Mideast Bank Lacks Currency

PLANS for a $10-billion Middle East-North Africa Development Bank are running into political and economic resistance.

The bank, strongly advocated by the United States and backed by Israel, was touted at the Middle East-North Africa Economic Summit in Morocco last week as one that could serve as a focal point for developing regional trade and investment and promoting a greater flow of people among the nations.

As well as opposition from Saudi Arabia and some of the Gulf states, there are growing concerns that the bank might not provide the appropriate mechanism for ensuring economic development in the Palestinian self-rule territories - particularly the deprived Gaza Strip.

Leonard Hausman, director of Harvard's Institute for Social and Economic Policy in the Middle East, told the Monitor that Palestinians were holding back on doing business with the Israelis because of a lack of trust.

``The bank would be a nonstarter if the Palestinians were left out.... It would be damaging to the Middle East peace process,'' Professor Hausman said.

He added that the bank was unlikely to take off until Syria and Lebanon - which have not yet negotiated a peace treaty with Israel - were brought into the peace process. ``I think once Syria is in, there will be many around in the Middle East who will take part in regional institutions.''

Hausman, who took part in a panel on the Palestinian economy in Morocco and at this week's Jerusalem Business Conference, warned that unemployment among Palestinians and in Jordan should be a cause of major concern for Israel. ``It is necessary to take immediate action to create new jobs in the region,'' he said.

The Jerusalem conference from Nov. 5 to 7 was attended by some 1,000 delegates from Egypt, Turkey, Tunisia, Jordan, and the Palestinian Authority (PA), and more than 2,000 Israeli businessmen.

UN Undersecretary-general Terry Larsen, who was instrumental in arranging secret contacts between Israel and the Palestine Liberation Organization last year, warned that the economic situation in Gaza was more grave than most officials realized. ``If there are no visible results, this will ignite more terror and more violence. It may tilt any day now if we don't push the economy,'' he told a session of the Jerusalem conference.

Leaders of the PA, in charge of implementing limited self-rule in Gaza and the West Bank, have expressed reservations about the proposed bank.

PA Planning Minister Nabil Shaath said that the bank would be of little use if it was run purely along commercial lines and did not address the specific problem of Palestinian needs.

``The bank needs to adopt a two-tier strategy with a dedicated component that extends credit on a basis other than pure market mechanisms,'' he said, meaning extending credit on more favorable terms, such as extensions of credit and repayment schedules.

``If you apply strict commercial rules, you will add to the problem,'' Mr. Shaath told the Monitor at the Morocco summit.

Stanley Fischer, International Monetary Fund deputy director, former chief economist of the World Bank, and regarded as chief architect of the proposed development bank, told the Jerusalem Business Conference here Sunday that the bank could be set up within a year.

Professor Fischer said that despite Arab skepticism, it was possible to develop a Middle Eastern Common Market based mainly on the private sector and cooperation with countries of the region.

Last week, the groundbreaking economic conference in Morocco appointed a group of experts to investigate the creation of a regional development bank as one of a range of mechanisms to promote and finance regional integration and development.

The group is due to report back in April ahead of a follow-up conference to be held in Amman, Jordan, next June.

Founding members of the bank would include Jordan and Egypt with Morocco, Tunisia, Bahrain, and Kuwait as the next targets. The bank would probably have its headquarters in Cairo or Amman.

The bank could contribute to the region's specific needs for a more integrated infrastructure - roads, power, and telecommunications links - and it could be used to promote cooperation in the vital field of developing and sharing water resources and in tourism.

But Saudi Arabia, facing cash flow problems due to the cost of funding military operations in the Gulf, falling oil prices, and budget deficits, resisted the proposal for a bank.

Saudi Commerce Minister Soleiman Soleim argued that dormant funds in aid and lending institutions under Arab control should be activated to fund regional projects rather than setting up a new development bank.

US Treasury Under-Secretary Lawrence Summers told the Casablanca conference that the bank should support - rather than supplant - the private sector and provide guarantees and finance for entrepreneurs, promoting both small and large projects.

``This means staying away from state enterprises and confining lending to well-defined projects,'' Mr. Summers said.

``It means recognizing that trade - not aid - is ultimately best for prosperity ... and it means covering costs by lending only for projects that can earn a market return,'' he said.