At 10th anniversary, a far poorer Palestinian Authority

When the doors of the Intercontinental Hotel opened here four summers ago, rooms were sold out and the managers had to turn people away. Today, it does not have a single guest and is kept running by a handful of people who watch the minutes tick by in crushing silence.

"When it's empty like this, every hour feels like a year," moans desk manager Jawdat Barakat, who earns a fourth of what he did in the days when the hotel was bustling. Many clients spilled in from the Oasis Casino next door - a joint Israeli-Palestinian investment which has since been shuttered. When the hotel opened, it employed 184 Palestinians. Only about 25 work here now.

Tourism was once the most promising sector of the Palestinian economy. Now business in Jericho, which bills itself as the oldest city in the world, has itself become fossilized.

Jericho's empty streets are a mirror of the downward spiral across the West Bank and Gaza Strip. Ten years ago this week, Palestinian leader Yasser Arafat gained major civilian powers for the first time as part of the Oslo Peace Accords. The Palestinian Authority (PA) soon gained the power to collect taxes, and run health, welfare, and tourism facilities, taking on the trappings of state- hood. Jericho was the first city from which Israeli forces withdrew, and, some say, the most keen to do business with Israelis.

But since the start of the intifada in late September 2000, the economy has been caught in a vicious cycle. In response to suicide bombings, Israel closed its borders to Palestinian workers, reoccupied cities it had turned over to the PA, and clamped down on Palestinian travel between cities. The latter, say people whose income was dependent on the tourism industry, is the primary reason why Jericho's economy is now virtually bust.

Most indicators point to a worsening of economic conditions - and an ever-rougher road for the PA leadership to survive its worst political crisis. Yet, while prominent Palestinians have become increasingly critical of life under the PA, decrying it as "lawless" and "chaotic," it continues to function as a de facto government - and the largest single employer in the Palestinian economy.

"The PA has managed to pay salaries ... that's the only symbol that it's still functioning," says Mohammed Shtayyeh, the director of the Palestinian Economic Council for Development and Reconstruction (PECDAR) in Ramallah.

The Intercontinental in Jericho wasn't alone in making huge layoffs. Approximately 90,000 people who were working in the Palestinian private sector before the intifada have since lost their jobs. But the loss of wages earned in Israel has hurt the most. Some 166,000 Palestinians used to work in Israel before the intifada, compared to 2,411 who do now, according to PECDAR, which was founded as the economic organ of the PA and is still the conduit for disbursing international donor funds. The salaries of those who worked in Israel brought up to $1 billion a year in remittances into the Palestinian economy.

Now the World Bank puts Palestinian unemployment at 28 percent - PECDAR says it's more than 50 percent. Per capita income, which in 2000 was about $2,000 a year for the West Bank and $1,600 for the Gaza Strip, has dropped to $950 and $650 respectively, PECDAR says. This year, for the first time, half of the Palestinian population will be considered to be living in poverty, according the World Bank's most recent study.

With fewer and fewer people working in the private sector, Dr. Shtayyeh estimates that about one-third of the Palestinian public is dependent on a PA salary. Tax collection - a key source of revenue for any government - was spotty to begin with and has plummeted since the intifada. The PA is able to function only through the help of donor funds.

It's not an encouraging trend. Ten years since the PA's founding, it is more dependent on foreign aid, but having a harder time getting it. For example, of the $650 million in aid the PA relies on to pay salaries this year, it has received only $140 million so far. "We are back to the scenario we had 10 years ago," Shtayyeh complains.

Now, in the course of a month, the PA needs $61 million to pay salaries and another $34 million in operating expenses, totaling $95 million. Of that, he says, $17 million comes from tax collection, and another $25 in the form of consumer and value-added taxes that Israel collects on goods coming into the country and then returns to the PA.

The difference has generally been made up by donor countries: about $10 million from the European countries and the rest from Arab countries, particularly Saudi Arabia. Of $1 billion the PA received in 2003, 80 percent came from Arab countries. But the conflict with Israel, combined with Mr. Arafat's increasingly troubled image on the international stage, is making support to the Palestinians a more difficult sell to donors. While there have been years since the post-Oslo Accords when Japan gave $200 million to the Palestinian Authority, last year it only gave $16 million.

"There has been a sharp decline in donations, because of the closure and destruction," adds Shtayyeh. "Iraq has been hijacking the attention of other donors. The donors ask us, 'can you guarantee that the project we build will not be destroyed?' We cannot answer that."

But nor has the PA been able to answer to ongoing complaints of corruption and mismanagement. In a recent speech, Arafat acknowledged that his Authority had mistakes and that reforms were necessary, but critics say he has not acted.

"The Palestinian Authority, to a large extent, has failed to manage the Palestinian economy as effectively and efficiently as it should have," says Dr. Nasser Abdelkarim, an economist at Bir Zeit University. "The Authority has never made available any development plan since its existence. We've only engaged in emergency planning and crisis management. The PA made mistakes by granting exclusive licenses for things like telecommunications - and in this they created an unfavorable environment for the expansion of growth in the private sector."

As he speaks in the lobby of another nearly empty hotel, this one in Ramallah, he notices a prominent former minister of Post and Communications, Imad Faluji, sitting behind him. "Let him hear it," Abdelkarim says loudly, referring to the complaints of corruption. "They're all part of what built this problem."

The Palestinian prime minister, Ahmed Qureia, threatened to resign this summer, protesting the growing state of "chaos" in the PA. Across the territories, tensions have been building. In Gaza in July, thuggish young renegades of Arafat's Fatah faction of the Palestinian Liberation Organization (PLO) abducted and beat his police chief, Ghazi Jabali, and continued the wreak havoc after Arafat appointed his nephew, who was widely rejected. Prominent Palestinian legislative council member Nabil Amr - a cabinet minister until last year - was shot in his own home in Ramallah, only an hour after he appeared in a television interview in which he was highly critical of Arafat. This strife, which largely has taken place inside Arafat's Fatah faction, is closely linked to the worsening financial squeeze, say some Palestinians and outside officials.

Since the World Bank and donor countries have put increasing pressure on the Palestinian leadership to institute a system of direct deposits, less donor money has been accessible to Fatah.

"Much of the tensions we're seeing are caused by financial stress," says a Western diplomat in Jerusalem.

Walid Masri remembers the first day he saw the Palestinian police stream through the dusty streets of Jericho, past the refugee camp where he spent his childhood. "When the Palestinian police first came, we felt a kind of safety and security. We could go out at night," he recalls.

Now, a decade later, he thinks of himself as someone who doesn't live under any government at all. "There is no functioning authority now. The Israelis come in and out when they want someone. Everything has come to a halt," says Mr. Masri, a waiter at the Mount of Temptation restaurant and tourist stop in Jericho. Masri, a father of five, has had almost no work since the intifada started. A place that once bustled with Christian pilgrims, the restaurant and gift shops only reopened a few months ago. It remains eerily empty, part of a minimall tucked into a hillside below the cable cars meant to carry visitors to the mount where Jesus was tempted.

Masri's boss, Maha Abdelrazak, says she and her husband opened up again after a four-year hiatus. But they only receive one or two buses a day, compared to the 30 to 50 they used to get at the height of the tourist season, pre-intifada.

"We wish we had saved some of the money from those days. But we just put everything we earned back to into the restaurant and kept expanding. We never thought they would close the doors on tourists," says Mrs. Abdelrazak, a woman with an warm smile. The restaurant, even at lunch time in summer tourist season, has nary a customer. Only when a bus rolls in, she says, do they flick on the lights - turned off to save on energy bills.

The PA has not tried to collect taxes from them at least four years, and there are not many services she can point to that she receives from the government. Yet she wishes everyone were a bit more patient. "People want magic to happen. People think that as soon as the PA is in place, all their problems should be solved," she says. "But no one's perfect. Ten years is not a long time for a country, for a government to give the people what they want."