline in foreign investment in Israel. In the 2000, the last year before the intifada, foreign interests invested $11 billion in Israel. According to Ghattas that number had fallen to less than $1 billion by 2002. Under these conditions economic recovery would be extremely difficult, if not impossible. Referring to the fragile economic foundation that the peace process was standing on, Ghattas commented that Israel " has been living in an illusion" for ten years. The billions in investments came largely from venture capital that lost interest when the security situation deteriorated for businesses. Ghattas calls Israel's economic experience of the 1990s a "virtual reality."

The intifada has also had a disastrous impact on the Palestinian economy, due to Israeli measures of subjugation and terror that masquerade as security procedures. But Ghattas explained that the great imbalance the peace process generated - wherein the Palestinian economy was already suffering greatly while Israel experienced a boom - has disappeared.

As the first few years of the Oslo process demonstrated, economic prosperity is attainable for Palestinians and Israelis, but it will never occur without a real and lasting just and peaceful solution to the conflict.

Source: The Palestine Center.