[Sadaqah] In a few hours, the Palestinian Authority [PA] will have finished paying all its debts to the employees and others. What does it mean to get rid of a legacy that has been bothering it for 16 months, and what does this mean to you?
[Fayyad] This issue has many implications. Everyone knows what the reality is, and I do not want to say "we inherited this and we inherited that" because these terms are sometimes misused. Ruling is an ongoing process, regardless of who is in power. Without exaggeration, the salaries were either not paid or were partially paid for 16 consecutive months. When this government took over in June 2007, we specified our security and economic priorities. As part of the commitments we made, we said that we would prepare a comprehensive security plan to deal realistically with the needs of the citizens. There was a particular focus on the PA's concern to pay its debts whether to the employees, suppliers, or any other party to which the PA owed money. We said at the time that this issue is a top priority and that we would work on paying these debts based on the revenues and aid we receive.
Indeed, from day one we were committed to paying the salaries in time, in addition to paying part of the debts. We have now reached a point at which we are able to pay the last part of the debts to the employees. This reflects a commitment made by this government itself from day one and this is undoubtedly an important event.
In addition to this, we consider that this issue has dimensions that go beyond the financial commitment. The wider, more important, and more comprehensive message is that this PA is responsible and that it meets its commitments. An important part of good governance is to create a general climate and atmosphere in which the citizens feel that they can trust the PA whose responsibility is to meet its financial commitments. This is part of its tireless work to strengthen the citizens' trust in it, which is a very fundamental issue.
Yes, this is an important event and it has a special meaning, particularly since it comes after a long period of suffering on the part of the employees during which their main concern was their salaries, not to mention their other rights.
This is an opportunity for me to express my deep appreciation to the civil servants and military personnel for their patience, cooperation, understanding, and loyalty to their commitment to the PA by continuing to work and to provide services to the citizens, each in their own job. This was great work at a time when it was not possible to pay them their salaries. I feel particularly happy because the employees have received their rights in full, although they were delayed for well-known reasons.
This event bears a special significance and importance because it represents the end of a stage that was not easy. We were always feeling that we need to pay the debts, which increased our financial needs and made matters more difficult. One of the main difficulties that we faced was when we were late in paying the July payroll for a few days because of Israel's delay in paying us a check as a result of the protest we made to the EU and to the Economic Cooperation Organization over the Israeli practices, particularly regarding the settlement activity.
Apart from that, we were committed to make the payments and we hope that this will prove to any citizen dealing with the PA financially [that it pays its debts]. Everything that is done in the areas of construction and development of institutions bears an important implication in any country. However, in our case this has a very inspiring implication because of its link to the national enterprise, freedom, ending the occupation, and establishing the state.
We Do Not Need Thanks From Anyone Other Than Trust in the PA's Seriousness
We do not want to be thanked by anyone for paying the debts because this is a duty, but it is important to create a feeling among the people that the PA is serious and that it fulfills its commitments and deserves to be trusted. We seek to establish a state and the basis for that is trust.
The issue is not about paying the salary debts; it is rather about its clear signals and impact in ending the suffering of the employees. This also has an impact on the economy in general, on dealings with the banks, as well as on increasing purchasing power. However, what is even more important than all of these is the creation of a feeling of trust among the citizens, which we hope will encompass all facets of life and administration and not only the financial commitment.
We think that there is a simple equation, which is that anything that strengthens the PA internally enhances its status internationally and this augments the Palestinian political position.
What will happen tomorrow [ 5 November] will be a completion not only of the payments of the debts to the employees. It also includes the private sector and the local governing councils, as well as the payments to the families of the martyrs, the prisoners, and the social cases. These were the first debts that we completely finished paying and we paid them some time ago.
To explain this further, what is meant by paying the debts of the private sector means paying old debts, which we have indeed paid. In the Treasury, we constantly have new dealings that are underway in preparation for payment for them, which reflects the regularity of the financial cycle.
Undoubtedly, this issue is based on our capabilities and it is our duty to seek to provide for them, which is a totally different issue. However, our main concern is to pay our commitments in time.
The International Agencies Will Amend Their Growth Predictions
[Sadaqah] What is the status of the Palestinian economy right now, after the debts have been paid? Was this burden removed at the expense of other priorities?
[Fayyad] It is true that paying the debts was given top priority in comparison to other priorities in the past. Nevertheless, we were able to implement hundreds of projects.
We have all undergone this period, which was one of genuine suffering for the people, and it came after some relative growth. In 2004 and 2005, the Palestinian economy entered a period of recession, which deteriorated in 2006 and much of 2007. The inability [of the PA] to pay its dues, in addition to the siege and Israeli hindrances, were causes for this. The people reached a degree of desperation, which pushed many of them to emigrate. When I returned to the Finance Ministry, I found that many employees were off on leave without pay. The main reason for this was the hunt to work in other places in order for them to fulfill their living commitments. The entire economy was affected at a time when the PA found itself unable to pay, not to mention its inability to purchase new goods and services on a level that is in line with the magnitude of its tasks.
Now, the situation in Gaza remains unchanged. Unemployment has risen there for well-known reasons and the goods that enter the Gaza Strip are rationed to a large degree. If it was not for payment of the salaries, the economy there would have completely collapsed without any economic activity worth mentioning. However, what happened was that with the tightening of the siege, which was already in place, in May 2007 there was a great deterioration. After that, there was a steady full-fledged recession with extremely low levels of economic activity.
As for the West Bank, although we do not yet have statistics on the national income that reflect the recent economic activity, the statistics of unemployment imply that the wheels of the economy are turning again despite all the Israeli hindrances, checkpoints, and various economic restrictions. However, despite all this and taking into account that we have just emerged from the siege that went on throughout 2006 and the first half of 2007, the regular payments including paying part of the debts -- as well as the consequent trust in the PA and its ability to be an effective factor on the economic stage -- have all led to economic recovery.
As for the calculations of national income, there are periods of time between economic movement itself on the one hand and its statistical indicators on the other. Nonetheless, the statistics on unemployment and the average consumption of basic goods, electricity, and cement give an indication. It is possible to notice that there is a marked increase in all the indicators, which shows that there is an economic activity although it has not been reflected yet in measurable statistics.
For instance, when looking at the unemployment indicator during the second quarter of this year -- which was published by the Palestinian Central Bureau of Statistics -- we find that unemployment in the West Bank has dropped to a little more than 16%, which is the lowest level since late 2000. This shows something that is very important.
In 2001 and 2002, we saw a sharp economic recession as well as a great deterioration in the standard of living and a drop in national income here. However, in 2004, we witnessed the beginning of an economic recovery that increased even further in 2005.
Although the current level of unemployment is unacceptable, the fact is that it is at its lowest rate in the past eight years is a very important indicator. It implies that the drop in unemployment coincided with real economic growth, which is bound to be reflected in statistics that will be published later. When? I do not know, but it has to be reflected.
As long as unemployment is lower than it was in 2004 and 2005 -- although there was a growth in those two years -- and as long as the workforce now is 17% larger than it was then, this means that there are work opportunities that have been generated in the economy. Consequently, there is a real growth.
I say this once again: The fulfillment of the PA's commitments was not only reflected in building trust in the PA, but also in a better economic performance.
Let us be clear on this. The most important objective of any wise policy is to create work opportunities to employ the people. The fact that unemployment has decreased in the West Bank is encouraging, but this is not the end of the road because we have to continue working hard. We have to continue playing the role of the PA in fulfilling its commitments, which requires effective economic activity by the private sector. What is even more important than this is that any economic growth inherently requires an end to all forms of siege, as well as the removal of all economic restrictions such as the checkpoints and other restrictions.
There are beginnings of an economic movement with a growth that will have to be reflected by future statistics. I am sure of that and I am also sure that the international agencies will amend their projections regarding the economic growth for the rest of this year and the entire first half of 2009. As for 2009 and the coming years, the main issue is to prevent any deterioration in the ability of the PA to meet its commitments. At the same time, there is a need to empower the private sector to invest and develop in order to give the required impetus, not only to preserve what has been achieved but also to increase the growth averages in order to further decrease unemployment.
With regard to Gaza and as a result of the long siege, there is no growth at all there but rather a recession with a very low level of economic activity, since the institutions are paralyzed and it is almost impossible to implement any projects. Consequently, the possibility of turning the wheels of the economy there is subject to lifting the siege.
When we talk about the Palestinian economy, we are talking about the West Bank as well as the Gaza Strip. In the end, the awaited statistics will reflect the average growth in the entire Palestinian economy. If the situation in the Gaza Strip remains unchanged, I do not see any horizon at all [for any economic growth].
Development To Get Rid of the Occupation
Our policy is based on doing what is possible to do when and where it is possible to do it. This is a policy that we endorse in the West Bank and the Gaza Strip, based on the same principle. When there will be a chance for us to implement projects in the Gaza Strip, we will surely do this because there are allocated funds for development in the Gaza Strip. We are doing what we can, such as transferring money via the banks. Nevertheless, this is not a substitute to economic activity projects.
Here, we have to point out that what helped turn the economic wheels in the West Bank was the implementation of a very large number of small-scale development projects in the different areas. These projects are an important part of the Palestinian development strategy under occupation that is intended to get rid of the occupation, rather than to exist with it.
What we proposed in the Reform and Development Plan was not arbitrary. Anyone looking at it will clearly find that the presupposition of the proposition was based on the uniqueness of the Palestinian situation. There are no great similarities in the plan to other development plans in other countries, because our reality is unique of its kind. The greatest factor influencing our reality is the occupation and the most important objective for us is to end this occupation.
This is not a slogan, and the proof is that what is happening on the ground is based on the same principles.
This formed the central element in preparing the main components of the plan, as well as the way and places in which it is implemented, which reflects a very strong connection between the political and economic dimensions. We have intentionally focused on projects that can be implemented in the fastest possible time.
It is for this reason in particular, and because there are real needs for services that should be provided to the citizens, that we have to move quickly to meet these needs. This is the reason why small-scale development projects occupied an important part of our thinking. It is not strange that there are 1,000 projects that have been approved of which 277 have been completely implemented with another 450 projects are currently under implementation. The rest of the projects are in the phase of preparation before their tenders are offered.
In addition, the concept of development under occupation in order to remove the occupation can be seen in the places where these projects are being implemented. These are the places that are most vulnerable to the threat of the settlement activity and that are damaged by the separation wall. It is no coincidence that there is a focus on the Jordan Valley area that constitutes 27% of the area of the West Bank and Gaza together and in which 47,000 citizens live.
The PA Is the Most Important Means of Undermining the Occupation
It is our duty to face up to the reality created by the occupation by creating another reality on the ground. The means through which the PA works, including the means of development, reforms, and strengthening the institutions, are fundamental means that should be used to achieve this aim, because providing the necessary services to the citizens means that they will not leave their places of living.
Let us take, for example, Qalqilyah. If it was in a different condition now -- without a wall and other restrictions surrounding it -- its economy would have easily doubled or more than doubled compared to two years ago. However, in reality it has become the most densely populated area as a result of the impediments imposed on it to stop it from expanding. This situation calls for an intervention in order to help its residents remain in it.
As one of the forms of interventions that we used there, we modified the water pumps of a number of wells so that they would run on electricity instead of fuel, which decreased the cost for the farmers by 50%. As a result of this, the returns from agriculture increased.
The same kind of intervention was used in an important industry in Palestine, the stone industry. The stone cutting workshops were altered to work on electricity, which greatly decreased the cost. There have also been many other interventions, such as building internal and intercity roads, health centers, as well as projects in the sectors of culture and youth.
The same can be said about the rural areas in Hebron. These are very large areas in which poverty is widespread, and these areas are under threat. So we had to intervene quickly in order to provide the necessary services.
Security Is the Most Important Service
The most important service that the PA provides is security because it enables us to improve all the other services. For instance, the most difficult problem in Hebron is water theft and we insist on putting an end to this phenomenon. We have started working on this issue and we have seen an improvement in the water condition. This is security. The concept of security for us is that you turn on the faucet to find water running from it.
Our duty is to fix our feet on the ground until we receive all of our rights. This is not our problem only, but also the problem of the entire world.
Who said Israel was anxious to see us deploying our forces in Hebron? It was exactly the opposite. We faced numerous hindrances that sabotaged our security efforts and left destructive repercussions on our credibility. The Israelis used to refuse to deploy our forces in Hebron, regardless of the circumstance. Nevertheless, we worked tirelessly, took risks, bore their political hazards, and imposed the deployment of our forces in Hebron. We countered every [Israeli] argument with an argument of our own and imposed a reality on the ground. We also exerted pressure and we are adamant in deploying our forces in all the PA-controlled areas. We will continue to exert pressure in order to achieve this and in order to show the world that we have made all these achievements despite all of the obstacles, risks, and criticism.
This makes our project a project of hope, rather than a dark tunnel or an enterprise of complaints only.
We not only sent our forces to Hebron; we also helped the shops in the downtown area so that they could be opened and so that people from Hebron and the neighboring areas would come to the downtown area to shop. Our objective is the same also in Nabulus and Janin through the industrial zones that will be built there. Similarly, the Star Plaza will achieve the same aim in Bethlehem.
This is how the presence of the people on the ground is strengthened, which is part of our rejection of the occupation. This is the story and this is how I read it, with or without spectacles.
[Sadaqah] You have met the priority of paying the debts and you are paying the salaries on a regular basis, but what about the priorities in the PA's budget for next year?
[Fayyad] Yes, the government has given a high priority to paying the debts over other priorities. These priorities can be placed on the top of the agenda in the 2009 budget. The priority now is to implement more projects.
In the past period, what enabled us to fund the small-scale projects with great flexibility was the fact that they were directly supported by the Treasury. The aid that reached the Treasury up to now was not only used to pay the salaries, but was also used to fund projects directly from the Treasury. The advantage of this is that it made it possible to cut down the number of [bureaucratic] measures and the trust in the financial system contributed to this.
The first priority for us was to deal with our ongoing expenses with great efficiency. The more we are able to cover these expenses from our own resources, the more we are able to fund additional development expenses.
Although the projects that have been implemented up to now were carried out with great speed, tempo, and broad geographic diversity, these achievements would be great by any standard. The upcoming period of time will witness the implementation of additional small-scale projects simultaneously with the implementation of large-scale projects. All the components of the plan will progress simultaneously in order for them to complement each other.
We are talking about high-cost projects that are worth millions. We have actually started the construction of the governor's headquarter in Nabulus and we will very soon see the commencement of work on similar projects in Janin, Tulkarm, and Hebron.
These projects will be the main driving force for the economy in 2009 the way the salaries and the paying of debts has been the main driving force behind the economy in 2008. If this coincides with activity in the private sector, we will witness a marked growth next year. These are our priorities after paying the debts.
For this reason and as part of enhancing our own resources, we have to implement a wise financial policy that is based on enhancing our self-reliance and on our own resources.
Aid Will Not Last Forever
Our need for international aid is a reality, but not a policy. On the contrary, the endorsed policy is to minimize the dependence on aid. If our economy was freed from the restrictions imposed on it as well as from the siege imposed on the Gaza Strip, our need for aid would be much less than it is right now.
In addition to this, it is impossible to depend endlessly on foreign aid, neither on its size nor on the date of its delivery.
[Sadaqah] You have always said that the benefit from international aid lies in the extent to which it can contribute to creating a reality that would reduce dependence on it over time. To what extent has the aid that the PA received this year achieved this objective?
[Fayyad] We have benefited from the foreign aid in two ways. First, it would have been impossible to improve our performance, including in the security field, without this aid. Anyone who enjoys security can provide an atmosphere for economic activity and can build confidence that contracts will be honored, that drugs will be fought, and that tax revenues will be increased. Had we not received this aid, we would never have been able to increase our ability to collect taxes, which has markedly improved. If we compare the beginnings of the security plan in Nabulus with what is happening now when the plan is starting to be implemented in Hebron, we notice a great difference in equipment and performance.
Second, the civil servants would never have been able to do their work and would never have been able to rehabilitate the financial system by receiving help from foreign experts without this aid. These are current examples of how aid is being used to enable the PA to perform and deal with necessities.
In addition to this, the aid contributed to raise our ability to prepare policies and to implement them in different fields.
Reforms Are a National Demand Par Excellence
Many people think that the institutional, administrative, and security reforms were carried out as a result of international demand. However, in reality this is a national demand par excellence and this is exactly what enabled and is enabling us to increase our self-dependence en route to covering our needs from our own resources. Without these measures, our ability to acquire the necessary aid would have been much lower. Furthermore, they will enhance our chance of receiving the necessary aid, despite the international competition between countries to receive it.
The aid that we received this year reached levels that are unprecedented since the establishment of the PA. We cannot depend in the future on calculations that this level of aid will continue. It is not in our interest at all to plan for such a reality.
In addition to this, depending on the date on which aid will be delivered is dangerous. Let us suppose that a financial grant is late; the result would be that the people would return to wondering about the seriousness and capability of the PA. Consequently, the trust in it would be shaken, which would lead to a negative impact on the entire economic cycle.
It is for this reason -- and in order to enhance the immunity of the Palestinian economy, financial administration, and our own abilities -- that we have no option but to help ourselves to save money.
In this context, for example, there is a state of widespread unruliness in the electricity sector, which consequently means that aid is given to us but without any benefits, because the bills are not being paid. This problem can be solved in different ways and we have started solving it; it has been reduced, but it is not over yet.
There are other ways to deal with this problem, including the installation of pre-pay meters. The whole of Janin Governorate uses these meters and their installation has started in other areas. This is another example of the most ideal way in which aid can be used in order to enhance our own resources. Imagine, it would save 20% of the budget and would allow us to benefit from that money if we put an end to this phenomenon.
Again, I can say that the aid has been used efficiently in order to enhance our own resources, not only to improve our revenues but also to reduce expenses.
We are advancing based on this plan. We therefore expect that our funding needs next year will be less. This is important progress by any standard and it is another source upon which to build the citizens' trust [in the PA].
This would not have been possible without security capability. The security lawlessness was not limited to arms displays, as many people think. Naturally, these displays are objectionable. The security lawlessness includes other phenomena such as tax evasion, smuggling, stealing water, as well as other violations. Imposing security means ending these phenomena in a way that provides justice and secures the efficient provision of services to the citizens. Again, this is security. Security is to hold the Tawjihi [high school diploma tests] smoothly, credibly, and without problems.
I have a feeling that there is a situation the characteristics of which are becoming visible either through the services that are provided, through services that are provided in a better way, or through installations that were not built in the past but now exist. If it was not for the comprehensive manner of our work and the linking between all its elements, we would have never arrived at what we have achieved. I do not know in whose service is security provided in a context that should be defended [as published]?
A few days ago, we hosted an important event. There was a soccer match between our national team and the national team of our brothers in Jordan. The match was played in a modern stadium, although we are sure that the Jordanian brothers would have come out of solidarity, even if they were to play on a simple field. However, anyone who followed the match saw that the stadium was a modern one and that the audience was disciplined. They also saw a police force on the sidelines that remained alert throughout the match to deal with any problem that might take place and in order to make sure that the match would continue in the best possible way, and indeed it did. This was a scene from a state that is being created and imposed on the ground. This applies to all aspects of life -- from schools that are opened, services that are provided, and to building capacities. However, merely hoisting the banner of the state as a slogan will get us nowhere.
I am sorry that I am branching out in this way, but all issues and elements are connected in my mind.
Next Year's Needs Will Be Lower
[Sadaqah] How much has the payment of the debts taken from this year's budget, and how will its payment reflect on next year's budget?
[Fayyad] The debts to the employees alone were 2.5 billion shekels, not to mention the debts to the private sector, local government councils, and other debts.
We divided the payment of the debts in the development plan over a period of three years. However, we were able to pay all of them in 2008, which means that we will be able to save the money allocated to paying debts in the 2009 budget, and the same thing can be said about 2010. This means that a larger part of the resources will be invested in development, as much as the aid allows.
[Sadaqah] There is concern that there might be a crisis in the first months of next year. Are there any grounds for such concerns?
[Fayyad] The issue is linked to the donors' focus on 2008, without specifying the funds that will be committed in 2009, which created the feeling that with the end of this year a new era will start. Nonetheless, I can say that the first month of 2008 will be similar to the last month of the year. This issue forces us to intensify our meetings with the donors. The citizens should bear in mind that as long as we are talking about other countries' money, we have to deal with the situation with care. We hope that what we have achieved up to now will reassure them of our ability to meet our commitments.