Palestinians to face economic pressure

By Mark Gregory
BBC World Service business reporter

As Hamas manoeuvres to form a government, following its election success, attention is turning to the Palestinian economy.

Former president Carter says the US can no longer give money

The territories' administration has been constantly short of funds. Many Palestinians live in conditions of great hardship.

Palestinians voted for Hamas in such numbers partly because they saw the movement as the best bet for competent, honest government capable of lifting them out of poverty.

And Hamas leader Mahmoud Zahhar has promised to deliver.

"We are going to change every aspect, as regards the economy, as regards industry, as regards agriculture, as regards social aid, as regards health, administration, education," he said.

Interdependence

But actually the Palestinian Authority has limited control of its economic destiny, whoever runs it.

Israel holds many of the cards.

It is obvious that the EU would never countenance funding a regime that continued an armed fight against Israel Ignasi Guardans Spanish member of the European Parliament

The major markets for Palestinian fruit, vegetables and other products are in Israel.

Many Palestinians earn their living in Israel, and the territories' external trade passes through Israel.

"The problem is not so much the money, but you have to have ease of movement of labour and of goods for businesses to function," said Muhammad Mustafa of the Palestinian Investment Fund.

"Otherwise we can't export the stuff."

So Israel can exert economic pressure almost instantly by closing or restricting traffic across the borders.

This, though, is not a one-way street.

Israel's infrastructure also depends on the Palestinians, as their water and electricity networks are intertwined.

Economic pressure

Hamas' room for manoeuvre on the economy is also restricted on other fronts.

The Palestinian Authority has always been heavily reliant on international cash, much of it coming from European governments.

That tap can easily be turned off.

"It is obvious that the EU would never countenance funding a regime that continued an armed fight against Israel," said Ignasi Guardans, a Spanish member of the European Parliament.

"But we cannot push for democracy and then deny the result of free and fair elections."

The US is expected to take a tougher stance.

"United States law would require that the money would be cut off if Hamas is in the government, so that's a foregone conclusion," said former US president Jimmy Carter.

Then there is the issue of what happens to the large sums of aid reaching the Palestinian territories through international agencies, such as the World Bank.

It is far too early to make any predictions, but the potential for economic leverage is clearly there.

It is hard to imagine international agencies pouring in money to aid a Palestinian administration that powerful Western governments are reluctant - or are outright refusing - to deal with.