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Ad Hoc Liaison Committee
Lisbon Portugal
June 8, 2000
Chair's Summary
The Ad Hoc Liaison Committee met in Lisbon against the backdrop of the resumption of Palestinian -Israeli negotiations with the aim of concluding a framework and a permanent status agreement in the autumn, as well as positive developments in Lebanon, representing a new impetus in the political process towards a lasting peace in the Middle East. With the parties set to resume negotiations during the week of June 12, members reiterated the crucial importance for the peace-process of supporting Palestinian socio-economic development. The development effort remains an integral part of the process as it provides an essential underpinning for securing a lasting peace.
The AHLC-agenda was in particular focused on several on-going initiatives of the Palestinian Authority (PA) aimed at enhancing its fiscal affairs, the rule of law, public administration and refining it's development and strategic planning capacities. The AHLC highly commended the PA for its resolute implementation of vital reform measures within the area of public finance management, and encouraged the PA to advance its institutional reform agenda within the rule of law sector in order to secure the sustainability of the development effort.
Economic and Administrative Reform
Economic Policy Framework
The AHLC highly commended the PA on the progress it made toward launching the Palestinian Economic Policy Framework (EPF) in collaboration with the IMF . Recalling President Arafat's announcement at the Committee's last meeting in Tokyo, members hailed the landmark Presidential Decree of January 10, 2000 and the establishment, pursuant to it, of the Higher Council for Development, as representing a major reorientation of the PA's economic and financial policies. This view was bolstered by the P A's resolute implementation of key reform measures outlined in the Decree. In this connection, the Committee commended the PA for having established a single treasury account and ensured, with full co-operation by the Government of lsrael (GOI), that all revenues collected by the GOI on behalf of the PA flow into that account Members agreed that this reform measure greatly improves the governance and transparency in public finances and that it will go a long way in easing the liquidity difficulties of the Palestinian Ministry of Finance (MOF).
The Committee also warmly welcomed the unprecedented disclosure of the PA's commercial and investment activities contained in the PA's progress report on the EPF , which was prepared in collaboration with IMF staff and submitted to the AHLC by the Ministers of Finance, Planning and International Co-operation, and Economy and Trade, as well as the Economic Advisor to the President Co-ordinator of the Higher Council for Development Noting the significant contribution which this report has made toward expanding the knowledge base about economic and financial policies and developments, the Committee especially welcomed the information provided in the report regarding the establishment of the Palestinian Investment Fund (PIF), which, as envisaged in the January 10 Decree, will manage the full range of PA's commercial and investment activities in accordance with the highest international transparency and accountability standards, as well as the information on the progress toward elaborating a privatisation strategy .
The Committee considered that the solid progress made by the PA in implementing the reform measures outlined in the Decree provided every assurance that the Authority will move swiftly to implement the measures that remain outstanding. In particular , the Committee underscored the urgency that should be attached to reining in public sector hiring, including by having the payroll unit in Gaza moved to MOF. The Committee agreed with the view, jointly held by the PA and the IMF , that prompt action on this front will help ensure fiscal sustainability, and that together with a significant reduction in the stock of budget arrears it will also help ensure a successful launching of the EPF. Finally, the Committee underscored the genuine spirit of PA-donor community partnership with which the economic reform agenda has been pursued, and it especially praised the essential role which the IMF has played toward that end. The AHLC requested that the PA and the IMF continue to keep the AHLC informed, through the JLC, of the EPF-process.
Rule of Law
Members agreed that an improved rule of law environment, democratic participatory politics and a pluralist civil society is crucial to a sustainable Palestinian society , the achievement of a stable and lasting peace, to improve donor effectiveness and to strengthen the foundations for long term economic and social development in the West Bank and Gaza. The AHLC took note of the establishment of the Higher Judiciary Council for the Palestinian districts, and encouraged an early signature of the independent judiciary bill. The PA stated that it would continue to undertake rule of law reforms which it views as instrumental and necessary for the success of the economic development effort.
The AHLC noted that the passage of critical commercial legislation would improve the enabling environment to encourage investment and private sector development. Members also underscored the particular importance of a strengthened independent judiciary, improved functioning of the courts, an enhanced legislative process, the establishing of a clear basis for adoption of legislation and an efficient police establishment subject to judicial oversight.
Donors announced a wide range of initiatives, including training, equipment and infrastructure development, to support the PA in advancing the rule of law agenda. Members agreed to strengthen the PA-donor dialogue concerning reforms necessary to optimize the impact of specific donor projects. The AHLC welcomed the announcement of a Rule of Law Action Plan which will be reviewed by the JLC and presented at the next AHLC-meeting.
Economic Developments
The UN Special Co-ordinator presented a report highlighting the major trends in socio-economic conditions in l999. Several positive economic signals have emerged over the 1999 period, with the Palestinian economy having performed better than expected, as exemplified by the GDP and GNP growth rates which grew by 7 and 8 percent respectively. Comprehensive closures were imposed on fewer days in 1999 than in any year since 1993.47.000 new jobs were created in 1999, and more than 70 per cent of these in the private sector. However, public sector hiring continues at an excessive rapid pace.
Economic gains were spurred by strong growth in employment in Israel, a corresponding decline in unemployment in WBG, and higher domestic consumer demand. Despite a slight decline in GDP/GNP growth in 1999, performance continued to exceed expectations reaching 6 and 7 percent respectively, adjusted upward from previous projections of 4.5 and 4.6 percent. However, data for the first quarter of 2000 indicates that growth is slowing down, likely caused by a saturation of employment opportunities in Israel and limited growth in Palestinian exports in part due to high transaction cost caused by remaining obstacles to the transportation of Palestinian goods and weakness in export capacity . Concern was also expressed that despite of positive economic indicators the percentage of Palestinians living in poverty remains very high, and that rapid population growth is depressing the impact of economic achievements on Palestinian living conditions.
Status of the Tripartite Action Plan
Following efforts spearheaded by the European Union to update the Tripartite Action Plan (TAP), the World Bank presented a progress report on the major issues reflected in the updated TAP. Members welcomed the recent agreement that PA and the GOI reached on transfer of Israeli purchase taxes, co-operation in combating vehicle theft, dealing with unpaid Palestinian debts and expansion of import quotas. Important progress has been made on the Palestinian side concerning establishment of a single Treasury Account, obtaining audited financial statements of the Palestinian Commercial Services Company, and in establishing the Palestinian Investment Fund. However, civil service recruitment is still exceeding the expenditure ceiling imposed by the Palestinian budget, which continues to undermine the prospect of fiscal sustainability .
While the process and procedures for customs exemptions have been streamlined and function well for the most part, delays that contractors and implementing agencies, including UNRWA, have faced in receiving VAT reimbursements continues to negatively impact disbursements. The AHLC noted that donor disbursement had improved since its last meeting, and emphasized that steps to assure further improvement would continue, not least in light of an anticipated need for new international assistance in facilitating a permanent status agreement.
AHLC members noted that the southern Safe Passage has been operational for people since October 1999, while some progress was reported on the northern Safe Passage negotiations, and construction of the sea port is now underway.
It was also noted that the uncertainty of rules and procedures, which are not in writing, concerning the movement of commodities in and out of Gaza , increases the perceived risk of investors, thereby adding to already existing transaction costs. AHLC members recognised the need to further investigate existing arrangements to determine ways of reducing risk and to promote investment and private sector development over the long term.
The AHLC emphasized the need to continue efforts to address obstacles to project implementation, through the JLC and the LACC, on the ground.
Aid Mobilisation and Co-ordination
AHLC members noted that the P A and donors are confronted with major new challenges inherent in the evolving peace process and in anticipation of a fruitful outcome to negotiations this year. AHLC members reflected on gained experience over the past several years and focused discussion on measures needing improvement
The AHLC took note of the PAs progress report on the Palestinian Strategic Development Plan(PSDP) and encouraged MOPIC to continue in its efforts to streamline and rationalize planning processes, moving from a project specific level to a programmatic, sector approach, informed by economic analysis and taking into account recurrent cost implications of any new capital investments.
The World Bank reported that the PA has fully taken over the planning and implementation of the Comprehensive Development Framework (CDF) for the West Bank and Gaza. The CDF has been adapted as a tool in developing the PSDP and work is progressing through the LACC Sector Working Groups (SWGs) following completion of draft sector matrices by key stakeholders in each area.
In response to a request from the AHLC, the Government of Japan and the World Bank presented the final report of the Aid Effectiveness Study. The findings of the Study indicate that donor support spurred economic growth, put in place infrastructure needed for future economic growth and social development, and helped build a Palestinian administration that now provides a broad range of services.
Palestinian public perception of the aid effort was determined to be favourable, and recommendations were made to further enhance aid co-ordination. To that end, UNSCO and the World Bank reported on progress of a jointly-implemented project, financed by the Government of Japan, to establish donor aid co-ordination website. AHLC members acknowledged that the website will greatly facilitate access to needed information in a timely manner, in addition to enriching the overall donor aid co-operation effort.
The Palestinian delegation to the AHLC presented the meeting with its vision for the needs for future financial and technical assistance in the medium term (2000 - 2005) and beyond. These needs will emanate from the enormous challenges the Palestinian people will face as a result of the agreed conclusions of the permanent status negotiations between Palestinians and Israelis, enabling the Palestinians to participate among the community of nations. The Palestinian delegation highlighted several issues of concern in the new environment of peace and stability in the area as a result of the signing of the peace agreement with Israel, in particular refugees and displaced Palestinians.
The AHLC welcomed the EU offer to host the next meeting. The chair will consult with members as to the timing and venue in the light of developments in the peace process and the conclusions of the Frankfurt AHLC.
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