IMF: Palestinian Reform Plan Doable

RAMALLAH, West Bank -- The International Monetary Fund has come out in support of a Palestinian plan for economic reform and recovery that would require about $5.6 billion in foreign aid over three years.

The Palestinian proposal is "ambitious, but also achievable," the IMF wrote in a report obtained by The Associated Press on Monday, ahead of next week's meeting of donor countries in Paris where the Palestinians will formally request the money.

The IMF's support, including praise for the Palestinian government's "prudent fiscal policy," could go a long way toward persuading donors to pledge more money. The aid request _ unprecedented at nearly twice the annual level _ also comes at a time of renewed hopes for Mideast peace, after seven years of fighting.

The Palestinian economy was hit hard by seven years of Israeli-Palestinian fighting, accompanied by stifling Israeli restrictions on travel and trade. About three-quarters of households in Gaza and 56 percent in the West Bank live in poverty.

Later this week, Israelis and Palestinians are to resume peace talks, in line with promises made at the recent Mideast conference in Annapolis, Md. However, talks are overshadowed by a new crisis over Israel's decision to expand a Jerusalem neighborhood built on war-won land and claimed by the Palestinians.

Efforts to revive the Palestinian economy and build the institutions of a future state are to run parallel to the negotiations. As part of its presentation to the donors, the Palestinian government in the West Bank has prepared a three-year plan of economic reform and good governance.

Under the Palestinian development plan, the international community would be asked to provide about $5.6 million over three years, Palestinian Prime Minister Salam Fayyad said after a meeting with EU foreign ministers in Brussels Monday. Of the sum, about 70 percent would go for budget support and the rest to development programs.

In exchange for requesting such large sums, the government promises to cut spending, mainly by keeping a lid on the bloated public payroll and cutting hundreds of millions of dollars in electricity and fuel subsidies.

Commenting on the plan, the IMF report said that the "contemplated fiscal adjustment is ambitious, but also achievable."

For the plan to work, Israel must relax its restrictions on movement and trade in the Palestinian territories, the IMF report said. Such restrictions, first imposed after the outbreak of the second Palestinian uprising in 2000, are seen as a major obstacle to economic recovery.

"Donor assistance will also need to be scaled up, both to finance the recurrent budget deficit (an average of $1.3 billion a year over 2008-2010) and for the public investment program (an average of $550 million a year)," the IMF report said.

The report said the Palestinians, Israel and the donors will have to cooperate closely. The IMF said going forward poses some risks for all three, but that failure to do so would push the Palestinian economy into a further downward spiral.

In Brussels, EU External Relations Commissioner Benita Ferrero-Waldner said in a joint news conference with Fayyad that the EU, which gave $1.4 billion to the Palestinians in 2007, would remain generous.

But she stressed that the EU wants to "see burden-sharing from many, many other countries," including Arab states. In a reference to Israel, she also said that "more, much more needs to be done to improve the possibilities of movement and access in the Palestinian territories."