The economic fruits of peace must flow primarily from the private
sector, but enterprise can flourish only in an environment of sound laws
and policies, efficiently administered. The capacity to design economic
policies, to formulate state budgets, to prepare public investment
programs, and to determine development strategies must be created in
West Bank and Gaza (WBG) from scratch. Other economic management tasks,
such as tax policy formulation and administration, controlling
expenditures, and providing social services, need to be adapted to the
requirements of the Palestinian National Authority (PNA).
Although the Palestinian people are among the most highly
educated and experienced in the Middle East, many of those living
outside of Gaza and the West Bank have yet to return. Even those within
the territories may not be attracted to government service at prevailing
rates of remuneration. At a time when economic and political
uncertainties remain high, the PNA needs assistance to create conditions
conducive to economic growth and the climate of negotiation.
This is a proposal to provide technical assistance to the PNA
from a consortium under the auspices of Harvard's Institute for Social
and Economic Policy in the Middle East (ISEPME). In the consortium,
economists from Harvard University and the Massachusetts Institute of
Technology would join members of the Palestine Consultancy Group in
advising the PNA on economic policies and would assist the PNA to
strengthen its capacity for economic management.
Assistance on economic management has already been rendered by
ISEPME with funds from a private donor. Consulting visits on tax policy,
tax collection and computerization have taken place. Preliminary
explorations have been made into the means of assisting with the budget
process and economic planning. Opportunities to participate in HIID
summer workshops on public budgeting, computerized tax administration
and other elements of economic management have been offered to six PNA
officials. These efforts would be expanded under the proposed program.
In addition, a panel of senior economists would advise PNA ministerial
policy-makers on macroeconomic issues as they arise.
Under the peace process through which the Palestinian people seek
national independence, the PNA gains authority only gradually over
territories and over the policies that determine economic outcomes.
During this transition period, capacities for policy-making and economic
management need to be expanded in the new ministries being established
to govern the territories.
A Protocol on Economic Relations signed by the PLO and Israel in
Paris in April 1994 attempted to lay the groundwork for strengthening
the economic base of the WBG and for PNA decision-making in economic
areas. The Protocol provides for free trade between WBG and Israel, and
allows for the possibility of free trade between the Palestinian entity
and its Arab neighbors. It sets out the framework for monetary and
fiscal policies and for other aspects of Palestinian economic
management. Customs and other taxes were established in the
negotiations, and provision was made for the creation of a Palestinian
During the eight-month period between the signing of the
Declaration of Principles in Oslo and the beginning of PNA self-rule,
the Palestinians and the donors agreed upon the need for an agency to
coordinate, negotiate, and receive foreign assistance. The Palestinian
Economic Council for Development and Reconstruction (PECDAR) was set up
to formulate projects under the Emergency Assistance Program, designed
with the help of the World Bank, to undertake economic research and
planning, to coordinate foreign assistance, and to deal with specialized
agencies and organizations.
PECDAR was created as a transitional agency before ministries of
the PNA were created. It is expected to phase out within three years, of
which one year has nearly elapsed, with its functions being assumed by
various ministries. This process has begun, but is mid-stream, with some
of the functions, such as economic policy formulation and foreign aid
coordination, somewhat in limbo. Authority for economic policy is
fragmented between PECDAR and several PNA ministries, and among the
The government's role in the economy in these early years will be
substantial. Foreign aid is expected to run from $500 to $800 million
per year, and tax receipts could rise to around $400 million per year.
In all, PNA expenditures will likely equal one-fourth to one-third of
Palestinian GNP in this period.
In addition to the tasks of managing foreign aid negotiations and
allocations, and administering an effective tax program, the government
requires the capacity to establish an economic development strategy, to
devise a macroeconomic policy framework conducive to growth and
employment creation, and to negotiate trade agreements with neighboring
countries. Unfortunately, neither PECDAR nor the economic ministries are
sufficiently established to carry out these tasks. They are embryonic
organizations with relatively inexperienced staffs.
During this transition period, with all its political
uncertainties, the PNA has entrusted its economic policy decisions to a
ministerial committee of three members: the Ministers of Finance,
Planning and International Cooperation, and Economy. This committee will
guide the budget process, which in turn will set the strategy for
development and employment creation. This committee would be the focal
point for policy advice provided under the proposed project. Their
ministries would be focal points of training and consultations designed
to improve their economic management capacities in such areas as public
budgeting, tax administration, economic research and analysis, and
ISEPME, founded in 1983, has been a research institute at the
John F. Kennedy School of Government at Harvard since 1988. Its goals
are to undertake research and projects on policies that will further
economic and social cooperation between Israel and its Arab neighbors.
The Institute is financed primarily by individuals and family
foundations from North America, Western Europe and the Middle East.
These individuals include Arabs and Israelis who have a keen interest in
promoting peace and prosperity in the Middle East.
In 1991, following a conference it sponsored on "The
Economics of Middle East Peace," ISEPME staff realized that the
Middle East conferees meeting in Madrid were not yet ready to engage
seriously on economic issues. ISEPME decided to attempt to fill this gap
by organizing Israeli, Jordanian and Palestinian economists into a
collaborative project, with senior Harvard and MIT economists
participating in working groups, to address five major economic topics:
Regional Trade in Agriculture, Industry and Services, chaired by
Prof. Raymond Vernon of Harvard;
Labor Policies, chaired by Prof. Richard Freeman of Harvard;
Fiscal Policy, chaired by Prof. Thomas Schelling of Harvard and
the University of Maryland;
Monetary and Financial Arrangements, chaired by Prof. Lester
Thurow of MIT; and
Management of Foreign Aid, chaired by Prof. Dwight Perkins of
Apart from the chairs, the working groups were entirely composed
of economists from the regions. Their report, "Securing Peace in
the Middle East: Project on Economic Transition," was published in
June 1993, and has become a document of reference in the peace talks on
Since that time, ISEPME has published a series of Near East
Economic Progress (NEEP) Reports. Their goal is to promote economic
progress in the region by analyzing developments, identifying potential
impediments to progress, and offering constructive suggestions for
solving emerging problems. NEEP Reports are aimed at policy-makers,
opinion-makers, researchers and the general public in the Middle East
and elsewhere concerned with economic and general progress in the Near
East. As with the earlier study, the Reports are written by economists
from the region, Harvard and MIT.
ISEPME also sponsors the Harvard Middle East Water Project, which
proposes a rational economic approach to analyzing water issues that may
help the parties of the peace negotiations to perceive the conflict and
approaches to its resolution in a new way. The Project seeks to
calculate the value of water in the region at present and for each of
several years in the future. The Project envisages a water authority,
jointly operated by Jordan, Israel and Palestine, which would transfer
water from one country to another at prices reflecting the full social
value of water as determined by each party.
ISEPME also sponsors a Trade Project, in which Israeli, Jordanian
and Palestinian teams of economists consider the merits and dynamics of
alternative trade arrangements in the region, propose practical
cooperative measures to facilitate trade, and identify outstanding
issues needing to be resolved.
In the proposed project, for policy advice to the committee of
ministers, ISEPME will rely upon the group of economists who
participated in the original study (depending upon individual
availability), supplemented by members of the staff of the Harvard
Institute for International Development (HIID) as needed. For technical
assistance to the ministries in improving selected economic management
capacities, ISEPME will rely primarily upon HIID staff and training
HIID was established
in 1974 to enable Harvard University to respond to the diverse needs of
the developing world for research, technical assistance, and training;
and in turn to bring the practical development experience gained in the
field into the university's educational environment. The Institute, and
its predecessor organization the Development Advisory Services (DAS),
have participated in the development process in over forty countries
during the last thirty years. HIID currently has development assistance
projects in thirty countries in Africa, Asia, Latin America, the Newly
Independent States, and Eastern Europe.
HIID has about fifty-five resident advisors overseas, usually
within specific government ministries and departments. Each year, HIID
fields about 200 consultants to work with these resident teams and
decision makers on specific problems. The annual budget of HIID is
around $40 million. Its sources of funds are diverse, including private
foundations, international organizations, foreign assistance programs,
and foreign governments.
The core of the Institute's work has been helping country
authorities move toward market economies. It has done this by providing
resident advisors and short-term consultants to assist institutions in
developing countries. From the beginning, the Institute's strength has
been working in the field with policy-makers and managers - those who
actually make and implement the decisions upon which economic
development depends. Primarily, HIID does this by mobilizing the
knowledge and experience gained in other development efforts throughout
the world and making that knowledge and experience available to those
who must ultimately decide what is to be done.
HIID has always stressed the importance of building counterpart
institutions through staff development, collaborative research, and
training programs. Over the past two decades, HIID has developed a
series of six-to-eight week short courses held in Cambridge each summer,
emphasizing practical hands-on work, computer exercises, simulation
games, and case studies specially created for these programs. These
workshops, conducted at the level of a graduate course at Harvard,
include reading, problem-solving, analysis of cases, and use of computer
software packages for different analytical tasks. The lectures and case
materials used in the workshops draw on more than two decades of HIID's
experience assisting developing countries. Workshops and seminars can
also be designed to meet particular needs and offered in the host
The annual workshops offered in Cambridge are briefly described
and the Public Sector.
This workshop is designed for senior officials who prepare, review, or
oversee the implementation of national or ministerial budgets. The
workshop seeks to improve participant skills by broadening their
understanding of the entire public budgeting process through the
analysis of different approaches to public budgeting. Topics covered
include the budget and the national economy, the budget as a tool of
management, recurrent and development budgets, parastatals and the
budget, budget reforms in selected countries, and policy-making,
planning and budgets.
Adjustment and Food Policy.
The goals of the workshop are to enhance and broaden the thinking of
macro-and microeconomic managers to improve their day-to-day skills in
the design of economic policy, and to develop capacity for applying
practical analytical tools to the solution of policy problems.
Economics and Policy Analysis.
Participants gain the tools necessary to evaluate quantitatively the
value of natural resources and the environment and to formulate policies
to protect the environment without restricting economic growth.
on Information Technology for Fiscal Systems. This program is designed to enable tax professionals
to initiate, manage, and evaluate the process of introducing new
technology within their tax systems. The course, offered through the
International Tax Program and the Lincoln Institute of Land Policy at
Harvard, focuses on emerging trends in fiscal systems, computers, and
the management of information technology for these fiscal systems. The
four-week course consists of modules addressing organizational change,
tax policy and administration, and technology choices. Separate sessions
on customs, income, value-added, and property taxation are also offered.
on Investment Appraisal and Management. This workshop is for professionals in public and
private organizations who plan, assess, or execute projects, and for
administrators who must evaluate investment proposals. The program
develops the analytical and operational skills of participants so they
can plan and assess all aspects of investment projects. Participants
learn modern methods of conducting financial, economic and social
evaluations of projects, and learn techniques for project planning and
implementation. They become proficient in using microcomputers to make
financial and management decisions.
This workshop offers participants an overview of the potential and
problems of public enterprises, and the tools for solving problems
between public enterprises and the government. Topics explored include:
public enterprise as an instrument of national development policy,
organizational development and conflict management, marketing and
communications strategies, strategic planning, pricing and financing
policies, project appraisal, performance evaluation, and privatization.
Policy Analysis and Planning.
Participants in the workshop learn techniques for conducting policy
research to improve education. The workshop focuses on increasing the
quality of education, extending access to educational opportunities
through formal and non-formal methods, achieving equity, and lowering
This year, six or seven places in these courses have already been
reserved for Palestinian officials, to be financed with funds from a
The Palestine Consultancy Group (PCG) was founded in 1993 by a
group of influential people for the purpose of facilitating
international cooperation on development activities. It is chaired by
Dr. Sari Nusseibeh, who is also senior fellow of the ISEPME. PCG is a
nonprofit organization. Its members are well acquainted with the leading
figures in the PNA and in Israel who deal with WBG issues. The PCG will
be in a position to identify priority issues on which project analysts
should focus, identify appropriate counterpart consultants, and handle
local logistics. The PCG will also be able to monitor progress made in
the ministries on economic management capacity-building on a continuing
Since it was founded, the PCG has been active in several fields.
Together with the Truman Institute at Hebrew University, the PCG
organized workshops on health, tourism, education and water where
Israeli and Palestinian experts joined with experts from various
countries abroad to address common problems and to devise cooperative
means of resolving them. The PCG conducts joint research with ISEPME on
investment opportunities, water as a market commodity, and the refugee
problem. Additional research on waste management and marine sciences is
being planned in conjunction with the University of Michigan.
The proposed project would be under the overall direction of a
Steering Committee, composed of a ministerial-level person appointed by
the Chairman of the PNA; the Chairman of the PCG, Dr. Sari Nusseibeh;
the Director of the ISEPME, Dr. Leonard Hausman; and the Director of
HIID, Dr. Dwight Perkins. The Steering Committee will meet three times
per year to determine project priorities and to assess the
accomplishments and requirements of project activities.
Day-to-day responsibility for managing the project will fall to
the Associate Director of ISEPME, Dr. Bishara Bahbah. An inaugural
meeting of the Steering Committee and the Project Manager will be held
in WBG as soon as funding approval has been received, in order to plan
project activities for the first six months.
Visits by senior economic consultants will be scheduled
individually. They will confer with the committee of economic ministers
on an agenda of issues designated in advance, through discussions held
by the Project Manager with each of the ministers. PCG consultants will
regularly be teamed with foreign consultants and will be available for
continuing work on the particular issues during the dual consultancy.
The PCG consultant will be able to keep the foreign consultant informed
of developments and can recommend the timing of subsequent visits by
that individual. Approximately six individual consultations will take
place each year.
Economic management capacity-building activities will also be
scheduled during Steering Committee meetings. Activities already under
way in the areas of tax computerization and collection, budget
preparation, and economic planning will be continued and expanded. In
addition to consulting visits, a senior economist will be assigned on a
residential basis to the Ministry of Planning and International
Cooperation to help establish the analytical capacities of the new
Additional areas of interest, such as strengthening statistical
services, will be explored. The training of local staff will receive
emphasis. HIID workshops will be utilized, and the HIID Training Office
will arrange other short courses abroad as needed. The PCG will organize
local training courses as needed. For example, courses from abroad, such
as the budgeting or tax administration workshops, may be imported,
translated and adapted to local needs.
Severe fund shortages have led the PNA to adopt a strategy for
expanding its technical capacities that relies heavily upon donor
funding. Foreign assistance is used not just for external costs of
consultants and training, but for local logistical costs and salary
topping as well. Salary topping will be required to attract adequately
trained economists for economic planning activities.