Israelis, Palestinians Face Competition, Not Battles Agreement Gives Palestinians Freedom to Set Their Own Economic Policy

Article excerpt

WHEN Israeli Prime Minister Yitzhak Rabin and Palestinian leader Yasser Arafat sign their agreement on Palestinian autonomy May 4, they will also be ushering in a unique economic relationship between their two peoples.

What autonomy will mean in the economic sphere is spelled out in an accord reached April 29 in Paris after hundreds of hours of negotiations. Although it falls short of some Palestinian hopes, it offers the new Palestinian authority unprecedented freedom to set economic policy.

"What we hope for is a Palestinian state with totally independent economic decisionmaking," says Amin Haddad, one of the Palestinian negotiators. "The agreement we signed with the Israelis represents a first step toward achieving that main goal."

Remarkably, the agreement was heralded equally warmly by economists on both sides as a recipe for economic health. "The mood and spirit of this agreement is about cooperation," says Avraham Shochat, the Israeli finance minister.

"We will have competition, instead of war," comments Efraim Reiner, former chairman of Bank Hapoalim, Israel's largest bank. "This has to be better."

The Palestinians may not have won the right to issue their own currency, but they will be setting up the Palestinian Monetary Authority with all the regulatory functions and powers of a central bank. The question of a Palestinian currency remains on the agenda, while the Israeli shekel and Jordanian dinar will be legal tender in the autonomous areas.

Nor did the Palestinians win a commitment from the Israelis to open their borders to Palestinian laborers, whose income from jobs in Israel brings in nearly 30 percent of Palestinian gross national product. Security considerations overrode economic ones here, but the Israelis have pledged to "attempt to maintain normality of movement."

Most critically for the Palestinians, the agreement gives them the right to set their own import duties and customs regulations for a wide range of basic goods and machinery needed for reconstruction.With Palestinian per capita gross domestic product only $1,000 a year, 13 times lower than the Israeli level, "we can't use Israeli import procedures, because our people can't afford them," Mr. …