Most Arab countries have embarked on, or are in the process of formulating, medium-term economic reform policies with an important common objective: sustaining a high level of economic growth. This objective reflects policymakers’ increasing recognition that structural changes and financial stability are needed if their economies are to (1) provide sustainable employment opportunities for the un- and underemployed, as well as for the increasing number of nationals entering the labor force; (2) progress further in improving basic social indicators; and (3) benefit from the important changes taking place in the regional and international economies.
The Declaration of Principles of 1993 and the Interim Agreement of 1995 between the government of Israel and the Palestine Liberation Organization (PLO) presented the Palestinian people with new opportunities and significant challenges.1 There was widespread optimism that the economy would begin to grow and living standards improve in the West Bank and Gaza. A Palestinian administration—the Palestinian Authority (PA)—was expected to adopt policies favorable to local economic development, and public sector services and infrastructure would improve with the generous support of donor countries. The fundamental task of the PA was the provision of basic public services to improve living conditions and to enhance the economy’s human capital. Moreover, the PA needed to create an environment conducive to economic growth. This required embarking on an ambitious public investment program to meet the economy’s significant infrastructure needs, pursuing sound macroeconomic policies, and developing institutions in support of a market economy that would encourage private investment and foster growth. In sum, a favorable economic environment supported in part by the newly reemerging financial sector was expected to develop in a climate characterized by cooperative relations between Israel and the PA.