ECONOMIC IMPLICATIONS OF GAZA PULL-OUT

C O N F I D E N T I A L SECTION 01 OF 03 TEL AVIV 001453

SIPDIS

NEA FOR BURNS/SATTERFIELD; NSC FOR ABRAMS/DANIN

E.O. 12958: DECL: 03/08/2009
TAGS: ECON KWBG KPAL IS GAZA DISENGAGEMENT ISRAELI PALESTINIAN AFFAIRS
SUBJECT: ECONOMIC IMPLICATIONS OF GAZA PULL-OUT


Classified By: Ambassador Daniel C. Kurtzer for reasons 1.4 (B) & (D)


1. (C) Summary: We assess that an Israeli pull-out from the
Gaza Strip in and of itself will not result in any major
improvements in economic and humanitarian conditions in Gaza
over the short to medium term. The manner in which the
pull-out is executed could have an economic impact: leaving
in the "dead-of-the night" is the worst case scenario. By
contrast, a coordinated withdrawal, complete with certain
guarantees from Israel, could set the stage for eventual
economic recovery in Gaza. It will make greatest sense for
the settlements and infrastructure to be handed over to a
credible, trusted international custodian for a fixed
transitional period. Israel should guarantee access to trade
with Israel and external markets post-withdrawal. The
ability of Palestinian laborers to work in Israel is less
critical but should continue for humanitarian reasons. The
donor community will need to retain robust assistance levels.
In para 6, we offer specific "markers" we might use with the
Israelis to influence their decision making on
post-withdrawal economic issues.

Note: This cable is one of three messages by Embassy Tel Aviv
with initial thinking about the implications of an Israeli
withdrawal from Gaza. The other two cables address the
political/institutional and military/security implications of
withdrawal. End Summary.

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Pull-Out Will Not Result in Economic Boom
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2. (C) Economic improvements in Gaza resulting from more
mobility as a result of a unilateral Israeli pull-out are
likely to be marginal at best, at least in the immediate
term. Overall, mobility restrictions have been fewer within
Gaza than in the West Bank. The key for Gaza businesses has
not been their ability to deliver products within the Strip
but rather getting inputs in from Israel and abroad and
exporting final products outside of Gaza. The pull-out will
have some localized impact, especially as southerners are
able to access the better labor markets of Gaza City and as
people from currently enclosed communities are allowed
freedom to engage in economically productive activities and
to market and trade goods and services.


3. (C) We and our contacts do not believe an Israeli
pull-out will result in increased foreign or domestic
investment in the short to medium term. A critical factor in
investment decisions is the security environment, and given
the situation of the past few years, we are unlikely to see a
post-Oslo-like investment bounce, as investors wait and see
what happens on the ground. Continued donor assistance,
particularly large infrastructure projects, will be required
to be a motor for growth and sustenance of the Palestinian
economy.

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Economic Impacts of Co-ordinated
or Unilateral Pull-Out
--------------


4. (C) Economic stability and growth cannot be disaggregated
from political stability. Gaza has been in a downward
security spiral for the past several months with a series of
high profile clashes and murders and an overall diminishing
sense of law and order. Clearly most of the security
problems within Gaza are due to internal Palestinian power
struggles and we expect these to continue after the
withdrawal. However, there are steps that Israel could take
which would tip the scales towards more stability. A
coordinated versus a unilateral withdrawal is key among those
measures. "Leaving in the dead of night" is the worst
possible scenario. As one contact put it, without
coordination, people are likely to "throw themselves against
the electrified fences" in order to gain control of the
settlement infrastructure and resources. While this contact
was exaggerating for effect, we do believe that a unilateral
withdrawal would provoke a serious and probably violent
competition for settlement resources. Moreover, unilateral
withdrawal is also likely to strengthen rejectionist groups,
thereby feeding into the competition which already exists
between them and the PA. Clearly the current security
environment in Gaza contributes to the poor state of the
economy. When we asked over ten economic experts for their
opinions about post-withdrawal Gaza, all said that Gaza's
economic future depends, first and foremost, on what happens
politically. Israel's withdrawal should be managed in a way
that promotes improved security, or at a minimum, does not
actively contribute to further deterioration.

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Trade Access is the Key to Economic Survivial
--------------


5. (C) It is imperative that following the Israeli
withdrawal trade access to Israel and other external markets
be expanded and improved. If Israel were to implement a full
economic disengagement and close the border, there would be
an economic/social catastrophe. Karim Nashishibi, IMF
representative, predicted this scenario would lead to "riots
in the streets, food shortages, you name it." According to
officials from both the World Bank and the Fund, were the GOI
to cease allowing Gazans into Israel for work, there would be
little impact on the broader economy -- this because the
workers are so few compared to the population size.
Nevertheless, this program does provide wages for roughly ten
thousand individuals and their families per day. Israel
therefore should be encouraged to continue this program on
humanitarian grounds. In addition to a coordinated
withdrawal, Israel should turn over the settlements and their
infrastructure intact to a trusted, transparent, credible
international custodian for a fixed transition period.

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Keeping the Status Quo is Not Good Enough
--------------


6. (C) If Israel were to take the steps outlined above -
coordinated withdrawal, keep borders open, and continue
allowing workers into Israel - we could expect a continuation
of the grim status quo. However unemployment at over 30
percent and poverty in excess of 60 percent is not
sustainable and maintaining the status quo should not/not be
our goal. We offer the following suggestions as "markers"
that Washington might wish to use in discussing withdrawal
plans with GOI interlocutors:


A. Trade

-- Ensure access to external markets (including the West
Bank) and ability to
import inputs and other goods. Specifically, improved
operations at Karni
crossing, re-opening the airport, including building cargo
facilities and
reinvigorating work on Gaza seaport.

-- Work to expand trade with Egypt and region as a whole.

-- Establish infrastructure and systems to allow goods to
pass through Rafah.


B. Investment/General Growth

-- Agree to Gaza gas project.

-- Re-allow Israeli investors into the Gaza Industrial Estate
with appropriate
security arrangements. Consider having a third party private
company take over
logistics and security at Karni and the GIE in order to
improve efficiency and
address Israeli security concerns.

-- Continue robust donor assistance, particularly investments
in
infrastructure.

-- Allow fishing along length of Gaza Strip up to full 20
nautical miles
stipulated by Oslo.

-- Ensure complete internal freedom of movement.


C. Settlement Disposition

-- Coordinate the pull-out with a group comprised of PA
officials, civil
society, and international actors.

-- Turn over the settlements to a credible, trusted
international custodian for
a fixed transitional period.

-- Turn over settlement infrastructure intact. Don't "scorch
the earth."

-- Facilitate continuation of existing marketing and
transport arrangements for
goods produced in settlements


D. Economic Cooperation
-- Continue and improve current coordination on
trans-national issues such as
water and electricity.

-- Continue/strengthen cross-border industrial parks.

-- Continue, and ideally, increase the number of workers in
Israel.

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