Gaza Recovery Faces Major Challenges, IMF Says

The outlook for Gaza’s economic recovery is “bleak” after a 50-day war between Israel and Hamas unless there is “a fundamental change of the political status quo”, according to a sobering International Monetary Fund report released Tuesday on the challenges facing reconstruction.

The report comes three weeks after a truce in the fighting and days before Israel and the Palestinians are supposed to reconvene in Cairo with Egyptian mediators to discuss arrangements for a long term ceasefire. At the same time, the Palestinian Authority is organizing a donor conference for Oct. 12 to enlist support for a reconstruction project that’s been estimated at $7.8 billion.

The IMF report said that the job will require “generous” donor backing because the Palestinian government — which is already heavily dependent on foreign aid — lacks the financial resources by itself. So far only Saudi Arabia has pledged money, promising $500 million.

The report also stressed in several places that Israel should ease its blockade on the Gaza Strip, alongside guarantees to boost Israeli security and a “robust” mechanism ensure that donations for the recovery aren’t siphoned off for other uses.

“Without a change in the border regime, a lasting recovery cannot be achieved,’’ the report said. The absence of peace negotiations and a lifting of access restrictions will create an “unsustainable” scenario because of the high likelihood of another conflict.

The report, which estimated that Gaza’s economy will contract 15% this year because of the war and overall Palestinian output will shrink by 3.75%, stressed the need for a high level of coordination between donors, the Palestinian Authority and “support organizations in Gaza.’’

Otherwise, the IMF said, only a fraction of donor support will materialize. The report noted that despite several billions of dollars of donations after the Israel – Hamas war that ended in January 2009, only $330 million had actually been received by March 2010.

The IMF report made no mention of the risks to Gaza reconstruction that stem from the ongoing rift between Palestinian President Mahmoud Abbas in the West Bank and Hamas in the Gaza Strip, but a report issued by United Nations Special Coordinator Robert Serry on Monday said Palestinian political reconciliation and the reestablishment of unified rule in Gaza poses a “massive challenge.”

“Neither Israeli closure nor militant smuggling of weapons or material for tunnels nor the continued division of the Palestinians can offer anything beyond setting the stage for another, even more catastrophic war,” the report said.

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(via WSJ Blogs)