Q_ z le e T D A ki A Quartedy Publication of theVW ES B ANK i K West Bank and Gaza Office

AND GAZA August 2000

UPDATEThe World Bank Group

BUILDING BLOCKS FOR THE FUTURE

The road to sustainable Palestinian countries. The situation today is insufficient, and couldl bedevelopment is still unclear. To go somewhat impr-ovecl in counterproductive in the mediumforward, we need to consider the comparison with 1993-1997, but term if poorly planned.lessons from our past, review the still fragile.1 Now, we need to anchor theprogress to clate, and prioritize an To assist in the way forwarcl, we donor programl, to fix ouragenda in partnership between can draw on the lessons of our perspectives and strategy. FromiiPalestinian society and the donor experience detailed in the Aid international experience, we seecommunLity. How do we address Effectiveness Study. The Study the Bank's role as working witlhpoverty? How do we avoid a long- dcemonstrates the specific the public sector to establish fourterm donor dependency? How can contributions made by the donor strong cornerstones forwe help to incluce job creating community, the progress made in development: (1) fiscal stability;investment for a competitive Palestinian institution building, (2) a viable program of basic socialprivate sector? Wlat should be the and the effectiveness of donor/ services; (3) a prudent andpublic sector's mission and l'alestinian partnership structures. humane social safety net; andl (4)strategy? What are the elements It also reveals Palestinian public an environment encouragingof a strong foundation for opinion as to donor performance private sector growthi. Unless wesustainaible development and hlow and priorities. The Stucly pointedly work with the PA to establish thesedco we help establish it? cautiolns that while necessary, the cornerstones, what we help buildTo take stock, UNSCO's "Report provision of donor money is on top will be weak, at best. Tooon the Palestinian E;conomny", and often, donors overlookthe World Bank's "Recent fundamentals of development.Developments in the Palestinian 'Unenmpkovment, while down recentlV, re?mains This occurs usually as a result ofEconomy", and the Japan/World twice the level of 1993 anld remains a serious slhort term expediency - donorsBank Aid Effectiveness Study, all problem wilth low participatioJn and high and the PA wish to be pragmatic

al depe,ndencY rates. Recent gains come primarily n h Aws ob rgaipublished in June 2000, confirm from public sector.hiring anid increasinlg and to see specific results. Thus,that the economl-ic decline of 1993- emplo�vmen in Israel, neitherof which appeaas buildings ancl infrastructul-e are1997 has abated. Emnployment and to be suistainable over the lpng term. 7rade

istatistics show a continiitq deficit amountingreal per capita incoimne improved to almost 50f91 of GDP, wilth little, if ai, realsomewllat in 1998 and 1999. Bank gr)wth over the past fewyearv. Private sector _

deposits and lending have job creation has improved over the past year, Public-Private Sector Partnership 7

iicreasecl lbut thie lending/deposit but the much-needed private sector resp)onseincreased, ~~~~~~~~~exPected int 199.3 has still ntot materialized. Recent_Eco__o__li_Develop______s_rate of 32% is far below the 70- Prtvate secto,r inves tent remains lowv anid the Bank Groip Opeations 1

80% average for developing challenlges remain stiiiticant. Bank GrouIp News 21

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built without sufficient thought Maintaining Sound Public a Duplication of functions withingiven to maintenance and Finances the P'A is an enemy of efficiency.recurl-ent costs. Donor funds are U The challenge in the coming Management organization andsoughlt to finance private business years is to uph-old fiscal training are in great demancl.expansion, but the reasons why cliscipline while at the same time Especially in the areas of publicthe private sector does not gain fulfilling existing obligations investment and social services,access to and leverage on existing and meeting future needs. The the scope for improvinig thebank deposits are not addressecl outlook for public finance is planning process is broad.(e.g., inadequate legal fragile, as the constraints Across sectors it is necessary toenforcement of creditor rights, imposed on expenditures will integrate bucdget proposals intoinadequate regulation of capital get tiglhter. Two factors squeeze a forward looking macro-markets). Palestinian. society public finances. On the one economic framework. There isunlderstands that the lack of clarity hand, the possibility for good work underwaty inancl enforceability of lancd titles continued increase in revenues MOPIC, the Ministry of Finance,restricts the financing of much is limited ancl donor financing and in several Ministries,neededt housing and a more robust at the current level is unlikely including Eclucation and Health.rieal estate market. Yet, the to continue inclefinitely. On the Progress has been achieved; butsituation for land survey and other hand, the pressure on much more work remains.registration has not changed since expenclitures is growing clue to * Municipal finance is an area ofthe Israeli Civil Acministration. The a number of factors, e.g., the priority. Reform of municipalneed for urban infrastructure high birth ralte implies a neecl planning, service provision, andexpansion is obvious. MuchI less for more funds devoted to the related finance is the focus ofclear is wlhere to put it and how social sectors, especially two Bank Projects. Theto protect dte environment. T'he education and healdt. A serious relationshiips of municipallack of clarity is clue, in large part, clemand will come from finance to infrastructure,to a lack of local planning and pension obligations to an rehabilitation, expansion andplanning enforcement. To get increasing number of public competitive pricing are wellthese areas of the economy sector employees. Also, realistic understood. The goals al-emoving, we neecl to go back to budget provisions for known but the means are notbasics. The basics are the elements maintenance and for capital yet clear.of the cornerstones. investment must he made.

* Improvement in the institutional A Viablte P0gram ofFiscal Stablity structure and capacity of the PA Social Services

for good budgetary outcomesThe Economic Policy Framework, is a major priority for the future. The second cornerstone is anaclopted by the P'A in June 2000, Some groundwork has been efficient and effective programn forhas already gone far to set in place clone, e.g., thie Organic Budget social services, par ticular-lythe first cornerstone. Consolidation Law goes a long way to set the education and health. It is clearof revenue accounts and planning necessary standards and that considerably more work isfor financial management has been procedures in the budgeting needed, not just to build buildings,initiated. A goverrnment whose process. But implementation is but to create systems for planning,finances are under control can still mixed: public finances still financial management, andundertake the actions needed to lack completeness of accounts. training of the service providers.foster development and civil Financial management and The concerned Ministries havesociety. Fiscal stability, accoun- planning need more attention, made much progress aind thetability, and transparency are the including training. The auditing World Bank hopes to incre,ase itscrucial first steps necessary. We practices are weak and efforts with our partner clonors inhope to continue to work with the fragmented, as uniform this area.I'A, the IMF, and others to standards and rules forstrengtlhen this cornerstone. publication are lacking.

August 2000 2

Developing Adequate Social other public/private means of licenses, and contracts availablePolicies addressing poverty neecl to be to the most commercially* The PA has recognizec that its established. The PA cannot expect competitive, or only to those

education policies should aim to control the public wage bill and with WASTA? Does the legalto maintain net enrollment in encourage early retirement system resolve disputes fairlyprimary school, and increase without having such systems in and quickly? Do theenrollment in secondary school, place. To assist in the analytical enforcement agencies andand provide educational and work, the Bank intencs to do more security forces acttraining opportunities for out- work on the causes and effects of independently from theof-school youth. Of equal poverty in association with PA business they protect, or clo theyimportance is to improve agencies, the academiic community participate in and take rentsstudents' learning achiievemilents, and NGOs. Social safety nets that from trace and production? Theto strengthen their civil values, have been neglected to date, are answers to these questionsto complete and to promulgate now given more urgent priorities. impact on the cost of cloingthe education law and relatecl But, witha girowing public payroll, business and on the decisionsregulations, to strengthen policy it is now more appropriate, in fact of an investor. The greater theplanning, and to phase-in urgent, to recognize this area as economic legality, the moredecentralized clecision-making an essential building block for likely investmient will come.as appropriate, to establish sustained development. Economic legality wouldevaluationi mechanisms, and to provide the clegree of certaintyrationalize administrative and support /b I'2ic' *Kector and secur ity needed tobudigeting regulations and encouLrage private sector trade,processes. Developifent financial intermediation and

* The Ministry of Health has The fourthi cornerstone is a system investment.prioritizecl strengthening that encourages private sector * Palestinian infrastructule needplanning ancl management development. All of us need to not be financed entirely bycapacity, and continuecl work harcder in this area. dlonor funcds, taxes, an1d. publicbuilding of the public health * A fundamental element of this sector-owned enterpr-iseand health service delivery cornerstonie is "economic revenlue. There is U.S.$1-2systems. The PA's vision is to legality." We clefine economic billion now untapped in privateachieve CIluality improvements legality to mean a written body Palestinian savings in the Westand reduce unnecessary or of laws, rules, and regulations Bank and Gaza. If a clegree ofinappropriate medical care, thatt re harimionious, widely economic legality can beexpand health insurance toward disseminated and accessible, to established, this untappedunivei-satl coverage, and ensuLre the public and generally capital couldl be put to work.access to basic healtih care for consistent witih global normis;all on a sustainable basis. applied and enforced uniformily, Expanding the Range ofMeeting these goals will not be over a period of time by capable Trading Opportunitieseasy. Tracle-offs will be needed institutions of integrity. * Another fundamilental elementsince the public sector cannot Economic legality includes not for private sector developmentafford to remedy every illness, only written laws, but also the is an expansion of tradingconcentrating on public health practices and administration of opportunities. The Palestinianandcl disease prevention. the laws. Are the written nonns economy benefits fromil three

clear or subject to wide important potential resources to

'So(-Citl Sqfety Nms interpretation? Are they develop its trade activities: (1)hannonious between the West a strategic geographical

Thle third cornerstone is a system Bank and Gaza? Are the position; (2) a relatively openfor social safety nets for the administrative services quick, economy withi little industtriaunemployed, the aged, and the user friendly, or expensive and base at risk; and (3) preferentialdisadvantaged. A social pension lengthy? Is the system open or access to U.S. and EuLopeansystem, insurance systems, ancd is it closed? Are concessions, markets for industrial goods.

At,,7isl 2000 3

* Despite these advantages, relatively high level of real market increases theexport performance has wages and ecducation in the vulnerability of the Palestinianremained extremely poor over Palestinian economy, this economy to Israeli securitythe last six years, both vis-a-vis strategy is more suited to the concerns and to the highlyIsrael anid the rest of the world. curr-ent situation than a strategy cyclical fluctuations of the IsraeliTwo major constraints have based on the development of construction sector. It might alsohinderecl West Bank and Gaza labor-intensive and low-skilled have negative implications forto compete in these markets: exports. Palestinian export competiti-high transaction costs ancd veness.limitecl access to the cheaper Improving Intellectual * The strategy should not rely oninputs suppliecl on the worlcl Property Growth expanding the inumLber of publicmarkets. The former, in great A more open- environment for sector jobs, whiclh has alreadypart, is attributable to border intellectual property and attained its limit. ContinLuecdrestrictions, internal movement information technology is urgently public payroll growth willrestrictions, and security needed. The PA has already made undermine fiscal stability andclearances; the latter is the result significant strides in these areas compromise private sectorof the combination of current but imluch remains to be clone. expansion.fiscal and trade regimes which- Intellectual property protection is * Potential job creation lies in theadd a significant and harmful now being addressed by the development of service andwedge to the world price of Ministry of Economy and Tracle. information based incdustries.imports from the rest of the Information technology improve- While the agricultural sector hasworld. To implement a strategy ments were addressed in the West some growth potential,to increase a trade requires the Bank anld Gaza Update, fourth especially if there is substantialrecluction of these two obstacles quarter 1999. The recent publicity structural ad justmiient andas top priorities. in Israel concerning the shortage reallocation of resources, the

* An alternative strategy would of infonmation technlology workers employment creation potentiallower the price of imported should be a very loud signal to is very limited. Textiles andinputs in order to increase Palestinians that ample assembly have some immecliateexternal competitiveness, while opportunity is right next door, if appeal but require carefulmaintaining revenue from the right training is undertaken. targeting and quick access tocustomiis dluties, VAT, anc . inputs ancl expo)rt markets.puL-chase taxes. Significant Improving the Job Creation Tourism is a promisinlg area ofopportunity is afforded by Capacity of the Palestinian job creation. Anotlher potentialadopting a nondiscriminatory Economy for growth is informationtariff and relying more on direct * The m)ost pressing issue for technology, given the existinglinks with the rest of the worldl, Palestinian society is to advantages of language,with the vision of becoming a dramatically expand the training, and cross-cultural links.trading platform between creation of good jobs, in orcler * Nobody knows whichi activitiesregional and western markets. to limit unemployment and raise will succeed in the future.

* Neighboring countries will need living standards. Without Almost certainly, the Palestiniantime to open up their economic legality and an open economy will fail if the publiceconomies, as acknowledged in information society, the sector tries to force thethe Arab Free Trade and Euro- required investment, trade, and development in one specificMed Agreements. If West Bank the resulting quality jobs will not direction or another with publicand Gaza could tracle freely with materialize. intervention in the prodluctivethese countries, its economy * The strategy to improve job sphere. Further, the cost ofwould be better positioned to creation should not rely doing so will most likely beexploit its free access to the primarily on the Israeli market. large. Reliance on fairwestern markets, adding value Potential labor-demand growth competition is usually the bestto labor-intensive regional- in this market is limited. Also, and most efficient way to pickmanufactured goods. Given the reliance on the Israeli labor the winners.

August 2000 4

* The Palestinian labor market is, occupation years and continues constraint to growth- in tourism,in spite of serious labor to be a major credit channel. information, communications,movement restrictions, highly The temptation to regulate the and transport. While there areflexible. Institutional reforms for informiial financial sector should several projects underway aindthe labor market should aim at be avoiclecd because of the planned in these sectors,increasing fuLtler labor mobility chilling effect of regulation on additional fundinig is neecleclto improve its allocation, its operations. and projects already identifieclencouraging female labor * Thecommercialbankingsystem and prepared could beparticipation and developing expancded its deposit base implementecd more rapicdly.safety nets to prevent workers enormously in the last few * Further substantial investmient infrom an increasing vulnerability years, reaching U.S.$3.8 billion the energy sector will beto external shocks. at the encl of 1999. If bank needed, first to serve

lencling is to increase households and then forMobilizing Domestic significantly without economic growth. SuchResources for Private destabilizing the domestic investments include furtherInvestment banking system, the Palestinian generation capacity and* Unlike many developing Monetary Autlority will have to investment in the distribution

countries, capital is a less increase its regulatory and network to increase itsserious constraint to economic supervisory capacity efficiency and capacity. Ihisclevelopment. The relatively substantially. work should be clone inlarge uLLused lencling capacity conjunction with institutionalof the domestic banking system Public Investment Strategy for reform to create moderln utilitiesis a potential source of growth the Four Cornerstones formed by public-private sectorwhich stills goes unleveraged. The Aid Effectiveness Study ventures that mobilize capitalThe loan deposit ratio of the provicles a detailed analysis of and management skills fiom thedomestic hanking system what has been clone, what has private sector.currently stands at 34%. If this worked, and what has not. It also * While the private sector hasratio were to reach the 70% level lists the funcling in the pipeline macle substantial investments inwe see in most developing and makes recommliendations for telecomm-lunications in the lastcountries, more than U.S.$1 additional focus on institution three years, some additionalbillion woulC move into the building. Assuming the planning investment is needed toPalestinian econolmiy. exercise can be refined, the first promiiote growth in this sector.

• Three channels are the usual priority for an investment strategy Possible areas of investmiientmeans for directing financial will be to iclentify the specific include acdditional physicalresources into private sector needs for institutional change and infrastructure, technical trainiinginvestment: (1) the equity reform and the need for donor programs, and fundinig amarket; (2) the commercial assistance with a focus on the research facility.banking system; and (3) the basics. It must be emphasized that * Additional public investment ininformal financial sector. The the miin challenge is institution agriculture to assist adjustmentbanking and capital market building and policy-making to higher value crops with lesschannels reqLuire further capacity, and that the pledging, water use.substantial assistance in legal commitm-ent, and disbursement of * Water conservation andframework, training and funds are not in themselves a expansion of facilities providinginstitutional oversiglht. If a level priority for development. increased access, ancl theof public confidence in capital Apart from the urgent need for treatment of wastewater receivemarkets is attained, institution building funds, the a high proportion of clonorinfrastructure and large needs and opportunities above funding. However, access toproduction enterprises could suggest a public investment clean water and expansion ofbenefit from private savings. program, in addition to the conservation efforts are still

o The informal financial sector existing funds available as follows: priorities needing fuLther study.was the main source of InaclequLte infrastructure isinvestment funds during the currenItly an important

Autiesl 2000 5

Aid C6oi-dinali experience, and a beneficiarySitrucitres assessment whichi suggests the

way towards sustainableOver the past seven years, the development. Mloreover, the StudyWest Bank ancl Gaza has been a also provicdes welcometesting ground for institutional recomiimenidationls on the role ofinnovation in aicl coordination, donors in supporting goodreflected not only in the formal policies and strong institutions,coordinating structures, but also in ancd sets out practical advice forthe mechanismns for joint finding. invigorating the Palestinian privateThe formal bodies under the sector, knowledge managementexisting structure have become for planning, analysis anclwell established and accepted with coordination.Norway, UNSCO, and the World Finally, the simple provision ofBank playing complimentary money, without reform can haveadministrative roles. The local negative or positive results,bodies have had mixed success creatinig opportunities forbut have recently shown adminiistrative rent seeking or evenimprovement in numerous sectors. corruption if the amount exceedsThere has been marked what can be effectively cleployed.improvement in PA planning, Money alone can directly orcoorclination, ancl aid utilization. inclirectly support inefficientThle appropriate structure for aid policies and institutions, andcoordination cloes not depencl actually block reforms. As theImluChI on the level of aid or the rehabilitation period closes,numnber of aicl agencies. The project selection and the donorexisting structure is a strong appetite to fund the projects willplatform to build on and the dependc more on the policies anclclonors have a comnmon interest to institutionis to be developed thanmaintain anic improve it. on the amount of concrete to beThe starting point for improving poured. Thus, the intendedthe structure should be to builcl a outcomes of institutional andstronger, more coherent PA policy reform will deteniine whatplanning and resource is fundecl. The argumiient formanagement system. optimism is that Palestinians haveRecommendations for improved expressed a demand for gooddonor coordination and MOPIC governance; and ideological orplanning presented at the October bureaucratic behavior constraining1999 AHLC Meeting in a study reform, transparency, andfinanced by Japan should be efficiency is notyet so entrenchedimplemented on an accelerated as to prevent reform.timetable. Particularly important We look forward to participatingancl requiring fundirng on a priority in laying the foundation stones forbasis is the work now underway the future.to get the clonor activity andstructures into a Web-basedsystem.

The Aid Effectiveness Study hasbeen particularly timely. It containsa comprelhensive review andeconolmiic analysis of the aid

Augusl 2000 6

Promothing Public-Private Sector Partnership Through Dialogue

One of the first policy pronounc:ements of the developed in coordination with DAI under the USAID-Palestinian Autlhority (PA) following its establishment funcded Market Access Project (lAIP), was consistenitin 1994 was the adoption of a private sector-led with current thinking about ways of prom)oting privateapproach to economic growth and development. sector development globally. International experienceOver the past few years, however, involvement of suggests that the benefits of business-governmentthe private sector in economic policy discussions has consultation can include:been marginal at best. Over time it became clearthat, however unintentionial, existing trade agreements * Improved information for public decisions asancd government practices not only cliscouragecl consultation elicits important information fronminvestment, but in some instances even hindered the businesses about how changes are likely to affectperformuance of existing Palestinian businesses. them;

M Broader ownership of reforms and enhanceclIt was in this context that Paltrade - the P'alestine crecdibility of decisions both within the businessTrade Center - proposecl to organize a series of community and within the govermiient;workslhops to foster dialogue within and between M Improved accountability and transparency;the private and public sectors ancl to host a national M More resources for implementation of agreedtrade dialogue conference in the following year to actions, by mobilizing support and resources fromaddress key issues affecting Palestinian businesses. the business community;Importantly, I'altrade recognized that if the private U Reduced costs of business-gover-nment transactionssectoI was to play an enhanced role, it needed to be by strengthening trust between the public ancibetter organized and able to articulate its positionls private sectors.clearly and with greater collective voice. As amembership-based organization, Paltrade also The key elements necessary for the success of theunderstood its main challenge as one of leveraging NTD Project inclucded: (1) strong backing from thethe weiglht of its membership to deliver results. Prior Ministly of Economy and Trade (MOET), whichi agreedto IPaltracle's emergence as a representative of to sponsor the IProject ancl becamlle one of its mostPalestinian business interests, the private sector was active proponents; (2) a basic agreement on the "rulesorganizationally fragmented without an agenda or of the game" and the ensuing trust thalt wasconsensus on what constituted its priority issues. engendered through constructive clialogue; (3) aWheni businessmen raised issues of concern to the willingness by all stakeholders to be open-mindedPA - often individually and in an ad hoc manner -- and to see that public good could be achieved throughlthese claims were subsequently addressecl on a case- partnersh-ip and collective action; and (4) the abilityby-case basis, but lacked both the focus of a sustained of P!altrade to organize its members, solicit memnbers'dialogue and the policy deliberations necessary to input, fashion these ideas and concerns intoaffect real change. discussion papers, and host the first national dialogue

conference of its kind.Paltrade's National Trade Dialogue (NTD) Project waseventually approved by PECDAR and the World Bank Over several months, workshops and interviews wereand was funded under the Technical Assistance Trust conducted by Paltrade with businessmen througlhoutFund (TATF), a multidonor fund established in 1993 the West Bank ancd Gaza. Issues that emergedwith the aim of providing technical assistance to included concerns about: import quotas that causepromote institution building and economic market distortions; tax and customs proceduresdevelopment in the West Bank and Gaza.' The andtheiradministration that raise costs ancl impairconcept underlying Paltrade's NTD Project, which was Palestinian competitiveness; inadequacies in the

legal and judicial system that reduce the

Over US$22 million wvas contributed to the 7ATh b, the Government of predictability of outcomes; a weak regulatoryAustria, Caniada, Dennmark. Finland, flalls, Japc.in, ihe lVelbes, regime particuLlarly concerning product and serviceAornrvav, Suede,, Switzerlaned, Untited Kind'dom, anid the Uniled Sales standards and their enforccment; and public sector

Aukgnst 2000 7

owned or endorsed monopolies that redluce worth noting. First, dte Private Sector Coordinatingcompetition and increase costs to the Palestinian Council - a body consisting of members fiom thepublic (see box on page 9 for summary private and public sector - was created torecommendations). These issues were developed into institutionalize dialogue and improve channels ofdisc:ussion papers and were presented on May 30, communication between the public and private sector.2000 at the first National Trade Dialogue Conference, Seconcl, guidelines for trade cliscussions wvith Israelwhichi was fuLndced uLnder the Project. that were presented at the Conference emphasizing

an open and free trade regime have been adoptedThe NTD Conference was a well attended event in and put into practice. Third, discussions are wellwhichi businessmen, PA officials, representatives of underway between Paltrade ancl the Ministries ofcliplomatic missions and development agencies Finance and Economy and Trade regarding thegatherecl to participate in the emerging dialogue. establishment of a duty drawback system and a systemConstructive discussion and heated debate on some to enable efficient processing of VAT remittances.of the most challenging policy issues took place. Fourth, Paltrade ancd the TAC were consultecl by thePalestinian businessmen and public officials came to Higher Development Council in the process ofunderstand better the constraints facing their establishing the new Palestine Investment Fund - acounterparts and agreecd to work togetlher in fincling reform measure aimed at increasing transparencysolutions. Moreover, several key policy ancl regarding government ecluity holdings anclinstitutional issues now constitute an agreed action commercial activities. Finally, as stakeholders in thisagencla to be addressed over the coming year and process, Palestinian businessmen have gained anfor whiclh donor support will be sought for technical increasecd sense of their role andl responsibility, andassistance in some instances. are actively seeking to enhance their partnership witl

the PA in promoting private sector developmiient.Althouglh the NTD Conference is only a milestone inan on-goijig dialogue, a number of achievements are

August 2000 8

Selected Privale-Piublic Sector Recommewdations Agreed at tIe NTD C(.'onfe' ence

B Develop human capital by investing in the education U Post commercial counselors at Palestinian embassies andsector, focusing on technical skills anid gearing repr-esentative offices abroad.educational training toward dynamic areas of the * Establish a joint center for public and private sectors toeconomy. promote investment opportunities.

* Develop and promulgate economic laws in line with * Promote and expand economic activities in Jerusalem.the principles of a free market economy. * Stanclardize a tax rebate system on imported

U Encourage competition and prepare the Palestinian manufacturing inputs for export products.private sector to better compete globally. * Apply a generalized tax rebate system for all newly

• Streaunline P A operations regarding regulatoiy authorities, established investments.functions, and procedures, and ensure well-tr-ained staff M Establish an efficient tax and custom duties refundare in place to implement them. schemes.

* Rejuvenate and improve the performance of the courts * Give newly established investtnents priority on tax andancl judicial system. custom refunds.

* Coordinate st-ategies of P A agencies concerning foreign * Raise public awareness about and train technical stafftrade, manufacturing and financial policies. to combat impact of smuggling and dumping of proclucts

u Establish the Gaza Seaport as a free tiade area to stimulate in the Palestinian market.international investrnent and achieve economic growth. U Coor-dinate policies and procedures regarding smuggling

U Establish an independent Palestinian trade policy, and dumping with neighboring countries, ancl deviseemphasizing trade with regional partners. laws against dumping in conformity with the statutes of

M Promote future trade agreements that enable Palestinian the WTO.manufacturers to fieely export to external markets. n Develop an efficient computerized system for customs

* Amend joint trading arrangements with Israel by and statistical purposes, and to monitor the flow ofabolishing all fomns of monopolies grantecl to Israeli imported and exported goods.companies. U End foreign product import leakages and record all cross-

* Involve the private sector in final status economilic border transactions.negotiations with Israel. * Imilplement the PMA Law to promote a competitive

* Develop independent customs policies. banking environment.* Geographically integrate the West Bank and Gaza, U Establish commercial courts to resolve tricle disputes.

allowing workers, commodities, and means of * Encourage the PNvA to implement a creclit rating systemtransportation to move freely between the two areas. and information exchange system for banks.

* Amencd all trade agreements and involve the private * Utilize Arab and international loan collateral for importsector in redrafting them. and export purposes.

* Devise a national p)lan to promiiote Palestinian exports, * Establish the P alestinian Land Authority and providie alltourism, and investment. necessary resources to assist in surveying and registering

U Coordinate efforts in establishing tr-ade centers to market land.Palestinian exports. * Sponsor a professional, neutral party to carry out land

* Modernize research and clevelopment centers to upgrade and property assessment for registration and mortgagePalestinian industries and improve competitiveness. p,urposes.

* Builcl an exhibition and convention center meeting U Bolster the capacity of the Palestinian Standards Instituteinternational standcards. (PSI) by increasing the number of technical personnel,

* Prohibit high-level government officials from owning ensuring its independence in decision-making, andshares or having any interest in private sector enterprises, providing it with a network of infornation and allianceswhile in public office. with similar international organizations.

* Oppose all forms of monopoly, whether government-owned or private sector, unless they seive the nationalinterest.

* Promote the contestability of contracts by suppoltinigthe Public. Tender Law.

Auikgsl 2000 9

Recent Economiic Developments The average labor force participation rate remained roughlyPlecent Eco oml Deunchanged compared to a year ago. Hence, growth in thelabor force was driven by the demographic clevelopment,

* Economic Outtplut. The quarterly growth rate of i.e., the growth in the number of persons aged 15 andemployment within WBG decreased for the third above, of 4-5percent annually.consecutive quarter indicating a gradual recluction in Gross The first quarter of 2000 registered a slight increase in theDomestic Product (GDI') growth. During the first quarLter unemployment rate, to 10.9 percent as comparecl to 10of 2000, employment in the West Bank fell 3 percent, percent in the last quaiter of 1999 - the first registerecwhereas, employment in Gaza registerecd an increase of increase in four quarters. The increase was solely cli-ivenless than 1 percent compared to the last quarter of 1999. by an increase in the unemployment rate in West. BankEmployment within WIBG was, however, still approximately fi-om 7.5 percent to 8.9 percent. The unemployment rate in5 percent higher- in the first quarter of 2000 compared to Gaza declined slightly and stood at 15.3 percent in the firstthe same quarter last year. quarter- of 2000.

Quarterly Employment Growth Within WBG Unemployment Rate12% 25% -10% 1I8/ EL 20%6% 15% i

2%/o 11 \ // \ y / ? 10%0%

-2% 5%-4%--6% - 0%- -8%i;_,_ , co c D 0A T cn CD c n

) a) a) N) 1) v 0 a) C

Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 O a a a 0 a a a a98 98 98 99 99 99 99 00 -4--WB -U-G -L WBG

- West Bank -UGaza StripNotwithstanding the slight increase in the unemploymilentr ate in first quarter of 2000, the overall trencl in

PCBS is still in the process of producing long awaited figures qnem iret has l ofn200 d: overall to cl infor i-eal GDPI for the period 1994-1998. lihe latest bulletins unemployment has been downward: compared to one yearsuggest that the figur-es will be released midic-Auguist 2000. ago, the unemployment rate was thrjee percentage pointslower, 10.9 percent as compared to 13.9 percent in the first

quarter of 1999.r Labt r Markets The average labor force participation The cdrop in the unemployment rate over the last yearr ate over thle palst few years remlainedl more or less conlst ant Dbenefited all age groups, and in particular-, the youniger aigeait ipproximately 40 percent. The gap betweeni labor for-ce groups. The unemployment rate among 15-24 year-oldsparticipation rates in Gaza and the West Bank howeve, clecreased from 20.9 percent in the first quarter- of 1999 togradually narrowed, from almost 9 percent in the second 15 7 percent in the first quarter of 2000. Despite the relativequarter of 1998 to less than 4 percent in the first quarter of strng decrease youth uneiployieiit was Still significantly2000. Not only was the narrowing due, in particular, to the tirghr than the oveuhge unemployment rate. Tihe clecieiitsedlevelo)pment in the participation rtte in Gaz. wliich, ill among older labor force participants was comparativelythat periocl, increased from approximately 35 percent to more modest, e.g., from 9.8 percent to 8.1 percent among38 percent, but was also a result of a decrease in the 35-44 year-olds.average labor force participation rate in the West Bank.

Age Specific Unemployment RatesLabor Force Participation Rate 25%

50%

45%

40%15.

35%1 10%

30% -

Q2 Q3 Q4 Q1 Q2 Q3 Q4 01 5% _98 98 98 99 99 99 99 00 15-24 25-34 35-44 45-54 55+

WB _UG -- WBG EQ1 99 EQI 00

Autgust 2000 10

The labor force participation rate among 15-24 year-olds is * Prices. The acceleration of inflation, i.e., the percentagesignificantly lower than for the age group 25-54 year-olds, increase in the Consumer Price Index (CPI) compa.red towhich is only natural since a significant share of the 15-24 the same month a year ago, in WBG, whicih took placeyear-olds were engaged in the educational system. The age during the first quarter of 2000, continued in April andspecific labor force participation rates did not ciange much May, where inflation was 3.9 percent and 4.2 percentin the first (luarter of 2000 as compared to one year ago. respectively, up from 2.8 percent on average in the period

January to March. Inflation was still, however, lower thanin the same period last year, when it was around 6-7 percent.

Age Specific Labor ForceParticipation Rates

60% Participation Rates WBG Inflation Rates55% - s _ i 100-

9 ~50% ~~~~-8-

500m _ _ m _ _ _ _ _ _ _

220% -t 6 |*

10%%~~~~L _ a, , a, 0) , a, ¢, X¢ 0 0 0 .T

135-24 25-34 3544 45-54 55+ u- Z 3 ui) z X)

ElQ1 99 111Q1 00 +WB G WBG

With respect to employment, the first quarter of 2000 hald Inlflation has breen picking up throughlout the first hallf ofa dlecrease in the total number of employed, alpproximalotely 2000. The trend has been particular storng in Gaza where16,000 perlsons comparled to the previous (lu.lirter. Still, bocth April and May had inflations rates of ar-oundl 6.5employment was some 35,000 persons highler thani aI yearl pecn This was the highest rate ofinflation in Gaza duringago. the last year and marked the end of a 12-monthl period ofThe trend of deceleration of job creation for l'alestinian lo)wer inflation in Gaza than in the West Bank. Comparedlw^orker-s in Isralel continued in the first (luarter of 2000. to Apr-il, however-, constimer- prices fell in Mlay byCompared to the samie time last yearl, there was no incr-ease approximately 3 percent indlicating that the rela;tively highlin the number- of Palestinialns working in Israel, whlereas ratve of inflation should be seen against a backgroundl ofthe number- of employedl persons within WB3G xva5s .liT1o5t the low level consumer prices in Mlay 1999.40,000 highler than one year ago.

Change in Employment Compared Price Level, April 1997 = 100to Same Quarter Previous Year 118_

116 *50,000 114 440,000 _ _ 110 a c_

35, 000 0 > l _ _i

30,000l__ _ l 06 /

25,000 1048 99 Q1 00 +WB G WBG

20,000 102oscmae otep-vosqure.Sil ohArladMylidifain ae fmon .

15,00 et 2000 10

10,00 te last ya,r andna,ke a,e a,d a, a, a,onl 0e0o 0f

-vok Bri Emp-lcontmnent in tsrel fWirth WBGre-f200

Augitst 200() ii~~t prl hwve- cntiiei rie fl i ayb

Thle prices of food and beverages are the most volatile Annual Increase in Average Daily Wagecomponents (f the CPl. Thei- weight in the basket of goocLs 20% -which makes up the IPl is approximately 47 percent sochanges in the pi-ice of these goods have a significant impact 18%on the overall inflation figure. 16% -

14% -Over the last two years the contribution to overall inflationfrom goocis other than food and bever-aiges has bee i 12% - Aroughly stable at around 2 to 3 percent. By contrast, the 10% Icontribution to overall inflation from changes in the prices 8% of food and beverages varied between +6.6 percent in flNovember- 1998 and -0.5 percent in January 2000. Since the 6% jbeginning of the year 2000, the entire increase in the oveall 4% - Iinflation rate can be attributed to higher inflation rates for 2% -food and beverages.

10% 010% E AIL 1998 1 19999%-

8%- | Private Consumption. Revenues fiom VAT leviecl on7% - consumption in WBG may seive as an inclicator for private6% - A I consumption. Data fiom the Ministry of Finance inclicatecl5% - an increase in domestic VAT revenues of approximately 16

percent in the first half of 2000 as compared to the samne4%o^7 -g - < X situation last year. Given an increase in consutmer prices in

3/% - -- the same period of 3-4 percent, this indcicated significant2% t . < / growti in real consumption. Part of the increase in the1% clomestic VAT revenues may, howvever, be clue to inc-eased0% collection efficiency, and therefore clid not reflect aln

t- c o. co co o) > 0 0, ><X) a) a) ° underlying increase in consumption.9', o e , o ,o e

E_ z t < z IL < z t U External 7Irade. The revenue fi-om VAT channeledthrough the clearance system, which is the result of WBGnet trade with Israel, increased by more than 20 peicent inthe first six months of 2000 when compared to the samie

* Wages. The lawst couple of years saw fairly large increases peiriodl last year. By contrast, indirect taxes on impor ts fromin average wages - in both 1998 and 1999 the averlige counti-ies other than Israel channeled through the cleai-anceclaily wage increased by more than 10 percent. Taking into system increased by only approximately 6 peicenit, wlhichiaccount the concui-ient increase in consumer piices - roughly indiccited an increase in the share of WBG impoi-ts coming5 pe-cent annually in 1998 and 1999 - real wage growth fi-om Israel. This is further reinforced by the fact thatwas approximately 5 percent in 1998 and 1999. IevenIucs firoIm imlposrtS throtigh border cr-ossings at Rafah

and Allenby Bridge decreased in the first half of 2000. ThePersons employed in the commerce sector have generally indicators for the development in foreign trade aie weakenjoyecl the lrigest increase in daily wages, approximately for a number of reasons, e.g., they do not take into account15 percent in both 1998 and 1999. But, average daily wages the substantial unregistered trade between WBG and Israel.in the agriculture, manufacturing, and seivice (including On export performance, UNSCO reported that the real valuethe public sector) sectors also increased considerably over of registered WBG expoi-t to Israel decreased in 1999, andthe last couple of years. The lowest growth in average daily that the trend appeared to be continuing into 2000, aswages was in the construction and transport sectors. indicated by a continued decline in the number of ti-uckloacis

canrying export goods into Israel.

* FiscalAccounts. The fiscal situation of the PA continuedto be strained, primarily because public hiring continuedat a high pace during the first quarter of 2000, despite theBudget's assumption of only very limited growth in publicemployment throughout 2000. During the first quarter of2000, approximately 4,250 persons were hired as compai-edto the 3,400 assumed for the whole year. The PA expectspublic employmilent to increase by about 9,000 throughiout

August 2000 12

2000 bringing the total number of public employees to Financial intennediation through banks, Imleasured by piivate112,500 by the end of 2000. The expected additional wage residents' loan-to-deposit ratio, has been gradually increasingexpenditure amounts to approximately US$60 million, not since the end of 1996. It remains, however, low bytaking into account any increase in public wages in 2000. international standards: the average loan-to-deposit ratioThe outlook for public finances improved somewhiat by in 1999 was 30.7 percent up from 29.1 percent in 1998.the recent agr-eement between the PA and Israel concemingthe transfer of purchase tax levied on goods destined for Loan-to-Deposit RatioWBG, which until now had not been transferred to theWBG Ministry of Finance. The first t-ansfer is expectecl to 35%take place in the beginning of August 2000, and even thoughnot all goods on which purchase tax is levied ale includedin the agreement, the revenue is expected to be noticeable.The PA presented a Progress Report, drafted jointly by theMinistiy of Finance and IMF on the Economic Policy 30% -Framework (EPF) at the Ad Hoc Liaison Committee Meetingin Lisbon, Portugal June 7-8, 2000. The Progress Reportconcluclecl that considerable progress toward a successfullaunching of the EPF had been made.Four actions were a priori identified as needed to ensure 25%the credibility of the EPF, of which two have been fullyimplemented:

1. Tem-ination of the diversion of ftinds to accounts outsidlethe control of the Mlinistry of Finance was acihievecl as of 20% -late April 2000, and since then, all revenue collectecl by the 1996 1997 1998 1999Government of Israel has been transferrecl cdirectly to theMinistiy of Finance. The termination of cliversioni of funciswas originally envisaged to take place at the beginning of NoiVe. Foirefbr 1996 iL end-veCar, olherftiqires areypear avcraqe.the year 2000, and the deliy was paitly responsible for thefurther accumulation of ariears which occurr-ecd dlurinig thefirst ciLuarter of 2000.2. Information on the l'A's commercial activities wasdisclosed in the Progress Report. The total value of assetscontrolled by the Palestinian Commercial Seivices Company,whicih maniages the PA's commercial activities, was estimateclat US$345 million as of end 1999. The PA committed itselfto gradually phase out its equity holdings.The two needed actions, which so far have not been fullyimplementecl, are:

1. The stock of arrears carried over from last yeatr was noteliminatecl. Althoughi a payment of roughily US$32 millionwas made in March 2000, the stock of arrears increased inthe first quarter of 2000 to approximately US$90 million.2. The Gaza Payroll Unit was not moved fiom the GeneralPlersonnel Council to the Ministry of Finance, hamperingprospects for containing public employment.

* linancial Sector. The expansion in the banking sectorcontinued into the last (quarter of 1999, which is the latestquarter for which information is available from thePalestinian Monetary Authority. Comparecl to the yearbefore, private residents deposits grew 20 percenttin 1999to US$2,700 million by the end of 1999. Loans continued togrcow at a somewhat faster pace, 26 percent on averagecompared to) 1998. By the end of 1999, a total of 23 banks- 9 clomestic, 11 Arab and 3 international - operated inWB3G through a total of 114 branches.

August 2000 13

B Bucdget Allocation: US$100,000. The value Construction of two new schools is inBank Group Operations of curTent activity uncle tie TATF is US$6.7 progress. Under the finst Italian Granlt in

million. The closing clate of the TATF is the West Bank, all of the planned

A. .Midti-Donor Fund August 31, 2000. constiuction of six schools and oneAdminisnration sanitary Lnit have been completecl.

B. JIvestiment PrltoectS Curriculal has been established by the* HoltFund. As Ofjnc 2000, thc- Holst As ofJune 2000, theC World Bank Group CUrriCUtlum1 Center. Uncler the secojiclFuncd has receivecd pledges of US$269.2 has 24 p)Iojcts ulndCr implementation and Italian Grant in the West Bank, con.structionimillionfroi26 clonorcointries, of whieh three completed projects tlhrough the of two schools ancd three oomimLuniLtyUS$269 imillion has been paicl in ancl Woricl Bank, MIGA, and IrC Programs: centers is progressing well. Contracts for-US$259 million has been disbursed by the the supply of furniture, books, ainlBank to the Palestinian Authority (tPA). Of World Bank Ongoing Projects laboratory equipmilent are being awardcld.the total cdisbuIseC, US$213 million was Uncler the Australian Grant strengtheninigfor reCurrent budget support anci US$46 * Lducation anrd Health Rehabilitation of poliey-making, planning, and researchmillion for employnment generation P7oject (EHIRP). [US$20 million credit from capacity within the Ministry of Education,projects. Since the initiation of the the International DevelopmentAssociation establishment of a school mnappingEm1ployliment Generation Program (EGP) (IDA); US$20 imiillion grant fromil Saudi clatabase, and a maintenance sChedulingin 1996, over 700 microprojects have been Arabia; tlhree grants totaling US$8.65 system for the Ministry have all beencompleted. One of the recent activities imiillion fromii Italy; and US$0.40 million eompleteclbeing undertaken uncder the EGI, in gr-ant fromt AustIalia.] The lProject is wellpartnership with the Danish Government advanced and is progressing satisfactorily. * Health System Development Projectfuncleci project, is the infrastruCture Trhe IDA Fuind is 100% commilittecl and 98% (HSDPI). (US$7.9 million credit fionm therehabilitation of the middle areas of the disbursed; the Saudi Grant is 82% World Bank.) T1he development objectivesGaza Strip - Burei;, Magllazi, and Nusairat. comlililittccl and 52% disbursed; the Italian of the Plrojeet are to enilihance theWhile all fLuncs have been comimlittecl the Grants arc 42% coimmittecd ancl 28%0/ managemilent capacity of the Mtinistly ofcompletion of works alindC disbursemielnts dlisbirsecl; and the Australian Grant is 1000/o Health (NIOH) and improve access to high-of the remilaining fun(is will continLe: commrnitted aInd 100% dlisbursed. The quality and affordable services for primarythroughl the seconcl hallf of 2000. P'roject is b3eing implemented through healthcare (P1HC), especially in rural andAccordcingly, the HoIst FLuncl closing (ate PECDAI, the Ministiy of Health, and the underservecl area s. The Projecthais been extencledl to the first qulalrtel of Nlinisti-y of Education. components are:calendair year 2001. Health Coniponent: Under the IDA Component 1 will: (i) clevelop the

M Technrical Assistance Trutst Fund Fincl in Gaza, all of the planned 10 clinics fuinctionall standards for Level 11 PI-IC(TATf). As of June 2000, the TATF has hiave been built, furnishecl, and the facilities (small clinics that can seive thereceived clonor contributions of US$24.4 softvare programs installed. Under the basic neecis for approximately 8,000 tomillion, of which a total of US$19.5 million Saudli Grant in the West Bank, one clinic 12,000 people); (ii) build MOH's capacityhas been ClisbuIseCd to the1 IPalestinian hais been built, fully fuinishied, ancl to plan and ciesign PHC clinics; and (iii)Authority. The objectives of the TATF are: cqUipment installed. cThe eoistruction of replace approximately 40 substancdard P1-IC(a) to assist in bLiildling Palestinian dte extension for {laficlia I-ospital and Yatta facilities, inclucling edIuipmiient andinstitutiolns ancl to enhance the Palestinian Hospital is in progress. In Gaza, three furniture, witlh clinics that meet the quaLlitycapacity for self-governmiient; (b) to clinics have been built, fully fiunished, ancl standlarcds.facilitate the implemilentation of eClUipment installecl. The construction of Component 2 will establishi a Healthinvestments in the P'alestinian authorities; one ComnuIIILinity hospital and the Mlinistry Information Center (HIC) that woulc(c) io assist the Palestiniatn aLithorities in of Health Depairtmiient's btlilding is supportthe developmentand maintenanethe design of integratecd policies and Progrcssinig well. LTilndelr the Italian Grant of the M anagement Infonrm1ation Systeimprograms; (cl) to assess the feasibility of in Gaza, the draft final of the Pilot NMaster (MIS) functions of MOH and providleproposed physical investments for the Plan for Al Nasser Hospital in Khan Yoinis technical assistance for the- zieve)pmotilonger termn; and (e) to encourage the has been reviewecd by the Ministry. The of a basic clinical infomation systeelm angrowtli of the private sector. The TATF is rehabilitation works for the existing a unified health insurmane informastiondjointly administered by the World Bank and hospital, the existing sewage system ancl sstem.The elinical information system willIlECDAR. the construction of a corridor link between ysystemThe li ni ton tool will

the existing ancd the new hospital will soon also priovide the maonitoriing tool foir theThe TATF has recendy initiated a number commence. ram (QIP) supported in Compronent 3.of new activities. New activities under Education Component: Under the IDA som pone ted i expand t socontract are as follows: (1) Financial Fuincd in Gaza, 11 new schools and the Component o wdil expancl the SCOptInteniedliation Training (FIT) - Contract extensions for 11 xisting shoolsf the QIP in orcler to establis qualityValue: US$250,000; (2) Youmth Summer been built ans the schs hools have been fullystandars ancl ntrodue qality

Caiip IStiLIioal apciy Llidig ben Lilt ndth shoos;hae benfulyimprovement measures for selectedlCamps Institutional Capacity Building - firnished. Uncler the Sauidi Grant in the priority health interventions. TechnicalP3roet - Budoget Allocation: US$100,000; West Bank construCtion of all of the assistance will also be provideci that wOuldCI(3) Meteoroelogical and CPro atologieal planned eight sclools has been completed promote rational drug use ancl improve

Servcicesn Development(4 Proe MinBudge and the schools have been fully furnished. both qulality and expenditure controls inAllocation: US$100,000; (4)nThe Ministry Three new schools are ready for tendering, terms of contracts with overseas providcers.

of Trnspot DrvingLicesingProjct -In Gaza, construction of all of the plannecd The QIPl will also inCLtide the developmentContract Value: IJS$200,000; (5) thiee schools las been comipletecd and tie of clinical and opeitinal standards foiPubliCation of Technical SLuClies Facility - sclools have been fuilly furnishecl.

Atugust 2000 14

I1HC services. 'I'he loject is being Eaux, Khatib & Alami (LEKA)l under a four- adequate to support a modern marketimplemented by MOH. year management contract to implement economy, and to enCourage the growth

a service improvement program; (b) the of the private sector. The P' roject alsoU* MIcipal Inratritr Devtlopmn provision of operating investment funds Sucpports the training Of judges and COLIr

for the Operator bUilt into the personnel in order to increase thethe We ricl Bank; US$1a74 miltlon froni management contract, essential to fuind efficiency and transparenicy of the judicialGreeme; fnd approxiroately EUR3i 67 goods, equipment, works and services process. The lProject is wCell und1edlway.nillion fronm Italy) This Project aims at retluiredl for improving services and As part of the overall programi of legalraehsatbrliulting high priority tmunisipal attzinimiient of performance targets; ancl (c) development in WBG, construCtioll of twoinfralstructure networks andsystems in the the provisioni of technical assistance to couirthouses is plannedi--one each in theWest Bank and Gaza (WBG), working strengthen the newly createcl Palestiniain West Bank ancI in Gaza, to be funcelcl byclireetly with five selected muILinicipalities Water ALtIlol-itV (PWA), to support the Kingclom of Saudi Arab(Gaza, Nablus, Hebron, Rafah, anclJcnin); implerAntution ncl monitoring of thethe Ministiy of Local Government; the Plojeeta and to provicle inclependent * Palestiniian Expatriate ProfessionalMinistiy of Public Works; the Palestinian auditors to mionitor the Operator's Program(PEPI'- (US$3millionelitfioilWater Author-ity; ancd l'ECDAR. FoCus is technical ancd financial perfonnance The the Worlcl Bank andl US$0.3 million fiomon initiating institutional reform ancI i the Netherlancls.) The PEPP supports thecapacity building at the local goverminent iiplementing agency is the PWA. Somie rec-uitment of expatriate lPalestinians tolevel. So far 79%ofavailablefuindinghas ofthe maiin achievemecntsafter almost four key management and senior technicalbeen committed to 239 physical sub- yeais oif implementation of the Pioject as positionsinPAinstituicoiisasalliLitioll-projects, including 165 mnicro-projects. A audited by an incdependent audCitor are: positinsing PACSie Sinstitutions asa institutonprojetsineldin 165mieo-prjees Aover 1,200 kinl of pipe ha ve bDeen suirveyed building mealsure. Since beginning in latetotal of 233 physical sub-projects have for leaks and over 16,000 illegal 1997, 10 persons have been successfullybeen comipletedt, incILuding 165 micro-folek an ovr100 ilea rCILiCIo-pstosatt Nnstisofprojects. US$1 million was taken fro1 the connections iclentifiecl; over 22,000 service recruitedifor positionsratdte Ministiesaofproeee USI mllinwatiknfrnit coennections have bDeen repl'aced, over Economy andl Tradce, Fminane, ealeth,Plroject for the preparation work for 20c000mceters rpaire, an aetotalaof over Housing, the Palestine Monetary AutIlolity,Bethilehem 2000. So far, approximately 30'000 micters replaced; Unacotunted For and the Bethlehem 2000 Coliiiittee. The21okiofroaclsancl;l)itl0ktiio wate- 3000Witer (UFW) hes blen reducLted from P'rogrami is Cuirently workinig on theancd sewage pipelines have been Wiiter 48°/ to 30% recILbe frotin recruitment of an additional 20-25 personsarou(Lndl 48% to 30%; r-eliaible disinfectantduig 99-00frkyeo mcconstructecl Also, upgrading of three (96% of water samples have positive cLuring 1999-2000 for key eonoiineighborhood clareas in Gaza City have cihlorine resiCdl;A). 'rThe wor-k of creating ministries, inclucing the Ministries ofbeen completed. All other components the legal entity of the Coastal Water Utility Agriculture, Education, Fiance, Higherwithi the Ministiy of Local Governmentand in Gaza started in anui 1999 and is ECLuction, and the Government cComputerthe fivc selected municipalities for capacity oing. startedenL j are approximatel

13Lillin a-c Ll-i-nty atie. cntrctongoing. Disbursements aire approximiatelyCetrbuildling are eutirrntly active. A contract US$22.7 million and commlitmients atrefor a unifiecd accounting system for 13 .7 .. .c

uinicipalities has already been signed 9nea/lf the24 totilleiont rcprescnt.gaout PEPP Project Expatriate Profilesand preparation for implemilenting this Mr. Moosa Salman is a Palestiniansystem is uncder wvay. Three-yeatr 7The Seconmd Conmmunity Development expatriatc with a clistinguishecd careerinvestmenit plans have been completecl Project (CDP I1). The success of the first in banking in the Middle East. He hasfor Hebron Municipality and for Gaza CDII has rcsultcce in the I'A requCesting a been working for the PalestinianMunicipality. Diagnostic stuclies for Rafah follow-up project. nrhc ew Plroject - CDI' Monetairy Authority (PMA) uncler theancI Jenin have bcen completed. 11 - is fuLniclec througIl the World Bank auspices of the PEPP Prograimn sinceRestructuring and strengthening a Capacity (US$8 million), Ol'EC funcd (US$8 million) November 1998. Presently hc is theBul1ding UJnit (CBU) withiin the Ministry and EIB (EUR(lOIO million) has been uncler Supervisor of the Bank Supervisionof Local Government is uncdlr tender. A implementation sinice June 1999. Over 50 Departmiient of the PMA.The PNIA isrevenue management information system projects, focusing on infrastructure responsible for the supervisioni of 22for municipalities in the WBG is in the rehabilitation in small villages and banks presently operating in the Westawarding proccss. A Geographic municipalities, are tinder various stages of Bank and Gaza. One-half of thescInformation System (GIS) is under implementation. The menu of projects banks are locally incorporatedimplementation for Gaza municipality and include rehabilitation of: roads, clinics, Palestinian banks. Mr. Saliman'sa GIS for Hebron ancl Nablus is uncler schools, water supplies,, and sanitation supervLsomy duties include inspectionpreparation. A state of the art computer networks. In acidition, the new Project of banks to ensure a sound financialcenter ancd network have been completecl pays special attention to targeting the poor position and that the banks operatefor Gaza Municipality and is in the and marginalized communities, including according to the laws and regulationsawarding stage for Jenin, and in the funcling projects in refugee camps within set by the PMA. In acdclition hetenclering stagc for Rafah. Three-year West Bank and Gaza. personally leacis teams on bankinvestimient plans for Jenin ancl Rafah arc * Legal Development Profect (LDP) inspections and trains Departmentin the tendering stage. (US$55 milli fom the World Bank, staff on the procedures of bank

* Gaza Water and Sanitation Services parallel financing of US$1 million for supervision. It is expactekl tihaet aProject (GWSSP). (US$25 million crcdit legislativc drafting from the Unite compilete auhdit of the b2nking sectofrom the World Bank; US$50 million in Kingdom.) The Plroject is a start to a long- wl e achieved by mid-2000parallel financing from EIB/EU.) The term process of assisting the PA to Mr. Abdel Azim Taboub iS a PalestinianProject consists of: (a) the provision of ain modernize and harmonize existing MriAte frim Tan wh a 1actninternational Operat;or lI.yonnaise cles legislation, to give rise to a legal fi-manework expaiatte frMi Jorstan who haL-s beesn

Auguist 2000 15

the beginning of February 1999, unclerthe auspices of the PEPP Program.Mr.Tahboub is presendy the Acting Director Disbursements under World Bank Projects (in US $ million)-as ofJune 30, 2000General of the Suiveying Department Project Bank Donor Bank Donor Totalat the Ministry of Housing. In this Name Allocation Cofinancing Disbursed Disbursed Disbursedchallenging position, he is responsible EHRP 20.00 29.10 20.00 15.20 35.20(for reorganizing the Surveying MIDP 40.00 5.41 34.20 1.91 36.11Department and strengthening its lancd GAZA WATERsuiveying ancl mapping capabilities. & SANITATON 25.00 O 00 21.85 0.00 21.85Hi-s responsibilities include: developing -SNTA 5.00 0.00 2.05 0.00a master plan for land survey in the MICRO -ENT 5.00 0.00 2.06 0.00 2.06West Bank and Gaza; supeivising lancd HOUSING 25.00 0.00 0.70 0.00 0.70suiveying work in caclastral, housing LEGAL 5.50 0.00 1.93 0.00 1.93and other related areas; introducing PEPP 3.00 0.32 0.68 0.32 1.00modem software for use in land survey; NGO 10.00 4.60 6.18 2.50 8.68and st-engthening the capability of the GIE 10.00 0.00 1.52 0.00 1.52Surveying Department through training. BETH. 2000 25.00 2.91 15.84 2.45 18.28Achievements to clate include: thecompletion of a survey of 23,000 CDPII 8.00 0.00 2.73 0.00 2.73duLLums of lancl in the West Bank; the SAWSIP 21.00 0.00 2.56 0.00 2.56final approvals for 540 property ESMP 15.00 0.00 2.12 0.00 2.12registrations; the training of 59 staff in HEALTH 7.90 0.00 0.00 0.00 0.00various subjects, including: computers, COMPLETED PROJECTScondcloliinium registration, GPS, and EIPI 30.00 71.24 30.00 71.24 101.24cadastral programs in Palestine ancl MIGA Fund 10.00 0.00 10.00 0.00 10.00abroad. Achievemilents also include theestablishment, observation, and ERPII 20.00 3.57 20.00 3.53 23.53computation of 26 geodetic points in CDPI 10.00 2.81 10.00 2.39 12.39West Bank and Gaza based on the TOTAL 290.40 119.95 182.37 99.54 281.91primilary geodetic network (i.e., 17 inWest Bank ancd nine in Gaza), as wellats the preparation of the Registration HOLST FUNI) 262.52 259.74Declarationi of Lancls in the West TATF 22.77 19.36Bank. n addition to the PEPP Program, TOTAL 285.29 278.83the governments of Finland and theUnitecd Kingdlom have supportecl Mr. 'i11ese FigLtres dlo niot includc p:Ic[llel and.1 IFC fin:incing.Tahboubs work. These governmentshave providecl material and financial a ma1._xim1um vatluLI of US$25,000 (33% of companies incorporated in, a MIGAsupport to the Suiveying Department cycle allocation clisbLrscl). Research member country, or whio are Pallcstinianthrough the supply ofi equipmeint, the Grants are lbeing awardled to variouIs think residents of WBG, are eligible to obtaincollaboration of foreign experts in tainks andl academic ccnters to investigate guarantees, proviclecd that investment issurvey work, and the training of atreas Of relevancc to the project, stich as brought in from outside W13G. The Fundlclepartmiental staff, land use in rin-fecl areas; the role ofNGOs currently has the capacity to issuei

in bUilcling civil society; NGO sccor- guarantees for LIP to US$5 million per* I'alestinianz NGO Project. (US$10 miapping; the flrCeLuency and effectiveness project. If a project requires moremillion grant fiom the World Bank and of sector-based consultations among insurance capacity, when requecstCd byUS$4.5 million in co-financing by Saucli NGOs; andl the views of poor and the project sponsor(s), MIGA will exploreArabia and Italy.) Managedl by the Project miarginalized beneficiaries of 12 sub- the possibility of obtaining reinsurance ancdManagement Orginization (PMO); Welfare projects fuinded during Cycle 1 and Cycle coinsurance with public andl privateAssociation Consortium, the Project 2. InJiine 2000, the PMO staff and recipient underwriters, inclucling coinsurance Linclei-consists of arouncl 50 sub-projects NGOs were trained in gender MIGA's Cooperative Undcirwritinigimplementecl uncler the Development mainstreaming techniqu.sI: Finally, in July Program. During FY99, on behalf of theGrant Scheme (Cycle I and Cycle 2). 2000, 31 grants were awarded under Cycle Trust Fund, MIGA issued iLs first ContractSeventy-nine percent of the allocated 3 of the Development Grant Scheme for a of Guarantee (US$5 million) in the Westfuncding for both cycles has been total value of US$2.2 milli6 n. Bank Gaza to Phoenix Internationaldisbursed. Two-thirds of the 39 s`l)- * MIGA Investment Gu arantee Fund. Limited of the Unitedl Kingdlomi. TheprojecLs financed under Cycle 1 of the (US$10 m illion from the PA throgh a creldit project involvcd the establishment of aDevelopment Grant Scheme have from the Worlcd Bank and US$11 million visitors. ccnte additIon incSthe itnceptLionCSsuccessfully been completedl (95% of cycle fiom EIB and Japan.) This Funcl, which is ofvthoerF In additiln 20aincpltio iiiceptio"allocation disbursed). The first cycle of administerecd by MIGA, provides be receiefr alms iS$0tiionthe Block Grants is also underway and guarantees in the form of instirance against been rin eivecl for alsn ost US$40( f illionsevei Block Grints Managersare aw;ircling political risk for private investments in ma nvesturents in WBGr s infrastrIctUr,US$3.5 million in the form of grants to WBG. Undler the terms of the Fund nian ufacturing, real state, serviccs, ans.simiall commILunity-basdcl organizations for investors who are nationals of, or ''s' sectors

Autgust 2000 16

* Bethlehem 2000 Project (B2000). The CapacityZ Btiilizng: Under IDA southern West Bank and to address the[US$25 million creclit fiom the International Funcl - This component needs to be institutional strlcIture for longer-terim SectorDevelopment Association (IDA), US$1 accelerated in the seconcl half of year 2000. management. The Project was approvedimillion grant fiom Norway and US$2 by the Executive Directors of the Worldmillion grant fiom Italyl. Tle IDA Fund is I SouthemenArear WaterSaWdSaniatiUn21 Bank on August 31, 1999, and the Trust65% comimiloitted and 58% clisbursed; the je Fn Crdi d k EU atNorwegian Fund is 100%/ coiimiittecl and ni~illion foin paaleWrlcfinancin from EUIB).30 the timie of the Bank/IMF annual meieting~s.88% dlisbuirsedl; aind the Italiain Fundi is Proiect consistsle of:i(ancthe provision ofB ane A project launch miissioni took platce in100% commiiitted and 680% dlisbursed. This Proec cnitof(athp-vsonfanOctober 1999, during which thec projectPloject is being implemented by the inlternational Operaitor [Gener-al cles EauIx, implementation plan was updllte(l. ABethlehems 2000 Project Auithor-ity, the Kllatil & Alami (GEKA) under a four-yea r technical assistance package for JDEC0,Ministry of Local Govermiient, the Ministiy toerlplrmainct basedrmanaement rontraet the electricity distribution company servingof ToUrism11 and AnticlUities, andci the tpo impleent a serviee improvement the central West Bank, has been prO-CreIMinistry of Culture. Blogr nand for the Governorates of under International Competitive Biddilig

Bethlehem and Hebron in the West Bank;Infiastructure Works: Roads - Under (b) the provision of operating investment procedures.

IDA Funcd -- All pianned major roacis, sub- funds for the Operator built into theprojects, and rehabilitation of inner roads managemilent contract, to finance essentialin the Bethlehem area are complete. Under operations and maintenance expenditures World Bank Completed Projectsthe Norwegian Grant, the rehabilitation of not coverdcl by the revenues collectecd and * Emergency Rehabilitation Projectthe Shephercds' Fields access roads is which are reqIuired to achieve the yearly (FERP I). (US$30 million fromn the Worlclcompilete. Uncder the Italian Grant, the performa.nce targets in the managemiient Bank and Us$63.5 million in co-financingrehabilitation of the Bethlehemil-Aitas Road contract; (c) the provision of funds (by by Saudi Arabia, Denmark, Switzerland,is 95% complete. Water - The water EFIB) to finance cdesign, implementation ancl andcl Kuwait.) The I'roject (that wvaSreservoir near Bethlehem University and supervision of capital improvemiients sucLh implemented by l'ECDAR) financed a totalthe rehabilitation of the first package of as system rehabilitation and improvemilent of 140 infiasruucture projects, resulted inthe water network is coimplete. Cultural of water supply seiviccs, bulk transmission builcling 418 classrooms, pavedl 26() km ofHeritage - Three of four sub-projects are mains, distribution systems restruCturing roads in cities and villages, ConstruCteCcomplete: the rehabilitation of the cultural and rehabilitation as well as an investmnent approximately 410 km of water supplyheritage of the old cores of BeitJala Phase in Lural water supply; and (cl) the provision pipelines, 80 km of sewer lines and storm1, Beit Sahour, and the surroundings of St. of technical assistance to support water lines, and five water reservoirs.Mary's Chuich. The Govermnent of Austria strengthleninig the institutional capacity ofhas indicated interest in providing a grant PWA andcl WSSA, to suIpport * Second Emergency Rehcabilitationof US$0.8million for the rehabilitation of implemiientttion ancd miionitoring of the Priject (FRKI I0. (US$20 million fiom thethe cultural heritage of the oll core of Beit Plojcct ndI povide inclependent auditors World Bank ancl US$3.5 millioni in co-Jala Phatse 11. Tencler documents for this to monitor the Operators technical ancl financing by the Italian Government.) Allphase are readcly for bidcling, financial performance. The implenmenting available funding hIas been comillittecl to

agency is PWA. It is still too early to report 77 sub-projects in the road, water,Celebration Support: Unclcr IDA Funcl on the Operators achievements. However, wastewater, and sChool seCtors (inCludilig

- The Betlhlehenm 2000 organization has LinatLIclitecl data indicate that there is 42 labor intensive microprojects). All sub-been consolicd:tttng but iains weak in pi-ogress. As anii example around 400 projects have been comipletecd. The

iangrketieig s fonsorshipe ipnit events unregistered coniections were cletected in Project, closedl on Juine 30, 1999, wasmanLtgement staff. The private secto Bethichemil. A lot of suirveys and implemented through P'FCDAIR in

ective apiend sthf Mangeenot ycontrac procedlircs are being done to icdentify anc coordination with the municipalities in theef(tivc hasend terMniiemeite foCon-rc CoiTect weatkness in the existinig water aind West Bank andl Gaza. Approximately 123(NIC) hals been terinail.ted for non- Xvlt;tlssc1slibrelet skim of -o;icls aincl aboUit 110 kmi of W;lter

perfrmane. he sonsoshi andfun wastewater systemis. D)isbursements, a mo od adaot10 mo aeperfsnrmanef have sponsorship and fhnd ofJne 30, 2000, are approximately US$2.6 and sewage pipelines have beenralising efforts have also been weak. The iiillion, while total commitments are constructed. An implementationevents group has been restructured- now arouInd US$5.1 million representing 24% completion report is completecl for therelying almost wholly on local staff. This ofthe totalcreclitamount.Commitments, Iroject

program on November 28 1999 anec has however, ae expected to pick-up * Community Development Projectbeen working hard on program significantly over the next few months with (CDPI). This commun-ity infrastruCtuIe

Ievelopnent for the year 2000. In Sum, disbursements following stit as the rehabilitation project was startecl in. 1997celebration efforts have gotten off to a slow Operator is schedLuled to let out US$5.0 ind as of June 2000, over 250start and the opportunities for major TV mililion worth of contracts to be financed infrastructure microprojects halve beeilnetwork exposure and sponsorship from the credit, completed. In addition to the US$10 millionsupport in December 1999 have been * Electric Sector Investment and financed by the Worlcl Bank, the Projectmissecl. Nevertheless, a moclest bLit Managenment Project (ESIMP). (US$15 has been successful in attracting co-creditable, clignifiecl, and appropriate million from11 thle Worlcl Bank, US$38 financing of nearly US$13 million. Theevents progr-am has been launched. On a million from EIB, US$35 million from Italy, Canadian and Worlcl Bank financedmore positive note, the construction ancl US$3 million financed by componentshavebeen completedandtLiemalnagemilent consultants have performecd beneficiaries.) The objectives of this US$91 Project has been closed. The OP'EC funcleclvely well, million project are to rehabilitate the power projects are expected to be closecl by the

dlistribution systems in the centratl and end of the calenclar year.

Au.gust 2000 17

World Bank Projects Under Plalestinian Authority prepare the Project. World Bank and rFC Joint ProjectsPreparation The proposecl Bank-financed Project for

Jenin District has been appraised and will fiom the Worc t Bank u$ to US$i9 lliloiclr(FiSDP). To be pDesented to the WoPrict be presentet to the Board of the World fn equity and loans from UFC9) mFl ligest(FSD.J. o bepreente to he WrldBank in October 2000. The Hebr-on ProjectBank's Boaircl of EXCCLtive Diirectors in is expecteto be appraised 1EIi component of this Project supports the2000, this Project aims at assisting with the September 2000. creation and initial operation of thcdevelopment of the legall, institutional, ancd Ialestine Mortgage and HOuSingregulatory fiameework for more efficient U Secondl Municipal Infrastructure Corporation (PMHC) which is cdesignecl tofinancial intermediation. The Project seeks Prqject (MIDP II). (US$26 million total facilitate the flow of private capital intoto expand the pool of assets that can be Project cost, US$7.5 million from World the housing sector in WBG. Tre Worlclusecl as collateral, thereby improving Bank, US$5.0 million from Saudi Arabia.) Bank loan was declared effective in Marchaccess to creclit for sm.all- ancl meclium- 'liis Project has been approved by the 1998 after which, private investors,size businesses. It wouldC also support Bank Board and its aim is to improve the including IFC, clccidecl to provide equitymeasures to modernize ancl expancl landc main road network in the West Bank and to l'MHC. PMHC will operate througlh twosuivey ancd registration, particularly in Gaza and the water and sanitation system affiliates, the Liquidity Facility (LF)central urban areas where property values in the north of the West Bank. The Project providing long-teriml funds for lending byare high. Banks operating in WBG and also aims to establish a r oad maintenance banks and otlher primalry mortgage lendersthe I'MA have pleciged nearly US$1.5 manage:ment system for thec first time in in WBG, and the Mortgage InsuLince FuiClmillion in equity in the 'alestiniin Banking the Palcstiniani Authority. It also will (MIF) providing partial risk coveraige forSector Services Company to prcovicle extencd the capacity building component primary lenders. Canada Mortgage andelectronic banking services. Iresentation of MIDP I to another six new municipalities Housing Corporation is the technicalto the Woricl Bank's Board of Executive in the West Bank a ncI Gaza (Jabalia, Khan partner for the P'MHC and has preparedDirector.s is stallecd waiting for key Youllis in Gaza andI 'ulklaemi, Jericiho, the business plan, as well as muclh of theinstitutional ciecisions by the P'alestinian TalrCuliUiai, ancl Al Ram in the West Bank). operational doCumeilntation. FinalAutilority. This Project will be impleimientecl by the institutional arrangements arc underway

M Institttioial Develop mnI t Project Ministry of lPublic Works, Ministry of Local and PMHC is expected to commence(IDP). The proposecl Project will be Govcrnment, and the Palestinian Wiater operations shortly. The borrower has alsodemand-driven and will provide a flexible Authority. It is expected that this Project requested that a portion of the Bank loaninstruilmlent to respond to a valricty of will be effective in August 2000. be appliecl to the Housing Assistance Funddifferent PA ministry/agency capacity- * Gaza Water and Sanitation Services targe te assistncetlwnI m Podebuiltling needs. Its uliderlying objective Project (GWSSP II.). (US$25 tnillion from icgeted assistance to for anth moeriof is to furtiler the development of a the Worlcl Bank.) This Project is under pimary residence. Restructuring of thetransparent, efficient, and lean public early stages of prepalration. It is a follow- Project to acc t-icCuLIn St iSsectoi by recducing transaction costs ancl up to the ongoing GWSSI. The projecto a m oaesthis rqethiscreating a regulatory environmiient that is clevelopment objectives of the Project are: pre ently bei g processed. inothconciucive to private sector clevelopment. (a) to dlevelop a sustainable institutional ancd Peolicy Development Program,The Plroject is on hold until such time as structure of the water and wastewater addresses iSSueS related to the functionsthe cliscussion on the PLtblic Management sector in Gaza by supporting the functional and structure of the Ministry of Holsing,ReviewanI Ciiomprehensivc Dcvelopment establishment of a Coastal Water Utility in addition to its technical, administrative,Framework (CDF) has been completeci (CWU) undier the ownership of the local in anagerial capab ilitiesvwith the P'A, at which point the scope of governments reprcsenting those g Pthe Project will be finailized in consultation communities as well as by enhancing and * Gaza Industrial lstate (Gl1.9 ILIS$10with the PA. IPrepari-ation work is not cieepening the involvenment of the private million fromil the WoriIcl Bank for off-sitecxpected to start until late 2000. sector, and strengthening the regulatory infrastructuirc ancl public institutional

ancl institutional capacity of the P'alestinian development, US$9 million in equity (US$1* Solig Waste and etnvronmental Witer Authority (PWA); and (b) to million) and loans (US$8 million), andl upproposedUS4mi .Iliori lroject's obeTive continuLe improving the water and to US$7 million in synclicatecl loans fiomproposedUS$14 millervenionPoets isobjctite sanitation services by rehabilitation, IFC to the developer/operator. El13 andcollection, rinsfer, and disposal of waste uipgracling, ancd expansion of the existing USAID parallel financing, anct the I'A long-for the district of Jenin. The Project will systems and facilities. Like the WSSP, this term lease on the land, amount to a furtherflsor tsscilst ininstitt-of 1illTheUirld c wIll'roject is part of a larger capital program US$65.5 million.] The GIE, on a 50 hectarealso assist in institutional-building within to improve water and sarnitation services site at Al-Muintar in the northeast of Gazathe Ministiy of Environmental Affairs in Gaza. The lroject incluides substantial (acljacent to the Israeli border), is the first(MENA). The IProject feasibility studies for investments in the establishment of a bulk largely export-orientetl industrial zone orthe solid waste component are nearing wicoIpletion. In addition to activities in the water supply network connecting the "estate", established to generate sustlinableJenin District, the European Investment varioLis municipalities in Gaza, in the employment and stimulate inCLustrialBank is keen to finance soli wat seweraige network; and in wastewater development in Gaza. The Plroject is

manag ent interntios in cIg d treatment plants. These investments, expectecl to attract foreign andI localmanagementointerventions inctheuen totaling about US$340 million for 2000- investment, and to facilitate joint ven1tulesDicstric Thi Wof l Bank in thrkine in 2005, will be financed by soft loans and between Palestinians ancl others. The GIEpartnership with the Europeatn Investment grants from EIB, USAID, anct KFW. is managed ancd operated by PalestineBank (EIB), the European Union, and th Preparation of the lProicct is unclerway. Industrial Estate Development andIItalian Cooperaltion in assisting the Manageimcnt Company (PIEDCO), a

private sector company. Regulatory

AuIgust 2000 18

oversight, as well as offsite infrastructure, Mlainstreanm Prolects increase its sales in the local market. Arabaire provicied by the Palestinian Industrial Concrete currently operates a stoneEstate and Fee Zone Althority (PIEFZA). Arab Palestince nvestment Bank The mcrsher, ancl two ready-mix plants and 10The GIE is being developer in three ZA).At abl lalestine Investmrent Bank (APIB) clelivery trucks in Nablus, with a combinedphases; PIEDCO is planning to launch as estnabl hed in1996stoprovidena variety production capacity of 110,000 m3 /year.Phase II construction shortly to cdouble the of financial and 0ivestment banking IFC providecd a long-term lozan of' US$0.8industrial sites available for lease by the ser-vices in the West Bank anct GazI million oLit of total project cost of' US$2.6encl of the year 2000. Some 34 firms have Oper atins and stpaviles phrovided by APIB million. The Project is fully implemeitecl,leasc-ci space at the GIE to datte filling all *Ile cX(:ctCtlto ptirll( develp ancI IFC has fully disbursed the loan.splce spade avtailtble Gincer Phase fIn of of the Palestinian financial sector. Thethese, 17 firms are now operating Close cttrrent shareholcets of APIB incluce Arab * /ericho Motelvs Company. IFC providledto 700 people arle CuLrenltly employecl at Bank, DEG, Enterprise Investment a 10.5-yea;r US$1.17 million loan for thisthe GIE, with a fttrther 200 or so occasional Compalny ainct IFC. As of December 31, importint toLurism project in Jerichoworkers. More information on the GIE 1999, APIB approved 22 loans and three consisting of a 60-room lhotel, 48operating firmiiis can be foLuncl at c":crit facilities for approximately US$12 bungalows, ancl a health center.opraww.piedco.conirms c million. As of FY99 the oLttsainding amount Developed on a 31,000 m2 piece of land,

of loan antl creclit facilities was US$9.5 thejericlo Resort Village includes outdoor* Microenteiprise Projea. (US$5 million million. restaulrants, coffee shops, swimmiling pools,froto the Woricl Bank; US$7.5 million credit * , 7.bl kud Tb .. gift shops, as well as recreational facilities.fiom each, the IFC ancd the participating lence Ft At a total cost of US$8.1 mnillion, thiebanks; US$3 million from the Netherlands.) relnnlogy waincl WvIs set tip by IFC, financing plan inclucied both foreign asT'he Project initiatecl a program to finance Capital Investment Managemeicnt well as local eCLuity investments, and ling-microrenterprises in WBG throgh Corporation, the Pceres Center for Peace, term loans fiom two loc:l hanks and twobanking system in ordler to: (a) promote Ltncd. Theirst cl ofrte Fundestm enr international Iending institdtions. IFCeIployment throttgh private sector Ltd. TUS5 first closing of 19e F 8nc. ocIurrccl played the leading role in estimatingdevelopimient; (b) achieve coomimiercial lt US$59 o lieillon in Octoju er 1 998 It wiU s project cost, strICtuLring the finaz;ncingviability and sustainability for collipletcn l n jhlsnL2ary 2000 P it us$6 T2 scheme, ancl in mobilizing the necessary

microenteprise letling; ad (c) btid iloi F hls2%o IT hrs h caicroenterprise lendingp anci (t) bakild objectivc of this Fu0nl is to provide eiity funcling. The Project is expectecl tocapacity in b3oth th(: participating banks capi:CtalC of tls FCLCtiVeinvcs to cnt: ind teC promote the West Bank's tourisii sector,andl the miiroenteiprises by provicling cWepit.tl foi prokdtctive investmo ens m the increase foreign exchange eatrnings, anitechnical assistance. As of March 31, 2000 We9st BaTnk andl Gaal. As of Djecember 31, create a significant nltmber of penmnarentover 695 projects For approximately US$8.0 1999t PTF inv std inl three projcts fr a clirect and inclirect jobs. IFC's loan is fullyimlillion were approved, of which 651 total US$11.0 million. disbttrsecl, ancl the touristic complex isprojects for approximately US$7.3 million * Palestine Tourism Investnient open for commerciail operations.were dlisbursed. The dlisbursed loans Compan v Ltd. (P'TIC). The Bethlehem * AI-A van Printing Press. This Iliojectcreated over 1,100 new full- andl part-time InterContinental -lIotl P3roject is to build * AI-Ayyam onc of the lars privaejobs. In November 1999, IFC secutred an ancl operate the first international stancdard ssits Ai-Ayani on the laGestO prIveextenlsion for one year from the Dtttch hotel in the West Bank. The 250-key hotel Pse t comanine riinte WG, topgrtteTrust FuLIdC for technical assistance to the wouldl set the standard for quality and i ts anting line,refincnitrt-terthiee participating banks. The extension comfort, and cater to both tourism anc d ebt sn pf - onstructionwill enable the resiclent advisors to train business clientele. The estimatecl total improvemesn itionate Ipj woilthe banks' staff in portfolio supervision and P'roject cost is US$49 million, tc) be finanehcl P P Y gtdefault procedttres, and gradulally US$28 million by equity and US$21 million capital to allow it to directly pUrchase raw

materials ait internationally cotnpetitiverelinquish responsibilities to their local by loans. IFC has investedc US$1.35 mlillion prices and to bid for high volumeC(iterparts. or- 4.8% of total equiity aindl US$8 miillion commercial printing jobs in the W13G and

in long term loans ottt of its account. EIB Israel. IFC provicedcl a loan of US$1.8hats provided abottt F.URO12 miillion in aiiilo.ICsoaisflydiASCI n

IFC Projects parallel loan. As ofJanuary 20, 2000, both mtillon. P C's loane ttfully disbursed,ncl d'EG P-rt olio IFC and FIB loans have been fully completed.

IFC I ottfolio disbursedl. A paltial opening of the hotel * Arab Palestinian Storage Compan.v

InClttcling the joint-projects above, undler took place in May 2000, and full opening The Project consists of establishing a coldithe Mainstreami Plrogram, eight projects is schecduled during the current year. storage facility in Gaza with a capacity toworth US$75.78 million have been Besides c-eating more than 200 permanent store about 5,000 tons of perishable foocdapproved to clate. Under the Extendecd jobs, earning foreign exchange, and proclucts. The storage methocd inCluclesReach Initiative, which supports projects promoting Palestine's tourism sector, this both freezing as well as chilling to preservein the UJS$0.25-5 million range, IFC has Project complements the World Bank the proclucts for long periods of time. Themet strong dlemand for long term loans assisted Bethlehem 2000 Project. IProject also involves trading in firtits antIfiom siall Iprivate sector enterprises since vegetables, mainly for resale in the off-the piograin began in WBG March 1997. season. IFC providecl a loan of US$0.2Ti) clate, seven projects have been Ewxtended Reach Protects million, which was fully disbursed inalpprovedl ltider Extended Rlzech, for October 1999. The Project startecdUS$7.42 million (total project cost worth * ArabConcrete ProductsCompany This operations in September 1999.US$32.40 million). Of this anodint Project enables Arab Concrete Proclicts

U Compainy to titilize fLilly its procluetion U Agency Line. The Plroiect consists ofis dS$4iseco. capacity of reacly-miiix concrete, and an agency line of c(eclit in the amount of

Auginst 2000 19

US$5.0 million to assist the expansion new instruLm1ents anid players in the out the basic framework for organizationand growth of proucLCtive ;uLd financially financial sector and capital markets and regulation of thezsc importantsouncl small and medIium scale through the development of framework conduits for savings and investmiient.enterprises (SMEs) in WBG, with good laws and institItions. Future work will involve elaboration ofbusiness ancl profitability potential, by * InsuranceSector. With support from regulations governing eligible mutualprovicling them with meclium- ancl long- O TrUst F lIhs worked funcl investment, diversificationtermii loans. The Agency Line, to be the Irish Trust Func, IneC has worked requiremiients, marketing, anciustoCly ofatcliministered by Cairo Ammi1an Bank closely with the Insurane Controller's funcl securities.(CAB) is funcded by US$2.5 million from office and the Ministries of Finance andIFC and US$2.5 million from CAB. In Economy and Trade to reciraft the WBG * Mortgage Market. IFC is playing anConjunction with this Project, the Italian insLirance law, with the purpose of acivisoiy role with the aii of eliminatinganicl Irish Ministry of Foreign Affairs establishing a systemii based on the inefficiencies in hoLusing finance in the

LEuropean mociel, ensuring solvency mortgage market. This effort is beingapproved Italian and Irish/IFC Technical stan1ndards in the Insurance Sector. The financed in conjunction with CIDA, aInc

Assisveoits project finance unit. InsIrince Sector was also involved in is being coordinated with the IlMHCclevelop its proicct finanCC Linit. the work. The new draft is now finalizecl teaiim and the Ministly of Housing.M ANahahin Indu.stry and Trading and wVas submitted to the Diwan forCovmpany. IFC proviclecl finaneing Tax Code. With the support from theCompaiy. tir C provinedl financing foa review. Irish Trust Funds, IFC madethis tirc re-treacling factoiy to: (i) expand * Securities Law. With CIDA funding, recommenclations for the revision of theits procluction capacity in Gaza; (0 open IFC has worked closely with the Palestinian Tax Code. In particular, IFC'sa new prsoCction facility in raalla h, Palestinian Authority ancI the private efforts focusecl on the methodology of

distribution capacity. Boh facilities have sector to draft the I'alestinian Securities taxation of the financial sector,been eompaleted. Tires art solc under Law. This draft law is now finalized ancl attempting to ensure an efficient systemthe brand namle e Matinr/Global and has been translated into Arabic. It aims which will encourage the developmentinelude rebuilt truck and passenger to establish an urgently neecled legal and of new areas such as leasing, insulance,vehicle tires with the dcurability and regulatory fraimework for capital niarkets, funds, pensions, etc. Thc Tax Cocdc is

euality of new tireS but with costs thlat and thereby inlcIrea;sc local and now before the P'alestiniani Legislativeare 35-60 percent below the new cost, international investor conficience, and Council.IFc356 prviedraclngtbermloan ofe ne hot. lencc investmient, in the PalestinianIFC provideclu a long-teroii loin of US$015 market. A num11ber of foreign funcI * Competition Law. Ihe Ministry ofmillion oICt of tota isrojeit ost of US$i1u 7 managers hIave inquiredI about this law, Economy and Trade, with the assistanee

iiiiion IFC's loan IS FIIY diSbUrSCd jLSmdit will do much tt of the IFC and Irish TLrust Funcs, hasand the Project is fully implementecl. inrease invcstment flows into the now finalized the Palestinian

* Pharmacarie Ltin IFC finae n felw irket t Competition Law ancl a final draft is nowupgrading and expanding the production under review by the Diwan This lawcapacity of Pharimacare, a 12-year olcl N Capital Markets Authorit vLaw. In establishes the principles ofa 1free marketpharimaccutical company in Ramallah. December 1998, the Palestinian Authority economy and is in line witI the standardsThe Project will allow Pharmiacare to cleciclecl to establish a single regulatory of the Eulopean community.improve its efficiencv ancI Cduality authority for all non-bank financial sectoraccording to Goocl Mn lnUfacturing activities (including securities markets).'ractice (GMP) standards, and ultimilately The Swedlishi Intcrnaitionail Development

to increase its sales in the local and Agency (SIDA) is assisting the P'A toexport markets. IFC provided a lonig- establish a singic Capital Marketsterimi loanl of US$0.45 ilmillion out of total Autithcrity. The IFC teamii working onpr`OjeC cost of US$4.85 million. IFC's loain dCvelopment of ihe Securities Law hasof US$0t45 coillion is folly clisbtised In operated closely with SIDA ancd the1999 Pha macario togetlier withI a Palestinian Authority in preparing a draftGcrman pharmaceutical manufacturer Capital Markets Authority Law basedformec a strategic alliance that will allow largely on the Securities Commissionthe transfer of technologies anci provisions included in an earlier draft ofexperience, in adclition to sustained the Securities Law. The draft Capitalgrowth through inder-licensing produces Markets Authority Law is now completegaw international cour-petitivenesss ancl ready for public review, and

hopefully speedy enactment.

* Mutual Funcs Law. IFC is assistingIEC Technical Assistance with the elaboration of the necessary

IFC's technical assistance efforts have framework for the development of thetimied at suipporting the Palestinialn 1-mutual funcds industry in WBG. The aim

Aimedraty's supporti thefun] ici- Proaleiniancl is to create a new vehicle for PalestinianAuthority's efforts to further broadlen ancI savings (restricted today to b)ankdceepen the Palestinian financial sector. spvins Thiswris being sortenAlso, IFC has been working closely with by Swiss funding. It has already resultedthe Palestinian Authority and the private

in the inclusion in the Securities Law ofa special mutual funds chapter setting

AItugust 2000 20

BANK GIROUP NEWS * AHLC Meeting for WBG in S 'A FF NEWSLisbon, PortugaL U Ms. Simna Kanaan, an economist/

U RegionalJournalists' Workshop. On June 8, 2000, the Ad Hoc Liaison social development expert by training,'I'he Micddle East and North Africa Committee (AHLC) for WBG met in has recently joined the Worlcl BankRegional Communication Unit (MENA) Lisbon, Portugal. The AHLC agenda Country Office to work interalia onorganized a Workshop April 18-21, 2000 focused on the following on-going PA the formnulation of Phase It of the P'NGOfor national and regional MENA print initiatives: to enhance the PA's fiscal Project. Ms. Kanaan has been workingmedia joumalists. The Workshop was affairs, rule of law, public adminis- with UNDP for the past 10 years. Priol-attended by 13 senior journalists from tration, and the refinemiient of the PA's to joining the Worldc Bank CountryYemen, Egypt, West Bank Gaza,Jordan development and strategic planning Office, she was UNDP Deputy IResidenitandc Lebanon, in addition to capacities. 'he Al-LC commended the Representative in Geogia. Dur-ing herrepresentatives of both Al Hayat and PA for implementation of reform career with UNDP, Ms. Kanaan alsoAsharcl Al Awsat regionatl newspapers. measures in public finance, and worked on UNDIl's Programmes inWorkshop participants met with a encouraged the PA to advance the rule Egypt, Lebanon, Syria, Jordan, andnumber of Bank managers and staff to of law agenda. Yemen.discuiss the role of the Bank in theregioni, and the global and economic M BoardApprovalonJune20,2000 Mr. Richard Sexton has left the Bank tochallenges facing the MENA Region. for the Second Municipal pursue further studies in Oxford,

Infrastructure Development Project England. Mr. Sexton workecd for the* World Bank President's Meeting (MIDP 2). Bank for the last two years aswith Palestinian Leader. The World Bank approved a US$7.5 Institutional Development Specialist toWorld Bank President James million credit for the Palestinian assist the Palestinian NGO Project.Wolfensolin met on April 20, 2000 with Authority to improve roads, water-Palestinian leader Yassser Arafat. The clistribution, anld sewage seivices in thepurpose of the meeting was to review West Bank Gaza. The Project aims to IFC NFWSthe current Bank programns in West str-engthen municipal and central The Palestinian Atitlority (PA) isBank Gaza and to identify the future government administration, andtobuild appraising the overall investmentneeds of the Palestinian people. on the initiatives of the first (and on- climate in the West Bank Gaza (WBG).

going) MIDP. IFC is actively supporting this work with* Solid Waste and Elnvironmental the support of several clonor nations toManagement Project (SWEMP) * Visit of the New Vice President fund studies on private sectot-Negotiations. for Middle East and North Africa. investment in WBG. Seven countries--The Ministiy of Finance and the World M4r. Jean Lotus Sarbib, the newly Japan, Swecden, Israel, Ireland, Norway,Bank held negotiations on May 25, 2000 appointed Vice President for the MENA Italy, and Switzerland--have conltributeclfor the US$14 million SWEMP Project. Region, made his first official visit to funcds for these studies. Private sectolThe objective of the Project is to WBG and Israel froml June 26-29, 2000. investment will be the topic ofimprove solid waste managemelnt Dur-ing his visit, Mr. Sarbib met with discussion at a Palestinian investmiientsystems in tlhejenin District. lhe Project Palestinianll 'esidlent Yasser Arafat, and conference to be held later this year.will be presented to the World Bank a number of Palestinian and Isr-aeli Preparations for the conference includeExecutive Board of Director-s for officials. He also made site visits to an appraisal of the growth potential andapproval in September 2000. World Bank-financed projects, including opportunities for 15 sectors of the

the Gaza Industrial Estate, in addition Palestinian economy, including:n Signing of Grant Agreement for to projects in Bethlehem and Hebron. infrastructure, tourism, technology,Funding of West Bank Gaza financial sector, trade, foreign directCourthouses And Roads. * Donors' Meetings Calendar: investment, and small- and medium-sizeRepresentatives of the Saudi Fund for Sub-Sector Working Group On: enterprises. These studies are beingDevelopment and the World Bank Rule of Law - April 13, 2000 prepared in conjunction withsigned an agreement on June 7, 2000 Health - April 27, 2000 Development Alternatives Inc. (DAI),for the acministration of a US$20 million Wastewater - May 2, 2000 and the Palestinian Private Sector. Thegrant to finance the construction of two Agriculture - May 30, 2000 results of the various sector studies willcourthouses, andforroadrehabilitation Public Finance - May 31, 2000 be discussed in workshops andworks in the West Bank Gaza. roundtable discussions during the

conference.

Augqnsl 200f) 21

NEW BANK PUBLICA11ONS: cletails the preparation, planning, 'Ihis publication will be of interest for* Aid Effectiveness in the West implementation, financing, monitoring, research institutions, governments, andBank and Gaza. ancl evaluation of diverse Early non governmental organizations.The Study, a procluct of an extensive Childliood Care for Developmentprocess of consultations with key Programimiing strategies. The * Corrupt Cities: A Practical Guidestakeholders in the development effort Prograimming Guicle is an invaluable to Cure and Prevention.(project team with Palestinian andc resour-ce for trainers to use in the The movemilent toward decentralization,dlonor officials), examines the impact clevelopmett of training workshopsand accountability, and democratic forms ofof clonor assistance in the West Bank as a self-guide course. government at the local level isand Gaza. The Aicd Effectiveness Stucly gathering mornentuil; and thefocuses its analytical attention on four T Evaluating the Impact of enormous costs of corruption are beingkeys areas: (1) the measurable Development Projects on Poverty. explicitly recognized.economic and social effects of the aid Despite the billions of dollars being Corrupt Cities is an importa.nteffort, (2) Palestinian perceptions of the spent on development assistance each contribution to this emeiging fieldl,aid effort, (3) the future sustainability year-, there is still not much known addressing the historical, traditional, andof the development effort, and (4) the about the actual impact projects have cultural contexts that create perverseimportant role of donor assistance and on the life of the poor. There is broad incentives for coriuption to exist. Thepolicy dialogue in supporting eviclence on the benefits of economic book serves as a guide for localinstitutional-developmenit ancd policy growth, investments in human capital, reformers and citizen groups intelit onreforimi. The Stidy summarizes key and the provision of safety nets for the changing corrupt systems byfindings and recomimiliendations, and poor, but, for a specific program or introducing practical strategies toicdentifies important future steps for the project in a given country, is the combat corruption and to reform localclonor comimiunity and the Palestinian inteivention producing the intended institutions. Practical tools andAuthorlity. benefits? What is the overall impact on approaches are presented, includinigThe Aid Effectiveness Stucly was jointly the population? Could the programil or fiscal transfers, systems to track publicundertaken by Japan and the Woricl project be better designed to achieve -revenues and expenditures, simplifiedBank with the financial support of the the intendecl outcomes? Are resources rules to improve the procurementgovernimient of Japan and UNDP. being spent efficiently? These are the process, diagnostics, and participatory

types of cluestions that can only be techniclues for cleveloping andU Standard Request for Proposals: answered through an impact evaluation, monitoring local budgets.Selection of Consultants(inArabic) an approach which measures theby the World Bank. outcomiles of a programi inteivention in * World Bank Technical Papers:'Tlhis document constitutes the World isolation of other possible factors. No. 414 - Liquefied Natural Gas inBank's Standard Request for Proposals China: Options for Marlkets, Instititions,(SRFP). As outlinied in the World Bank's * Winners and Losers of EU and Finance;Guidelines: Selection and Employment Integration: Policy issues for Central No. 466 - Ready for Europe: Publicof Consultants by World Bank and Eastern Europe. Administration lReforiml andc EuropeanBorrowers, this document must be used Ten Central andc Ea.stern European Union Accession in Central aincd Easternwvhenever possible in the selection of Countries (CEECs) have applied for Europe;consultants. The SRFP can be used with memilbership in the European Union No. 469 - Food Safety Issues in thethe following selection methods (EU). They coulc gain from exchanging Developing World;described in the Guidelines: quality- and lessons of experiences and best No. 470 - Agricultural Support Policiescost-based selection (QCBS); quality- practices with each other as they in Transition Economies.based selection (QBS); selection under address the common set of challengesa fixed budget; least-cost selection; in their preparation for EU accession.selection based on Consultant's This publication contairis the papersqualifications; and single-sou rce presented at the first meeting of the EUselection. The SRFP's use is mandatoiy integration network, as well as somefor contracts estimilated to cost more than background papers. The papers seekUS$200,000. to identify the main economic, social,

and political groups that would gain or* Early Childhood Counts: A lose from accession, and highlight theProgramming Guide on Early policy acljustments on the parts of bothChildhood Care for Development. the EU and the CEECs to ease theThis is a comprelhensive manual that accession process.

Auugust 2000 22

Coiitact Numbers Gaza Office:Coordinator

West Bank Office Numbers: Husam Abu DaggaAdministrator

Samira HillisSwitchboard 02 - 2366500 Tel. 07-2823422, 07-2824746

Fax 02 - 2366543 Fax. 07-2824296

Country Director International Finance CorporationJoseph Saba 02-236651702 - 2366506

Country CoordinatorExternal Affairs & Aid Tamara Lansky

CoordinationMa'moon Sbeih West Bank and Gaza Update

02 - 2366511 editorial team

Malmoon Sbeih - EditorEconomic Department M asmo en Dei-Et

Sebastien Dessus Selastien Dessus02 - 2366549 Claus Astr-up

Jouniana AssoPrivate Sector Development Maiy Koussa

Judith Press With special thanks to Mary Saba02 - 2366505

Infrastructure Development For further infonniation contact:Kingsley Robotham Ma'moon Sbeih

02 - 2366522 Tel. (972) 23646511email: msbeih@worldlbank.org

Rural Infrastructure &Environment Development

Kanthan Shankar The 'West Bank and Gazai Update'02 - 2366534 can alho be,/bund oni the Internet

at:Mission Coordination bttp.//www. zvorldbank.org

Fifi Antar02 - 2366507

AccountingSamira Hemsi02 - 2366503

Public Information CenterMary Koussa02 - 2366529

Augtiist 2000 2-3