Economical Reform:

Reforms in Economic Policies and Institutions

 By: Dr. Hisham Awartani

 Background

The Palestinian leadership has displayed an unequivocal commitment to genuine democracy and a market-oriented economic system many years before the establishment of the Palestinian National Authority in late 1993. This commitment was reiterated, for instance, in the Palestinian Covenant and in the Declaration of Independence in 1988. Furthermore, these principles have later become the basis for the Palestinian Development Plan, which was formulated by Prof. Yousef Sayegh and a large team of senior experts, several years before the inception of the peace process.

Following the establishment of the Palestinian Authority, however, the actual economic polices of the emerging administration have been characterized by gross distortions, which provided a stark contrast to previous pledges. The new authority embarked on excessively interventionist policies, which were clearly targeted at two main objectives:

1. Generating maximum revenue to the new administration, mainly through direct and indirect involvement in business operations.

2. Using economic policies and the institution-building process as means for creating jobs, mostly irrespective of the actual need for recruited staff.

The above-mentioned strategic mistakes have paved the way for very serious distortions in economic policies in Palestine. The government has become directly and indirectly involved in major business operations, which are often granted monopolistic rights. The number of public sector institutions established, and the size of their workforce, has spiraled to levels much higher than is actually needed. The problem was further compounded by the dominance of political loyalties in the recruitment process, at the expense of pure professional criteria.

The aberrations in the PA’s economic policies were received with deep disappointment at the public level, as well as from the international donor community. These criticisms have become louder and more serious, so much that the PA started talking about reform, both concerning democracy and economic polices.

Yet, the actual track record of the Palestinian Authority during the past three years provides enough evidence to prove that the reform process has not proceeded at the desired pace. There were indeed real reforms made in the area of financial management, especially concerning transparency and accountability. However, it is clear that such reforms have in effect reflected the personal efforts of the Minister of Finance, and not the Palestinian leadership. This is clearly evidenced by the cosmetic approach to reform, as it is being implemented in other public sector institutions.

Several civil society organizations have played a vital role in the advocacy efforts aimed at prompting the Palestinian Authority to take a more serious approach on reform needs. This has been especially clear in the area of democracy-focused activities, where a great many local and international organizations have marshaled relatively large resources. Reforms bearing on economic policies and institutions, on the other hand, have received much less interest at the donors’ level, although they occupied the greatest concern at the public level.

Recommended policy options

There is much that can be done to enhance the performance of Palestinian economic institutions, especially those of the public sector. It is also not difficult to define the needed reform in the economic policies of the PNA and other relevant institutions, thanks to the many reports and needs assessments prepared by several local and international institutions in this regard. But the implementation of these reforms will remain contingent on a deep conviction on the side of the PNA that they are intended to serve Palestinian interests, and not view them as concessions to external pressure. Consequently, a real commitment to the reform process is imperative for the success of this challenging endeavor.

The following are fundamental underpinnings of reform which are viewed as central to the success of this process:

1. A national consensus should be arrived at that no one is above the law, and that the past record of any individual cannot provide him with immunity from accountability regarding his financial transactions and activities.

2. A real commitment to reform should entail a more stringent control on the means employed by the government to expand its funding resources.

3. Finally, reform cannot have credibility without embracing transparency by all government and non-government institutions, especially in managing public funds.

The current situation of the public institutions and NGOs does not yet indicate a commitment to the above-mentioned underpinnings of the reform process. However, there is certainly an opportunity to attain this goal, and establish a modern state, which constitutes a qualitative model for other Arab states, and not just a quantitative addition.

In order to achieve real improvements in the performance of the PNA and NGOs, with regards to their economic institutions and polices, the following policy options are recommended:

1. The role of PLC should be considerably bolstered

There is a unique opportunity and a strong need for the PLC to play a seminal role in economic reform, mainly in the following areas:

1. Ratify the suggested draft economic laws, with the participation of all relevant institutions. The PLC should decide on criteria for the timeframe of this process, so that it is expeditiously performed.

2. The PLC should make sure to monitor the implementation of the ratified laws. The council can solicit help from specialized international institutions on mobilizing the proper monitoring mechanisms.

3. The PLC should develop realistic mechanisms to follow up on economic issues tackled by the media or identified through other means, such as workshops or studies published by civil society institutions.

4. In order to settle a historical account with the Palestinian public, the PLC is obliged to explain why it closed the corruption file, which was opened by the Public Monitoring Commission five years ago.

2.  Strengthen the Judicial Authority:

Restoring and reinforcing the dignity of the Judicial Authority is pivotal to the reform process. This will result in enhancing its performance in settling commercial disputes. This can be achieved through the following measures:

1. Stress the independence of the Judicial Authority, as this is an indispensable prerequisite to any policy aimed at strengthening this body, especially before the political and party officials in the public sector institutions.

2. Provide greater support to the Judicial Authority. All political leaders and public institutions are asked to display greater support and respect to the Judicial Authority. This includes most importantly, the commitment of the security apparatus to implement the resolutions and rulings of the judicial institutions, regardless of all vested interests and political loyalties.

3. Have a more specialized judicial system. There is dire need to improve the capacity of judges and other support staff in the judicial system. Among other things, this requires providing training programs concerning the complex issues of trade-related disputes.

3. Activate the role of the Public Monitoring Commission:

The PMC should play an important role in making sure that all government institutions adhere to the ratified laws and administrative regulations currently in force. Learning from past experience, this requires the following:

1. Unqualified commitment to publishing annual reports. There is no reason for shrouding reports issued by the Commission in secrecy, just because publishing the first report caused so much controversy. These reports must be published openly and regularly, as is being done in all democratic countries.

2. Enhance the technical capabilities of the staff of the Commission. The experience of the first report proved the need for enhancing the monitoring mechanisms and capabilities of the Commission’s staff. The experiences of other countries could be very helpful in this regard.

3. Have a proper legal framework for the performance of the Commission. In view of the highly sensitive nature of PMC’s mission, it is very important to avail of a proper legal framework, so that it is provided with effective immunity against potential pressures from the factional and political echelons.

4. Improve the performance of the private sector institutions

The private sector has a direct interest in economic reform. It should therefore be actively engaged in formulating Palestinian economic policies. To be capable of doing that, the private sector has to do the following:

1. Enhance the level of coordination between the private sector institutions. Much has been achieved in this regard, yet much more is still needed in order to institutionalize this coordination and enhance its efficiency. Establishing the Private Sector Institutions Coordination Council is a big step in the right direction, but the performance of the Council could be significantly improved by appointing a full-time director to the council.

2. Adopt a clear stand on reform issues - The private sector institutions have done a lot in the area of defining and diagnosing the problems they suffer, and they formulated numerous recommendations and policy options for that purpose. However, it is clear that these efforts have not yet yielded tangible results concerning creating a better investment environment in Palestine, especially regarding the implementation of recommended reforms relative to government institutions. The private sector leadership should therefore conduct continuous discussions on the methods of developing their advocacy tools, in such a way that they become more effective and results–oriented.

5. Improve the performance of civil society organizations

CSOs constitute the focal point for the efforts aimed at the establishment of a democratic state which is committed to a market economy, based on equitable competition and vibrant entrepreneurship. It is therefore imperative that these institutions demonstrate more commitment to implementing the concepts of good governance, which they advocate, especially with regards to embracing genuine democracy and transparency in managing their finances. They should also develop better coordination between themselves, in order to avoid duplication and abrasive competition, following the same line with what they demand government institutions to do.