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The Diplomatic Purchasing Power Afshin Molavi

Tunnel Economics

No Right Man

David Craig, World Bank Director for the West Bank and Gaza

For The Job Manuel Almeida

The State of

Hamas The Challenge of Administering the Gaza Strip Rashmi Singh

Issue 1530, 31 October 2009

Editorial Cover

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elcome to THE MAJALLA Digital. This week our issue is bringing you an analysis of the State of Hamas, with feature written by Rashmi Singh, from St. Andrews University. In her article, Singh illustrates the internal and external challenges the organization has faced in its consolidation of power, and assesses how does Hamas administers the Gaza Strip. To complement this article we have invited Palestinian political analysts Mustfa Al-Sawaf, Mohammad Jamal Arafa, and Hani Habib for our weekly debate. These thinkers and practitioners bring their personal insight to assess the last three years of Hamas’s politics. Additionally, this week’s issue brings to you geopolitical analysis by Afshin Molavi, Senior Research Fellow at the New America Foundation and Author of Persian Pilgrimages. His article, “Diplomatic Purchasing Power,” addresses Europe’s wary relationship with Iran, and Tehran’s growing tendency to look East for economic and political allies. Read these articles and much more on www. As always, we welcome and value our reader’s feedback and we invite you to take the opportunity to leave your comments on or contact us if you are interested in writing for our publication. Sincerely,

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Gaza Strip

Issue 1530


Contents 08 Geopolitics Diplomatic Purchasing Power

11 In Brief Around The World Quotes Of The Week Magazine Round Up Letters

20 Features The State of Hamas

27 Debate The Iron Grip

32 Ideas Danger at Home THE MAJALLA EDITORIAL TEAM London Bureau Chief Manuel Almeida Cairo Bureau Chief Ahmed Ayoub Editors Stephen Glain Paula Mejia Dina Wahba Editorial Secretary Jan Singfield Webmaster Mohamed Saleh Translation Sherif Okasha

30 October, 2009



37 People Interview

Tunnel Economics Profile

The Maestro of Difficult Missions

Issue 1530, 30 October 2009


43 Economics

To submit articles or opinion, please email: Note: all articles should not exceed 800 words

World Economics

How Did China Get Away with it? Interntional Investor

What Goes Up Must Come Down


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51 Reviews


Books The Paradox of Government Intervention Readings Reports Beguiling The West

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Diplomatic Purchasing Power As Europe Grows Wary of Iran Trade, Tehran Looks East

The West has relied on economic sanctions as leverage against Iran in the past. Although Iran has, since the revolution, repeatedly claimed its commitment to pursue economic ties with developing nations over more industrialized countries, the reality has been the opposite. However, growing wariness of Iran by western powers, particularly the EU, has pushed Iran eastward and they have, to varying degrees, begun to succeed at their earlier aim of relying on developing nations for their economic resilience. Is the West loosing leverage by sanctioning Iran? hortly after Iran’s 1979 revolution ousted the proWestern Shah of Iran, the new revolutionary government proclaimed a new dawn in Iran’s commercial relations with the outside world: trade flows would move away from the Western world and toward fellow Muslim states and members of the “oppressed” Third World. No longer would Iran be “dependent” on Western financing, expertise, or technology, but would chart a path of import substitution, indigenous production, and a trade policy that favoured the eastern and third world states.

Korea with 6%. So, in essence, the China-Japan-South Korea triangle trumps the EU as Iran’s major trading partner. Numbers five through ten in Iran’s trade portfolio are Turkey, the UAE, South Africa, Russia, India, and Brazil - a who’s who of emerging markets.


Of course, as with many promises of revolutionary zealots, reality often trumps ideology, and Iran’s experiment with a trade policy of third world solidarity never managed to gain serious traction beyond the sloganeering of political elites. True, cheap, manufactured goods of low quality poured in from the developing world, but the Iranian consumer sophisticated, modern, and discerning - rejected this politicization of trade, and showed little desire to forsake quality appliances or clothing for the sake third world solidarity. As for the new Iranian captains of industry and petroleum, they, too, saw little way around the superior technology of Western firms, and quietly placed their orders in Paris, London, New York, and Houston. Despite revolutionary accusations that the Shah and his elite were “Westoxified”, the new Islamic Republic business and industrial elite demonstrated a clear preference for Western products. This remains so today. While the United States has sanctioned itself out of the Iranian market, the European Union certainly has not. Today, the EU accounts for one-quarter of all of Iran’s trade, and four of Iran’s top six foreign investors from the 20002008- period are EU countries: France, Germany, Italy, and the United Kingdom. While Iran remains ready to continue its steady flow of trade and 30 October, 2009

Afshin Molavi investment with Europe, the EU is more wary. The ongoing standoff over Iran’s nuclear program, President Mahmoud Ahmadinejad’s incendiary rhetoric, and US efforts to persuade European financial institutions to avoid conducting business with Iran, has had a detrimental effect. Major European oil companies like Total and BP have pulled out of Iranian projects. European state export credit agencies rarely do business with Iran anymore, and European banks simply avoid most Iran transactions. While EUIran trade is not nearing a collapse, the medium-term trends indicate a slowdown. In one high-profile instance recently, former German chancellor Gerhard Schroeder, received a stern note from Germany’s finance minister asking him to discontinue his lobbying on behalf of German companies doing business in Iran. Recently, the United Kingdom’s Treasury Department listed Iran’s most significant shipping company, Islamic Republic of Iran Shipping Lines (IRISL), as a sanctioned entity, preventing all British banks from doing business with the major shipper. As European states slow down their commercial interaction with Iran, Tehran is increasingly looking eastward. To some extent, they are already there. A look at Iran’s current trade portfolio suggests that it has indeed fulfilled one part of its revolutionary promise: building an eastern web of trade partners. China soars atop Iran’s eastern trade strategy, accounting for some 15% of all Iran’s trade, followed shortly thereafter by Japan with nearly 10%, and South

When it comes to crude oil sales, Iran’s eastern focus becomes more evident. The top four buyers of Iranian crude are China, Japan, India, and South Korea. This is partly due to the nature of oil markets today, with rising demand in Asia, and partly due to simple maritime geography and Persian Gulf-Asia shipping routes, but this eastward focus will likely become more pronounced as China has emerged as the major investor in new Iranian upstream projects. Meanwhile, Dubai continues to play an outsized role in the world of Iranian commerce. The Persian Gulf citystate has become the most significant re-export location for goods from around the world flowing into Iran, and a magnet for Iranian capital looking for investment opportunities. From historic businesses engaged in legitimate trade to companies linked to Iran’s military apparatus seeking to acquire goods on US sanctions lists, Dubai has become a part of Iran’s commercial lungs. A full ten percent of all of Iran’s imports come from Dubai. In a world in which the EU has demonstrated a new wariness in expanding trade and investment ties with Iran, we can expect to see Russia, China, and Asian states filling those gaps. Ironically, as the Administration of President Barack Obama calls on Iran to restore its rightful place in the community of nations by stepping away from the nuclear brink, Western leverage with Iran may begin to diminish as the trade and investment dollars flow eastward. Senior Research Fellow at the New America Foundation and author of Persian Pilgrimages: Journeys Across Iran 08

Issue 1530


30 October, 2009

In Brief Around The World

Quotes Of The Week

Magazine Round Up


Pilgrimage Politicized… As the Muslim pilgrimage season approaches, tensions also rise in the Middle East. The Supreme Leader of Iran has issued an astounding statement in which he criticized the treatment of the «Shiite Muslims» on Saudi lands during pilgrimage and further proclaimed that these mistreatments are aimed at disrupting the unity of Muslim people, by that aiding the American intentions. On the other hand, the Saud Minister of Pilgrimage Fouad Ben Abd Al Salam Al Farsy expressed his concern towards the Iranian statements, denying the Iranian claims and reiterating that Saudi authorities are exerting tremendous Issue 1530

in facilitating pilgrimage to all Muslims of the world, adding that there are Muslims from over 85 nationalities around the world who praised the Saudi efforts. Minister Al Farsy also expressed a crucial point in demonstrating that the Iranian statements are but a way to use pilgrimage in serving their political agenda. Minister Al Farsy advised Iran to refrain from politicizing pilgrimage to avoid further escalation. In Egypt, Scientists in Al Azhar declared their refusal to the Irannian claims, assuring that they›ve never witnessed any mistreatment towards any of the pilgrims and further warned of the dangerous consequences

of politicizing the holy season. Dr. Abdul Moti Bayoumy member of Cairo›s Islamic Research Center denounced converting Islamic proceedings into a political warfare and confirmed the good conduct of Saudi authorities towards all pilgrims. It is noteworthy that Ali Khameni›s and Nijad›s statements come at a time where Iran is involved in tedious negotiations with the west in Vienna concerning its nuclear program, during which Iran has declared its openness to cooperation. The new Iranian statements contradict Iran›s allegations of trying to flip a new leaf in the course of its international relations. 11

In Brief - Around The World

Around The World 1 Iraq A double suicide bombing hit Baghdad,claiming more than 155 lives and wounding 500 more.It targeted the Ministry of Justice and the headquartes of the Iraqi governorate and was the deadliest attack in Iraq for over two years. The Iraqi government blamed that bombing on Syria, saying Damascus was providing a safe-haven for foreign fighters and insurgents planning and executing attacks inside Iraq. Iraqi officials have also accused neighboring power Iran of arming and training Shiite militias.Both countries denied the charges. A group linked to al-Qaeda said it carried out the twin suicide bombings which revived doubts about security in the runup to Iraq›s elections in January.


The statement dated Oct. 26 was posted by the Islamic State in Iraq group on a website often used by militants to announce responsibility for such attacks. The American army said that an Iraqi security force accompanied by US military advisers arrested 8 suspects during an operation aimed at detaining the commander of a terrorist cell which manufactures bombs in Western Baghdad

3 Iran

2 Saudi Arabia In another effort to unify Arab ranks, following his historic visit to Syria, Saudi King Abdullah Ibn Abdel Aziz held talks with Sheikh Hamad Bin Khalifa, the prince of Qatar, on new developments on the regional and international levels as well as bilateral relations between the two countries. Among the issues discussed by the two Arab leaders were the Palestinian question and Israeli aggressions on Arab sanctities and the need for comprehensive and Just peace in the region within the framework of international legitimacy. 30 October, 2009

Iran,s Revolutionary Guards threatened strike on Israel Nuclear facilities if Tel Aviv attacked the Islamic state. Guards commander-inchief said if the Zionist regime attacks Iran, Tehran will surely strike their nuclear facilities with their missile capabilities. He added that Israel was entirely within the reach of Iran

4 Bahrain In a move which could complicate Gulf Arab leaders, efforts to promote peace talks with Israel, Bahrain,s parliament, where Islamists are strongly represented, approved legislation penalizing contacts with Tel Aviv. Ignoring the government objections, the parliament approved jail terms of three to seven years and fines of 10,000 Bahraini dinars (27,000 dollars) for offenders

5 Yemen Yemen,s navy seized an Iranian ship loaded with anti-tank weapons off its north-west coast in the Red Sea. The ship was reportedly heading to Yemen to transport its weapons to the Houthi rebels in the Saada province. The sixmember crew aboard the ship were weapons experts. They were detained and immediately taken to the capital Sanaa for investigation 12

8 Serbia Former Bosnian Serb leader Radovan Karadzic has failed to appear at his trial on 11 charges including genocide, war crimes and crimes against humanity.


9 1






Karadzic denies the charges, which relate to the Bosnian war of the 1990s. The judge adjourned the court for one day. He had warned before that he needed more time to prepare his own defense

9 North Korea


North Korea has sent a senior nuclear envoy to the United States for talks that could revive dormant discussions on ending Pyongyang,s atomic ambitions in return for massive humanitarian aid

10 Switzerland 6 Afghanistan Two helicopters collided in southern Afghanistan, killing four American troops and injuring two. A third U.S. helicopter crashed in a separate incident in the west, leaving seven soldiers dead. The helicopter went down during an operation by Afghan and international forces. Issue 1530

7 Pakistan Several hours after U.S. Secretary of State Hillary Clinton arrived in Pakistan, a massive bomb killed at least 92 people and wounded more than 200 others in Pakistan,s northwest city of Peshawar. Clinton is pledging a fresh start in relations with an increasingly embattled and sceptical partner in the struggle against Islamic militancy

Switzerland advised its citizens not to travel to Libya after Tripoli refused to free two Swiss businessmen held there since last year. The Swiss foreign ministry said that the political tension which started after the arrest of the son of Libyan leader in Geneva last year was continuing. The Swiss government said that as Tripoli had no intention to normalize bilateral relations, it would consider changing its way of solving the problem. 13

Magazine Round Up

In Brief - Quotes Of The Week

Quotes Of The Week

«We sent the soldiers on the mission and they deserve our complete backup,» said Israeli Defense Minister Ehud Barak in a statement responding to accusations that the military committed war crimes during its offensive against Hamas earlier this year.

1 «We have been waiting for light at the end of the tunnel for almost three years. We will wait until we decide that enough is enough and that the process is exhausted » said Bernard Kouchner, French foreign minister, regarding talks with Tehran concerning its nuclear program.

«Lately I feel like somebody made a big mess and I,ve got my mop and I,m mopping the floor and the folks who made the mess are there (saying) you,re not mopping fast enough. You,re not mopping the right way. It,s a socialist mop. Just because I›m skinny doesn,t mean I,m not tough.» President Obama said in response to Republican critics who he says are not helping solve some of the problems of the White House and Congress.

«We are facing big challenges in the reconstruction process, but while we are building, they are destroying,» said Iraqi Prime Minister Nouri al-Maliki in reference to those responsible for last Sunday›s terrorist attacks.

30 October, 2009

Magazine Round Up 1 Time magazine Unloved

Opposition Grows to Tony Blair,s Bid for E.U. President

Catherine Mayer asks an interesting question in this week›s Time issue: What unites French Socialists and British Conservatives and brings feminists together with the editors of prurient tabloid newspapers? Answer: Tony Blair. According to Time across Europe, natural adversaries are finding common purpose in their efforts to stop Britain›s former Prime Minister from assuming the role popularly known as President of Europe. The Lisbon treaty creates two powerful new positions among them President of the European Council and Blair is seen as front runner for the presidency. 14

3 Newstatesman The great gamble Geoffrey Robinson

2 Newsweek


Economics Versus Extremism According to the Newsweek, the creation of middle-class capitalists in the Middle East and Islamic countries represent the best hope for the advancement of their societies and the most potent weapon for combating extremism. From Beirut to Tehran an «economic renaissance» is underway. The article explains how economic development which would lead to rise in employment and more prosperity can save the world extremism and terroristic ideas which only thrive in times of poverty and underdevelopment.

The Karzai government pressures to rerun elections meanwhile an increasing number of coalition troops die, it seems in Geoffrey Robinson›s point of view that they are fighting a pointless war in Afghanistan and maybe making a deal with the Taliban could be the only way to make a clean exit. Robinson asks is it really worth it? What was the purpose of it all? Robinson questions Obama›s policies regarding war in Afghanistan and claims that these policies were lead to more funerals for young soldiers.

Cover of the Week The Economist:


4 4 Harvard International Review Bleeding for Humanity Stephen Wertheim in this article argues that Humanitarian Interventionism might be backfiring due to its misuse and the abuse of its notion. Wertheim draws his conclusions through observations of the war in Iraq that has – according to him – led the world towards a more realistic approach when handling other humanitarian emergencies. Wertheim takes historical reference and exemplification in displaying his point, referring to Sudan and Rwanda for example. The article further analyzes the circumstances under which the need for Humanitarian Intervention is irrefutable, and the means of intervention which would make it internationally «Just».

Cover Of The Week

China and America The odd Couple The economist feature article discusses the relation between China and the United States which many may call odd. «America should be more confident in its dealings with its closest rivals» this is the article›s advice. In many respects the two countries are «in the same bed». Their economies are integrated; America is the world’s biggest debtor and China its biggest creditor. And the world is facing many problems, from climate change to the economic recovery, that demand both super powers to work together. Issue 1530


In Brief - Letters


Paved With Good Intentions I enjoyed the article, «A road paved with good intentions…Political Money and economic reform». It is like a warning bullet that stresses to what extent the issue is very dangerous. In depth and smoothness, the writer made us realize that the ordinary people are the first victims of inflated performance of banks and banks› endeavors to achieve the most possible gains through unprecedented promotion. We currently experience this state in Egypt since we deal with banks in all fields due to intensive promotion campaigns of banks. This is very clear in different fields especially in real state sector.

Mohamed Al-Damanhouri An architect

The Talk of the Poor The issue is not about succession, the real issue is whether he reaches presidency in a democratic way or not because Jamal Mubarak is an Egyptian citizen who has a constitutional right like everyone else to be a presidential candidate on the condition that he receives no special privileges because he is the president›s son. In this case if he is a candidate in the elections and he wins it fairly and democratically without fraud then it›s his fair right to be the president of Egypt

Ahmed Mekawy 30 October, 2009

Manipulating religion I fully agree with Dr. Mohamed Sayed Tantawy, Sheikh of Al-Azhar. He thought that Sunna and the Shiite are Moslems even though the Shiite do not follow the Prophet Mohammed (Peace Be Upon Him) and insult the Sahaba starting with Ab Bakr, Omar and Othman and Aisha the prophet›s wife…etc. Tantawy was right when he declared that Iran employs the Shiite doctrine to control the Arab region including Egypt and Saudi Arabi. Recently Iran interfered in Yemen to cause more disturbance and riot. Momen Al-Nazawi Egyptian Journalist.

Dubai Metro It is a great achievement that government introduced this development into Dubai. UAE always seeks to support and help their citizens, enable them to reach their homes and work safely and quickly. It does its best to make transport more easier. Concerning the touristic promotion, I think this metro will be a big positive step because it will encourage tourists to visit Dubai. It is a very safe means of transport. Ahmed Al-Rozaiki UAE 16

In Brief - Magazine Round Up

Issue 1530


30 October, 2009


Issue 1530



30 October, 2009


The State

of Hamas By Rashmi Singh

Issue 1530



The State of Hamas

The Challenge of Administering the Gaza Strip Rashmi Singh Hamas’s violent takeover of the Gaza Strip in June 2007 put it in charge of administering 1.5 million Palestinians under conditions of political and economic siege. Commendably, not only has the group managed to survive in this situation of extreme pressure but even more surprisingly it has managed to consolidate its regime in Gaza through the systematic establishment of internal order and security – the benchmarks of its administrative rule on this 365 square kilometre piece of land. It has also used multiple revenue streams to fund its government infrastructure so as to avoid a complete economic meltdown. However, as Israel keeps the borders sealed the economic situation is progressively deteriorating. Gaza not only remains a challenge to administer but remains a time bomb just waiting to explode.

Dismissed Palestinian Prime Minister and Hamas leader, Ismail Haniyeh,waves to his supporters during a mass rally in Gaza City, Gaza Strip. Š Getty Images

30 October, 2009


Features On 25 July 2006, the Islamic Resistance Movement (Hamas) won the Palestinian national elections. While this electoral victory was the culmination of a long process of progressive political integration it was met by consternation, not only on the part of Israel and the international community but also by its internal rival, Fatah. Israel and the Quartet (US, EU, UN and Russia) responded by attempting to subvert the Hamas-led government through political and economic isolation while simultaneously empowering Mahmoud Abbas with this hope that this would not only force Hamas towards a more moderate stance but also to discredit it to the point that the Palestinian people would voluntarily oust it from power. Fatah, long-use to political supremacy, was unable to accept its electoral loss and also blatantly attempted to subvert Hamas’s ability to govern. An increasingly bloody power struggle ensued with both factions mobilising armed militias, stockpiling weapons and resorting to killings in the Occupied Territories. By June 2007 clashes between the two factions degenerated into an all out struggle for the control of the Gaza Strip and in under a week Hamas overran PA security installations and key Fatah centres to take control of the Gaza Strip. In the two years since this violent putsch Hamas has managed to consolidate its hold over Gaza despite its continued political and economic isolation, a deteriorating security environment and a host of other challenges. External challenges to administering Gaza have come in the form of the pressures exerted by the West Bankbased PA which, immediately after the takeover, boycotted security, judicial and other government sectors in Gaza and steeply curtailing its administrative links with the Hamas government. It also urged PA employees in the public sector to halt working or risk being struck off the government payroll, sought to deny the Hamas government revenue by declaring a tax-holiday across Gaza and made only intermittent salary Issue 1530

payments to non-essential public sector staff (such as hospital cleaners and municipal workers). In addition, the West Bank-based PA occasionally interrupted Gaza’s fuel subsidies and according to the International Crisis Group even pressured donors to postpone new Gaza projects. Hamas’s other external challenges have included the Israeli blockade which banned exports, sharply limited imports and disallowed the passage of over 100,000 Gazan labourers into Israeli territory. In fact by late 2007 Israel, in response to continuing and intensifying Palestinian shelling from Gaza, had further reduced food supplies, slashed fuel imports and restricted foreign currency supply – a policy which with minor shifts holds till today. As a result, Gaza’s manufacturing, construction and transport industries have been devastated and the bulk of its private sector workers laid off. Hamas has thus come under increasing pressure to break the blockade in order to kickstart Gaza’s collapsing economy. Consequently, its ability to govern Gaza is heavily dependent these two external forces – i.e. upon the Israel lifting the blockade on the one hand and the PA releasing funds for the public sector in Gaza on the other. Within Gaza, Hamas has also had to overcome a number of obstacles including Gaza’s powerful and heavily militarized network of clans and families and various other party militias. These militias have not only included traditional secular rivals like Fatah but also other Islamists like the Palestinian Islamic Jihad (PIJ) and increasingly a host of proAl-Qaeda groups, including most recently the Jund Ansar Allah. Yet despite such formidable challenges Hamas has not only survived but also managed to consolidate its regime. It has done so by choosing to focus on the factors it can control, i.e. its internal challenges, while continuing to behave like a resistance movement towards those it cannot, i.e. the external influences as exercised by Israel and the PA. In light of continuing sanctions and given how strongly security issues

resonate with the population, Hamas has used security to demonstrate its governance credentials in Gaza and it has achieved relative internal order by establishing an unchallenged monopoly of violence using its reorganised security apparatus. The Gaza blockade implemented by Israel and international actors with the hope of isolating and eventually ousting Hamas has thus failed to weaken the group and has instead facilitated its ability to govern unimpeded while simultaneously marginalising the more moderating influences within the group. While the Gazans may fault Hamas for being unable to end the siege they also blame Israel for imposing it, the international community for supporting it and Fatah for acquiescing in it. As a result, Hamas has been free to remake the political landscape of Gaza and consolidate its position and all this by making internal security and the use of force the backbone of its administrative rule in the territory. Security as a Means of Political Survival and Consolidation The tone of how Hamas would administer Gaza was set during its brutal takeover of the territory in June 2007. The confrontation leading up to the putsch was itself triggered by Hamas’s security concerns as Fatah insisted on retaining control over the security apparatus in Gaza in the face of Hamas’s determined efforts to bring these security forces under its own authority. Knowing that its position in power would never truly be secure unless backed by force, Hamas also sought formal recognition for its Executive Support Force (ESF) – a force that was set up after its 2006 electoral victory and which is now the Gaza police. The resulting takeover itself was remarkably violent and the internecine bloodshed accounted for more Palestinian lives in 2007 than the conflict with Israel. Unlicensed public assemblies, particularly if linked to Fatah, were seen as a disturbance to the peace and dispelled often through the use of live ammunition. Small 23

Features acts of dissent were also brutally repressed often with the use of disproportionate force. As Hamas targeted rival security groups and Gaza’s civil society, human rights organisations reported that Gaza’s amputee population doubled in four days. Unwarranted detentions, summary executions and torture have come to characterise both Hamas’s takeover and subsequent campaign to gain control of the territory. What has resulted since is a seizure of all Gaza-based PA institutions, the systematic quashing of political and civil opposition, a strengthening regime of censorship and surveillance and a consolidation of Hamas’s security apparatus which is unashamedly utilised to implement these changes. Thus, the Qassam Brigades, Hamas’s paramilitary wing, have been transformed from an underground guerrilla force into a uniformed, disciplined and effective military force responsible for suppressing armed groups within Gaza and also protecting it from external attacks. Hamas has also reformed the ESF into three branches responsible for managing Gaza’s internal security: the Civil Police, the Internal Security Forces (an intelligence agency) and the National Security Force (a border police force). In short, it has established and maintained administrative rule in Gaza by acquiring an undisputed monopoly of violence which has given it the ability to control an area hitherto run by competing clans and rival militias. While there has certainly been a dramatic decline in internal chaos as a result the popular response has been mixed: while some Gazans feel relief at the restoration of internal law and order others continue to live in a state of distrust, anxious about Hamas’s hegemony and fearful of its use of force and violence. At least some of these fears are justified as Hamas has also used these transformed security forces to clamp down on any challenges posed by competing militias and clans to consolidate its control over Gaza. Clans had steadily amassed power in Gaza since the second intifada when Israeli incursions resulted in a rapid weaponisation of 30 October, 2009

families which stepped in to provide military protection and economic support where the government infrastructure could not. However, after the takeover Hamas launched a campaign to dismantle the economic and military clout of Gaza’s clans. Families were, often forcibly, disarmed, their informal welfare economy was regulated and family associated criminal activities such as kidnapping, car theft and drug smuggling were sharply curtailed. Declining clan influence has reinforced Hamas’s ability to govern Gaza effectively and the resulting stabalisation and pacification of society has been welcomed by many in the Gaza Strip even though some observers accused Hamas of pitting clans against one another in order to consolidate their party’s rule. Hamas’s ability to effectively administer Gaza has been further

The Qassam Brigade, , Hamas s paramilitary wing, have been transformed from an underground guerrilla force into a uniformed, disciplined and effective military force responsible for suppressing armed groups within Gaza and also protecting it from external attacks. bolstered by bringing various armed militias under control. The flight of Fatah’s Gaza-based leadership during the takeover had left the movement divided and directionless and its militia demoralised. Even so, some within Fatah adopted a strategy of armed struggle and operating under a diffused leadership resorted to tactics reminiscent of those Hamas had used in the first intifada, i.e. wall graffiti, shootings and firebombings on the one hand and an escalated targeting of Israel on the other with the hope that the latter

would provoke a military response against Hamas. Hamas reacted by confiscating weapons, arresting politicians, security personnel and suspected insurgents and violently suppressing all those either associated with the movement or suspected of supporting/ sympathising with it. As a result, the challenge posed by Fatah within Gaza was effectively, albeit brutally, crushed. Islamists groups such as PIJ also constitute a key challenge to Hamas’s position as the principle arm of the Islamic national resistance and it has tended to curb their activities by confiscating weaponry, monitoring and limiting training exercises and on occasion forcefully taking control of their mosques. At the same time, while Hamas has stringently restricted the use of force by militias within Gaza it has mostly turned a blind eye to their activities against Israel and consistently shied away from either curbing rocket fire into Israel or dismantling the rocketmanufacturing industry that makes these attacks possible. In doing so, it has made clear that it has little to gain by persuading these militias from attacking Israel, especially in light of Israel’s continued siege and military incursions into Gaza. At the same time, in controlling militia activity within Gaza, Hamas has also clearly signalled that it will not tolerate any obstacles to its internal authority and control. However, Hamas has typically adopted noticeably harsher measures against the more radical Islamist factions recently appearing on Gaza’s political landscape. The August 2009 crackdown on Jund Ansar Allah, for instance, was one of the most violent incidents in Gaza since the Israeli offensive Operation Cast Lead and symbolised Hamas’s deep intolerance towards any internal political challengers, especially those who could be even loosely linked to a wider SalafiJihadist ideology. This stance may be rooted in Hamas’s rejection of repeated Al Qaeda attempts appropriate the Palestinian cause and gain a foothold in the Territories. Moreover, though their allegiances and pedigrees remain 24

Features unclear, Hamas may also fear that these radical factions could potentially supply Al Qaeda with inroads into Gaza and in doing so open it to unprecedented Israeli and international intervention, thus altering the conditions under which it is has so successfully established and strengthened its rule. The Unrelenting Economic Challenge: A Deal Breaker? While this focus on internal security has been the benchmark of Hamas’s administrative programme in Gaza it has been unable to force Israel to lift the blockade imposed after the 2007 takeover, despite repeated efforts to do so, as seen in the January 2008 Rafah breach and then again in its escalated shelling of Israel that eventually lead to the December 2008-January 2009 Israeli Operation Cast Lead. This blockade, as mentioned above, has generated unprecedented macro-economic compression in Gaza. The UN Relief and Works Agency in Gaza recently reported that the number of Gazans considered «abject poor» had tripled to 300,000 this year, i.e. one in every five Gazans. Under these conditions, Hamas’s principle economic goal has been that of survival. At the same time, the economic sanctions and the resultant collapse of the private sector have been a mixed blessing for Hamas authorities. Thus, on the one had the slow strangulation of Gaza’s economy and the resultant poverty has created a humanitarian crisis, engendered popular discontent and limited Hamas’s ability to govern yet on the other hand it has also allowed Hamas to achieve economic dominance and effectively tightened its grip on Gaza. A host of factors have allowed Hamas to finance itself and its activities and prevent a total economic meltdown. Firstly, despite deep hostility and many irregularities, the Fayyad-led PA continues to be the largest contributor to Gaza’s salary bill and therefore the main force moving the Palestinian market. Given that almost 50% of Gaza’s Issue 1530

workforce is on a government payroll this contribution is a crucial and indispensable source of economic support for the Hamas government. Ironically, it was the Hamas takeover of Gaza and the restoration of nonHamas governance in the West Bank which motivated Israel to resume the customs transfers that replenished PA coffers and enabled the PA to assist Gaza. Secondly, the UN and other international donors have continued to pump money into Gaza for welfare operations while also substantially increasing their humanitarian assistance to compensate for the dramatic drop in development aid since mid-2007. According to the International Crisis Group, UN agencies spent over $350 million in Gaza in 2008 alone. The Hamas government has also found innovative new ways to generate additional funds. For instance, in the initial months after the takeover the government charged approximately $400 as bail for those held on suspicion of anti-Hamas activities. Observers have noted that foreign donations have also contributed significantly to the revenues of the government in Gaza. Iran, for one, has made sizeable contributions and along with various other Gulf states the Hamas government is thought to have received as much as between $150 million and $200 million in revenue from foreign donations. Finally, Hamas has also benefitted from establishing a monopoly over and regulating the extensive tunnel smuggling between Gaza and Egypt. In an environment where the sanctions prohibit everything but a limited list of humanitarian items these tunnels have become vital lifelines for Gaza. Hamas not only controls the majority of these tunnels but also regulates prices and collects taxes on all goods passing through them. According to one shop owner in Gaza, a value-added tax of 14.5% is levied on every item that comes through the tunnels. Conclusion In the two years since its takeover the Hamas has not only managed to successfully “administer the

crisis” but also consolidate its power and cripple potential foes. Most ministries and public sector institutions have been fully purged of Fatah loyalists and replaced by Hamas sympathisers and a somewhat stable, albeit brutal, regime established. Hamas’s model of governance seems to be based on securing internal order and regime consolidation on the one hand and refusing to compromise on the movement’s key principles with regards to its external challengers, Israel and the PA. However, even though Hamas has managed to survive under circumstances of extraordinary pressure Gaza remains volatile. For one, the present economic situation is neither viable nor sustainable in the long-run. Hamas’s attacks on Israel in the hopes of forcing it to lift the siege and the resulting ‘War in Gaza’ have not alter the situation on the ground: the crossings remain largely shut, reconstruction and rehabilitation is progressing at a snails pace, rockets continue to be fired into Israel and tunnels from Egypt are still being used to smuggle weapons in. It is also clear that unless the blockade is lifted Hamas will keep launching fresh rounds of attacks upon Israel and it is only be a matter of time before Israel mounts a new offensive in response. Moreover, without a rapprochement between the Palestinian factions in the West Bank and Gaza, the international community is unlikely to permit Gaza’s recovery for fear of assisting Hamas. At the same time, neither Hamas nor Fatah will relinquish their exclusive holds on power so easily. But Palestinian reconciliation is the key for without it the siege will continue and the deepening humanitarian crisis in Gaza will eventually delegitimize Hamas’s other achievements – and in the end stymie all its efforts to govern Gaza.

Rashmi Singh - Research Fellow at the School of International Relations, and Fellow at the Center for the Study of Terrorism and Political Violence, St. Andrews University 25

Debate The Iron Grip

Two Years of Hamas’ Politics Hamas has been in control of the Gaza Strip for the last two years, if you count the electoral victory back in 2006, during which time several unpredictable and dramatic things happened. The economic situation deteriorated to an unprecedented extent. Israel continuously attacked Gaza and caused heavy damage to its people and infrastructure. Most notably, Hamas militarily confronted many of its opponents through various methods, including killing, imprisonment and cooptation. Yet, Hamas’ tight rule of Gaza remains intact. What are the means and methods by which Hamas governs Gaza? How can we evaluate Hamas as a government in Gaza? Does Hamas have enough resources to continue governing Gaza? These questions and many others are the subject of this debate.

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The Stable Gaza Two years under the rule of Hamas Mustafa Al-Souaf would be exaggerating if I said that Gaza has not enjoyed a moment of internal security and stability better than what it is experiencing right now, under the rule of the Islamic Resistance Movement Hamas, which took control of Gaza in the aftermath of the events of June 14, 2007. This was in contrast to what was expected to become of Gaza, considering the state of division, rejection, and siege by the international community and Arab world.


But if you were living in Gaza, and wandered around its streets, you would become aware that conditions are completely different form the image broadcast by the media about the situation in the Gaza Strip. This does not mean that Hamas’ rule is Platonic or ideal or not without its deficiencies. There has been international opposition to Hamas, due to its Islamic affiliations and its strong ties with the Muslim Brotherhood; a rejection which has made interpreted Hamas’s take over as a bloody caesarean operation made without an obstetrician. Yet, despite this rejection and the mistakes Hamas made, there was a general acceptance of its policies by the public. Citizens were willing to listen to its justifications and excuses. The reason behind this was the predecessor of Hamas’ government. The period in which that pre-Hamas government ruled was a painful period and an unacceptable experience to the Palestinian citizens. Despite the long opportunity that was given to that government by the citizens, it failed to bring them security and justice. Instead it created a class struggle within a community that was not willing to tolerate or bear injustice anymore. Gaza suffered from a lack of security. Death was a common phenomenon, conflict was a way of settling matters, and salvation was a hope and a matter of public opinion. In the hope that conditions might change, Hamas enjoyed wide public support, which was one of the main reasons behind its continued success. Under the rule of Hamas, the Palestinian citizen was able to enjoy personal and public safety. He felt that his house, his wealth, and his family were completely secure and that his life was no longer endangered. Such security was evident in the form of personal freedoms which the citizens gained. Perhaps one of the most important observations made by militants in the Gaza Strip is the spreading of the “Unveiling” phenomenon. What they 30 October, 2009

meant by “Unveiling” is that some women and girls have ventured out into the streets wearing non-Islamic clothes, despite being governed by an Islamic government. They were quite confident that nobody would stop them or arrest them, and that Hamas would will not prevent them from wearing the clothes they chose, or force them to wear certain clothes without first paving the road for such an act. Hamas would not try to make a change of culture without first raising awareness through education and guidance. This is only an example which I have mentioned to clarify how the Palestinian public opinion is satisfied by Hamas’ rule of the Gaza Strip. This consent will take us straight to the political situation. We will discus how Hamas was able to face the international and regional siege without having any protests regarding bad and worsening living conditions inside the Gaza Strip. Perhaps the greatest example that can be cited is this wide public support of Hamas in the face of the recent Israeli attack on Gaza. Such public steadfastness has caused Israel to fail in achieving its targets, despite the extent of Israeli terrorism against civilians, and the massive destruction suffered by all sectors of society. Hamas was able to achieve such success because the Palestinian citizen had realized that Hamas was living the same crisis he was living. It was suffering from the same agonies resulting from siege. Citizens felt that Hamas’ government may have established some kind of social justice and equality between the people, in contrast to the previous period. Thus, for the first time citizens and governors were equal. There were no privileges to differentiate between the governor and those he governs. When there was a shortage in petrol, both the cars of the officials and those of the ordinary citizens ran out of fuel. When there was no more gas for cooking, the ordinary citizen was not the only one to revert to the use of primitive cooking tools. Government officials too returned to burning wood and using the old kerosene stove in cooking. But does that mean that Hamas’ government cannot be accused of any wrongdoing? Anyone who believes so or tries to say that it doesn’t is certainly mistaken. The government of Hamas have gone too far. But there is a difference between a general state of governmental

corruption, which is protected by the issuance of certain laws, and that of individual wrongdoing, for which an individual is held accountable by the law. Despite the irregularities committed by the government of Hamas, this can be a point in its favour. The citizen now feels that everybody is accountable and that there is general dissatisfaction at the leadership level regarding these wrongdoings and mistakes. As a result, citizens have stoped harassing Hamas about its mistakes, as long as it is tracking them herself. The proof of that; is that these mistakes and irregularities are constantly being reduced, making the Palestinian citizen feel more reassured. The different pressures at the domestic, Palestinian, regional, and international levels, which the government of Hamas has been facing, are capable of demolishing more powerful and experienced regimes in the field of governance and administration. The government of Hamas is an emerging government in the world of politics. It has fallen into a maze of challenges, plots, and attempts aiming at excluding it from governance, and throwing it out of the Palestinian political arena. It is constantly being abused, boycotted, and placed under siege. It has been labelled a terrorist government and included in the list of terrorist governments. But despite starvation, war, destruction, bloody internal disputes, and organized protests, Hamas’s government was able to address these matters without disturbing internal security. With such stable internal security, Hamas was able to face the siege, starvation, conspiracies and military attacks. The Palestinian citizen realized that under the rule of Hamas his dignity would be preserved, his security would be maintained, and his enemy would be defeated. At the same time, The Palestinian citizen also realized that the alternative to Hamas’ rule would be death, humiliation, and misery. Therefore, he accepted Hamas’ mistakes and wrongdoings and gave it his full support. He did not protest Hamas as was expected and planned by all the international, regional and Palestinian parties. I think that the citizens of Gaza will go as far as possible in supporting Hamas. Palestinian writer and political analyst 28


On the Oslo Road From ‹resistance» to «power» to «settlement» Muhammed Gamal Arafa lthough 27 months in the lifespan of most states or governments do not mean much, this is not the case for the Islamic resistance movement’s (Hamas) rule of Gaza Strip, since its famous coup against Fatah forces and its subsequent full control of Gaza in June 14, 2007. Since then, the movement has witnessed three stages and swings, which started with resistance alone and then slid into an intermarriage between power and resistance, and it is about to conclude by combining «power, settlement and resistance.»


The keenness of Hamas to combine power and resistance is now threatened by the political game limitations that end ultimately with political negotiations to reach a settlement. Hamas was armed with a landslide victory in the January 2006 elections which gave it approximately 60% of the seats of the Palestinian parliament. The movement also denied that its action was a «coup», but rather an «abortion» of a coup set by the United States in favour of Fatah, a fact that was confirmed by the American «Vanity Fair» Magazine in its April 2008 issue, with documents. It is true that while Hamas was keen to combine power and resistance in the past two years, it also sought not to relinquish firm beliefs and concepts that pertain to fundamentals of the conflict, and assert the right of resistance. But the fall of Gaza under a tough Israeli siege and successive attacks, imposed a kind of compulsory «truce» on Hamas. But this truce in turn created internal and external challenges to Hamas, including a clash with the rest of the resistance branches in Gaza, to prevent them from violating the political truce agreement with the enemy. This resulted in clashes, especially with the Salafi resistance movements, such as the «Jund al-Ansar Allah» group and «Army of Islam» group. The clashes killed hundreds of people and defamed the movement›s image and made it appear like a repressive authority which defends truce with the occupation at the expense of the lives of Gazans, regardless of the flaws of these Salafi movements. Moreover, the stifling siege and the Arab and international pressure forced Hamas to cling to whatever political support they had available, including contacts with Europeans and Americans. Although the West›s offer to engage with Hamas Issue 1530

is an old American strategy that was followed by Fatah and Arafat to «soften up» the resistance, Hamas considers this approach- implemented after the failure of the January 2009 aggression to destroy the movement›s infrastructure- to be different in their case. The movement was kept strong and resilient after more than two years of a tight Israeli blockade, military operations and international pressure. It was not forced to surrender or sought to enter into dishonest negotiations. This prompted the West - not the movement - to engage in a series of meetings with the political leaders of Hamas. It is true that the western-American intentions would seem evil, and seek to manipulate the movement politically. The same approach was applied by Fatah by involving Hamas in political work, and pushing it gradually to abandon armed activity. But the behaviour of Hamas leaders asserts their awareness of these Western goals, and their keenness to combine power and settlement along with resistance, as the movement enters its third year in Gaza. The Western approaches towards Hamas have gradually developed since it won the January 2006 elections. They first tried to drag it to a political settlement with Israel - under the guise of Palestinian President Mahmoud Abbas – and then forcing an economic blockade on it and stifling its funding, hoping that the Gazans would revolt against it or the movement would renounce power. The plans even included trying to oust the movement through the famous American scheme of Dahlan. When all these western plans failed, they tried the policy of blockade and pressure. And finally they resorted to using the Israeli military force, during the last January aggression - to end the rule of Hamas. However, all these plans have not succeeded, but on the contrary they increased the movement›s strength, which stood firm despite the Zionist war crimes in Gaza. There is no doubt that this perseverance - although the people of Gaza paid a heavy price for it with their blood and the deterioration of their living - was behind the West›s change of its strategy from the «stick» to «carrot». This strategy is based on the engagement with Hamas, and European and American officials

met directly and indirectly with the movement to lure it into the trap of political settlement. The aim was to push the movement to change its policy and engage in the political process along with the Palestinian Authority. But so far, all these developments including the intrusion of Western political relationship with Hamas - have increased Hamas› political strength and made it a tough party that can not be bypassed in any equation or subject related to the Palestinian cause. The problem is that these HamasWestern meetings have conflicting objectives relating to the European endeavour - through the stick and the carrot - to involve the movement in the political process alongside the Palestinian Authority in Ramallah, while Hamas has different goals. Therefore, the main dispute between the two parties is the duality of resistance and settlement, which is rejected by the West and insisted upon by Hamas. However, the practical reality indicates a de facto freezing by Hamas of the resistance option in the future during these negotiations which seek a settlement. This settlement targets the exchange of prisoners, opening of crossings, or redrafting a truce agreement that Hamas needs in the coming phase. This truce would enable the movement to provide materials for the reconstruction of Gaza, and improve the conditions of the people to revitalise the movement›s popularity at a time when the Palestinian presidential and parliamentary elections are approaching next year. The equation of Hamas in its first year of rule in Gaza was thus limited to the resistance only, an element for which the movement fought to keep it going. With the movement entering its second year in power, Hamas was forced to combine power and resistance. But with the third year, and after all the attempts to exclude it through blockade, coup, or military invasion failed- the movement is forced to combine resistance, power and settlement together amid fears of its supporters that the Western luring succeeds with the movement like it did with Fatah. However, the movement leaders stress that they are aware of this scheme. Egyptian Political Analyst



A Government of Slogans

Youth migration and suicide augur ill for Hamas , Hamas s reform platitudes: will they ever materialize?

Hani Habib


o one can deny Hamas its purely constitutional right to be at the helm of power in the Gaza strip and the West Bank. It had already won in impartial legislative elections that marked a unique electoral experiment in the Arab world. However, two years ago, the Hamas movement reversed its own values when it took up arms against Fatah to seize exclusive power in the Gaza strip, throwing the Mecca accord it held with Fatah into the archives of history. Over the past two years, the internal political arena in Palestine has become catastrophically divided, and undoubtedly Hamas is largely to blame for the current state of affairs. It behoves us to evaluate the movement from a political point of view. But we will try to bypass politics, however difficult this might be, and concentrate on other non –salient aspects of Hamas›s administration of the Gaza strip. It is well-known that the Hamas movement, which gained a welldeserved victory in the legislative elections four years ago, raised the slogan of «change and reform». In this context, we will focus on how far this slogan has been translated into concrete reality in the political and economic realm of the Gaza strip. If it was true that the Palestinian constitution grants the government a four-year mandate to be followed by new elections, this does not mean that this mandate is an absolute right, but rather depends on the extent to which the government has been true to its declared principles. For a government that cannot realize its declared goals can be forced to step aside, or may fall before the end of its constitutional mandate, in this case early elections are held. The Hamas movement might justify its failure to fulfil its slogan, if it ever admits this failure, by citing the Israeli and international blockade imposed on the Gaza Strip, and by pursuing a «resistance» course and the need for the Palestinian people to pay a price 30 October, 2009

for pursuing this course. Here, we admit that the blockade was imposed before the control of Hamas over the Gaza Strip. However, this blockade has not been comprehensive and its direct effects escalated after the movement ruled and administrated the Gaza Strip unilaterally.

the Palestinian scene, especially in the Hamas controlled Gaza Strip. These three phenomena are the increasing migration of young Palestinians, the growing number of young people who have attempted or actually committed suicide, and the condition of human rights in Gaza.

Moreover, the talk about the «option of resistance» passes only as a sheer slogan, because the principles of any resistance depend on the strength of the national unity of the people who resist.

Gazans thinking of emigration: Last August, a poll, conducted by the Near East Consulting company, showed that 48 percent of the people of Gaza are practically thinking of immigrating. Also, in a previous poll, which was conducted a few months ago, the percentage of those who were practically thinking of immigration ranged from 38% - 40%.

Amid the divisions, the Palestinian scene witnesses an unmatched split in the history of the Palestinian national struggle. It is noticeable that this division is not only limited to the differences between Hamas and Fatah movements, but also between Hamas and all other Palestinian factions, including Islamic-oriented groups such as the Islamic Jihad movement. Moreover, the Palestinian struggle scene is experiencing a sense of calmness on the Gaza Strip›s borders with the Palestine territories occupied in 1948. This calmness is the longest surviving truce compared with the previous declared truces. It was observed that there was a real undeclared calmness that preceded the Israeli war on the Gaza Strip and became more firmly established after the war. The talk about the option of resistance remained a mere slogan, and a mysterious action that is done from time to time by other factions, as a form of rebellion against the administration and the rule of Hamas, rather than in response to a national duty of struggle. After drifting into such a political assessment, without intending to do so, let us once again take a very brief view of the economic and social conditions of the Palestinians in the Hamas -controlled Gaza Strip over the past two years. This can be done through examining three important phenomena that are considered part of

The phenomenon of suicide: In midAugust, recently published figures that were recorded by security and medical sources in the Gaza Strip have showed a noticeable increase in the number of Gazans who have attempted suicide. Seven deaths resulting from suicide attempts out of 95 attempts during the first half of this year were recorded. Such a phenomenon was not known to exist in a religious and conservative community. The condition of human rights: We will not make a comprehensive study of the violations of human rights. We will only discuss preventing citizens from moving freely. Gazans have been prevented from moving freely between the two wings of the Palestinian homeland: the Gaza Strip and the West Bank. These three phenomena are part of the growing frustration, severe poverty, and unemployment resulting from a continuous blockade. The reason behind the continuity of this siege is the Palestinian internal division. Hamas, with its absolute control over Gaza, is largely responsible for such an internal division.

Palestinian Political Analyst 30

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30 October, 2009


Danger At Home

Radicalization in the Gaza Strip By Raphaelle Camilleri Issue 1530



Danger at Home Radicalization in the Gaza Strip Raphaelle Camilleri The August clash between a radical Islamist militant group and Hamas forces in Rafah offers a rare glimpse into the power struggles currently taking place behind the scenes in the Gaza Strip. In recent months, Hamas has seen its legitimacy increasingly contested by al-Qaeda inspired radical groups. The magnitude of this power struggle is still unclear, but it certainly carries potential for wide repercussions in Gaza, Israel, and the rest of the region.

ŘŒ Palestinian fighters from Hamas armed wing the Ezzedine al-Qassam Brigades tote their rifles as they take part of the funeral of in the southern Gaza. Š Getty Images

30 October, 2009


Ideas n 15 August 2009 Hamas fighters stormed the mosque of radical cleric Abdel-Latif Moussa, the alleged leader of Jund Ansar Allah, a recently-established Islamist group based in Rafah. Hamas’s intervention came a day after Moussa made a defiant sermon during Friday prayers, in which he declared Gaza an “Islamic Emirate” – a de facto challenge to Hamas’s authority in the territory. Earlier that week, Hamas security forces had already made an unsuccessful attempt to detain the group›s military commander, believed to be Khaled Banat, a Syrian national of Palestinian origin, also known as Abu Abdullah alMuhajir. Both Moussa and Banat were killed during Hamas’s attempt to quell the perceived rebellion, which left at least another 22 people dead.


The August clash was one of the most violent incidents involving rival Palestinian factions in the Gaza Strip since Hamas took power there two years ago. More importantly, it provided the clearest expression thus far of the bloody power struggle that has been pitting Hamas security forces against radical Islamic groups in recent months. These groups have been increasingly critical of Hamas’s policies, with some going as far as labelling it ‘not Islamic enough’. This situation is somewhat ironic, in that Hamas (an Arabic acronym for “Islamic Resistance Movement”) has traditionally flaunted its Islamic credentials to garner popular support against its more secular Fatah nemesis. The emergence – and growing popularity – of radical Islamist groups in the Gaza Strip thus threatens to undermine Hamas’s political authority in the territory, while also stripping it of its traditional legitimacy as Palestine’s ‘Islamic Resistance’. Operating initially in Rafah and Khan Younis, Jund Ansar Allah spread rapidly throughout Gaza. Until Hamas’s raid on the Bin Taymimah mosque, it claimed to have 500 members, including a number of foreign fighters. The group gained some prominence in June when it staged a spectacular (if failed) attack on horseback against Nahal Oz, one of the border crossing points between Gaza and Israel, purportedly with the aim of abducting an Israeli soldier. The raid was the most serious attack on an Israeli military position since the end of the Gaza offensive in January. Yet Jund Ansar Allah is only one of a number of radical al-Qaeda-inspired groups to have appeared in the Gaza Strip in recent years. The most prominent of these until now was Jaish al-Islam, who took part in the capture of Israeli soldier Gilad Shalit in 2006 and also claimed responsibility for the kidnapping of Alan Johnston in 2007, BBC›s Gaza correspondent.

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These various groups, which usually share strong Salafist religious credentials, advocate a return to a purer form of Islam, calling for the full implementation of Sharia law and rejecting democracy as un-Islamic. More importantly, they have strongly criticized Hamas for abiding by the terms of the ceasefire implemented at the end of the latest Israeli offensive in January, and have been very vocal in denouncing Hamas’s timid political overtures towards Israel. They have managed to attract young Gazans with a more radical interpretation of Islam, and with an uncompromising message of how to fight Israel and its Western allies. Jund Ansar Allah, in particular, has said it wants to unify the various Islamic militant groups, including Hamas and the Islamic Jihad, to fight more effectively against Israel.

Although the Hamas Charter calls for the eventual creation of an Islamic state in Palestine and the obliteration of Israel, Hamas leaders have in recent years made repeated attempts to tone down their antiSemitic rhetoric and adopt a more conciliatory approach towards Israel. The growing adherence of young Gazans to more extreme forms of political Islam is symptomatic of the disillusionment many Gazans feel as a result of the worsening of living conditions in the Strip since the last Israeli offensive. In their view, the established Palestinian parties and militant groups failed to promote the Palestinian cause and to improve living conditions for the local population. Although Hamas has traditionally been well-regarded by Palestinians for its efficiency and perceived lack of corruption compared to Fatah, recent public opinion polls show that Palestinian support for Hamas in the West Bank and Gaza is waning. Less than 19% of those questioned in July supported Hamas, in comparison with 27% when the last survey was conducted in January 2009. Gaza residents are also disgruntled over the failure of the Egyptian-mediated reconciliation talks and the continued blockade of their territory by Israel. At the moment, though, Hamas still controls the majority of weapons

smuggling across the Gaza-Egypt border, and has banned militants from other groups from carrying weapons in the Gaza Strip. That the militants from Jund Ansar Allah were relatively well-armed points to the possibility that at least some of them were former militants from other groups, including Hamas. This is likely to be a worrying indication for Hamas. Unless its leadership can provide real and positive change for the Gazan population, it is unlikely to be able to reverse the tide in the long-term. Indeed, Hamas’s abrupt and heavy-handed response to Moussa’s perceived sedition is a clear indication that the Hamas leadership is on the defensive, and keen to counter perceived dissent decisively, before it gathers more pace in what has become fertile ground for more radical forms of ideology. Yet dealing with such “renegade” groups has presented Hamas with an unenviable dilemma, and few options. As Palestine’s ‘official’ Islamic Resistance Movement, Hamas faces opposition from within its own membership and support base if it cracks down too hard on groups for either engaging in acts of resistance against Israel or activities presented as utterly Islamic – Hamas’s raison d’être. Although the Hamas Charter, issued in 1988, calls for the eventual creation of an Islamic state in Palestine and the obliteration of Israel, Hamas leaders have in recent years made repeated attempts to tone down their anti-Semitic rhetoric and adopt a more conciliatory approach towards Israel. Indeed, Hamas leaders have gone as far as recognizing the inevitability of the establishment of an Israeli state alongside a Palestinian state and offering a 10-year truce (or ‘hudna’) to Israel. For example, in an editorial in The Guardian in January 2006, Khaled Meshaal, the chief of Hamas›s political bureau stated: “Our message to the Israelis is this: our conflict with you is not religious but political. We have no problem with Jews who have not attacked us — our problem is with those who came to our land, imposed themselves on us by force, destroyed our society and banished our people”. As things stand now, such statements are unlikely to find resonance in the ears of Gazans who are increasingly struggling to get by on a daily basis. Paradoxically, Israel might in the medium-term be tempted to extend a hand towards Hamas in order to counter the emergence of radical groups in the region. PhD candidate in the War Studies Department of King’s College in London


30 October, 2009



Tunnel Economics Interview with David Craig World Bank Director for the West Bank and Gaza

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People - Interview

Tunnel Economics Isolation, Sanctions and the Day-to-Day. John Nasir, Head of the World Bank’s Palestine Mission The economy in the Palestinian West Bank has enjoyed a rebound this year thanks to donor funds, an increase in remittances, and the closure of some Israeli-controlled checkpoints that had inhibited mobility between major urban areas. John Nasir is the Lead Country Economist for the World Bank in West Bank and Gaza, a position that affords him an intimate understanding of the Palestinian economy. He spoke to The Majalla about the revitalized West Bank, the deteriorating situation in Gaza, and what the Palestinian Authority and Israel must do to make economic recovery in Palestine sustainable:

An Israeli Armored Personel Carrier (APC) secures the area as the convoy of United Nations agency for Palestinian refugees © Getty Images

The Majalla: How would you characterize the scope and depth of economic recovery in Palestine? There has been a revival in the West Bank though not much of one in Gaza. In fact, the economy may have contracted in Gaza due to the closure of access points. The West Bank, meanwhile, is on track to see anywhere between 5 to 7 percent gross domestic product growth, which is consistent with projections by the IMF and the Palestinian Authority itself. This growth is coming from a low base, however, and it is not as high as we saw in other postconflict areas like the Balkans, 30 October, 2009

where growth soared to doubledigits after the fighting there. But we do see a resurgence, not only in real growth but in percapita GDP, which is important to an economy with a population growth rate of 2.7 percent. Q: What growth?



economy. The government used this money to not only pay salaries but also back salaries. Plus it paid arrears to the private sector and cut taxes. All in all, the PA reports its fiscal stimulus was equal to ten percent of the GDP.


We attribute it primarily to donor assistance. In 2008 the PA received some $1.8 billion in budget support alone. There was $1 billion in funds, an enormous amount of money, flowing in during 2007 alone. If you have a $6.5 billion economy and you pump $1.8 billion into it, you’ll obviously see an expanding

Q: And foreign investment? Is there growing interest in doing business in the West Bank? There has been a revival of investor confidence after two years of relative peace in the West Bank. There’s been some small-scale private investment and a lot of new housing, which makes sense now that salaries are being paid. However, we 38

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have yet to see the actual launch of major projects. A bellwether is the second Palestinian cell phone network, Wataniya. The Israelis have agreed to sign over the necessary bandwidth frequency but Wataniya says it is less than the 4.8 MHz it needs to provide adequate service. Wataniya is threatening to demand the return of its license fee, [equal to about $354 million], and should the project not go through it would be a severe blow to the PA’s fiscal position and serious blow to confidence. Wataniya estimates it could draw some $650 million into the West Bank and create 2,500 jobs during its first two years of operation. Tony Blair has pushed for this project to happen as well as a lot of other interested parties.

need access to external markets. There has not been in our opinion significant relaxation of movement for Palestinians goods outside the West Bank and certainly there is very little throughput between the West Bank and Gaza. The Israelis have imposed a “back to back” system between the two regions, similar to the Karni crossing at Gaza, where cargo is unloaded before departure, inspected by the Israelis, and then reloaded before it can be okayed for transshipment. The Israelis say they are working to make this process function more efficiently, but it is not like it was in the past, when any truck with yellow plates could simply move in and move out.

Other projects are stalled or delayed, largely because of political factors. A housing project in Riwabi has experienced delays and there is an industrial park in the north that appears to be delayed. When it comes to big projects, we don’t see anything major happening.

No one knows how many tunnels exist. You can’t survey the tunnel guys. We hear there are 900 to 1,000 of them, but that’s from press reports.

Q: Israel has also dismantled roadblocks and checkpoints in the West Bank, correct? The Israelis are no longer manning a lot of checkpoints and barriers to mobility. These easing steps have been welcome and helpful, though they could man them again if the environment changes. As of now it’s much easier to move around the West Bank. But that pales [as a factor in the recovery] when you compare it to this huge fiscal stimulus package.

Q: Are throughput rates rising or falling? You’d have to ask the Israelis and Palestinians. We’ve done some monitoring but we don’t have enough data to establish trends. We have seen a considerable rise in imports though, which would make sense given the increased demand.

Q: What more work needs to be done?

Q: Is most of that imported cargo from Israel?

For the economy to grow on a sustained basis, the Palestinians

Over 80 percent. Q: What is the economic

Issue 1530

situation like in Gaza? We have an office but to gather statistics you need a system. The Palestinian Authority has difficulty operating in Gaza. There are figures for what the Israelis allow to come in via Karni – mostly primary goods like cooking oil and foodstuffs, but everything else comes through the tunnels [that link Gaza to Egypt] and no one knows how many tunnels exist. You can’t survey the tunnel guys. We hear there are 900 to 1,000 of them, but that’s from press reports. Q: What would happen if those tunnels were shut down, as some in Israel and the US have been calling for? Would there be a humanitarian crisis? It would represent a serious blow to the Palestinian economy. The tunnels are extremely important. Q: So there has been no progress in Gaza but encouraging signs in the West Bank. How can the West Bank Palestinians build on their progress? There can be no sustained growth unless Palestinian products have access to external markets and internal resources, such as land, water, and things like adequate frequency for cell phone grids. Remember, 60 percent of Palestinian lands remain restricted to Palestinian development. Some of these restrictions were negotiated under the Oslo Accords but a lot has happened since then in the form of barriers to mobility and settlement activity.

Interview conducted by Stephen Glain 39

People - Profile

The Maestro of Difficult Missions Ahmed Al-Jabari - Military Leader of Hamas in Gaza Ahmed Al-Jabari has suddenly surfaced after years of clandestine military activity with Hamas. He has become one of the most influential leaders of the movement, with final say in its most important decisions.

Ahmed Al-Jabari with Mahmoud al-Zahar, one of Hamas co-founders, in a photo op days after of Fatah’s defeat in Gaza, July 2007.

urprisingly, Ahmed Al-Jabari never expected the Israeli rockets could reach his house in the Shuga›aya district in the heart of Gaza. He always trusted his skilful ability to carry out underground military operations, and the very cautious strides he takes, including the walls of secrecy that strictly encompassed his work. Clearly, AlJabari thought his multiple aptitudes would allow him to stroll freely and thereby deceive the Israeli Intelligence, who would be unable to track his whereabouts. But suddenly, on August 17th 2004, an Israeli rocket broke Gaza’s stony silence, aiming directly at his house.


At that moment, one of his relatives was visiting Al-Jabari. This visit, it was later discovered, had been tracked by Israeli authorities. The unexpected Israeli raid culminated , in the death of Al-Jabari s eldest

son, Mohammed, most of his guests, and left a slight wound in one of AlJabri’s legs. From then on, Al-Jabari did not have a peaceful night’s sleep. This failed assassination attempt was the first but it would not be the last, as it was followed by four successive attacks, the last occurring during the latest war in Gaza. Al-Jabari is now wanted by the Israeli authorities, and the Israeli military wants him dead or alive. They pursue him wherever he is, and have already managed to spot him more than once, but he has managed to escape. Al-Jabari always says to his fellow Hamas members, that he is no longer afraid of bullets or rockets. He knows that the date of his death is written on the warhead of an Israeli missile that hasn›t hit him yet. , It may be on its way, but he doesn t care anymore.

He is content to have spent half of his 45 years in armed resistance, during which he became part of the leadership of Hamas, , the second man in the movement s military wing, the Qassam Brigades, and one of its political decision makers. Being responsible for one of Hamas’ most notorious strategies– the abduction of the Israeli soldier Shalit – has made the name of Ahmed Said Al-Jabari surface once again. It made his name known to Palestinians and Israelis alike. AlJabri is solely responsible for making any decision regarding this issue. Hamas› leadership cannot take any negotiation steps concerning Shalit without first consulting Al-Jabari. They trust him, to the extent that he has the authority of determining the conditions for a negotiation with , Israel over Shalit. Hamas s leadership , believes that Israel s agreement to 40

30 October, 2009

People - Profile release 20 Palestinians in exchange for a one-minute tape recording of the soldier Shalit, is the biggest proof that a deal drawn by Al-Jabari can be achieved. What makes Hamas members more confident in Al-Jabari is the strong conviction they hold about his ability to deal with the Israeli Intelligence Agency. Their evidence of this is that Israel has failed over the past 3 years to determine the whereabouts of their soldier Shalit. The reason for , this, they hold, has been Al-Jabari s ability to hide the Israeli soldier in a secret place during the recent Israeli war in Gaza. One objective of this war was to find Shalit and release him from the hands of Hamas. But the war ended with Shalit remaining in captivity, or more accurately, in the possession of Al-Jabari, as not all Hamas leaders know where Shalit is being held. According to the sayings of some Hamas leaders, this was not the only impact the recent war on Gaza had on Al-Jabari. The war played a key role in giving him a special rank among the members of the movement. In fact, Gaza war has made the , movement s leaders, whether at home or abroad, pay more attention to his military ideas. This has also made the young members of Hamas take an interest in him. They now consider him a model of what a real military commander of Hamas should be like, in terms of discipline, minute accuracy, and his ability to “read the minds of others”.

, one of Hamas s leaders inside the prison. This period of his life allowed him to sit with the elderly leaders of Hamas who had a long history with the movement. One of these top leaders was Sheikh Ahmed Yassin, who stated that Al-Jabari benefited greatly from the time they spent in prison together. Two years after leaving prison, he became part of the political leadership of the movement. He was responsible for the Al-Noor Foundation, one of the most important institutions established by Hamas. This foundation is in charge of caring for the families of Hamas members who have been killed, wounded, or imprisoned.

Al-Jabari always says to his fellow Hamas members, that he is no longer afraid of bullets or rockets. He knows that the date of his death is written on the warhead of an Israeli missile that hasn›t hit him yet.

Al-Jabari, also known in Hamas as «Abu Mohammed», is a father of six children. He comes from a family whose origins extend to the city of Hebron. His career in the clandestine military field began when he joined the armed groups affiliated to Fatah in the eighties, and participated with them in armed operations against Israeli forces. One of his most important missions at that time, was throwing a grenade at an Israeli officer who was , working in the district of Shuga aya near the railway station. As a result of this incident, Al-Jabari was arrested in 1982, and spent the next thirteen years in prison. This was a turning point in his life.

From the moment he left prison in 1995, Al-Jabari played an important role in the military operations carried out by the movement. But he faced difficulties, as he was arrested again in 1998, although this time, by the Palestinian Authority. His detention lasted two years. Immediately after his release he was assigned by Hamas› leadership to assist Salah Shehadeh and Mohamed Aldahef, the commanders of the military wing,, in the reorganization of Hamas military action. Al-Jabari played the most prominent role in this task. He became the head of Hamas› military force, or the people›s army, formed by Hamas in 2002, for the purpose of confronting the Israeli incursions of the Gaza Strip. His leadership of this army was his first step in highlighting his military character, which made him popular among the members of Hamas.

With the start of the first Palestinian «Intifada» and the emergence of the Islamic Resistance Movement, «Hamas» Al-Jabari joined the movement while he was still in prison, and before long, he became

Since then, Al-Jabari has become a prominent figure among the leaders of the movement. He became one of the pioneers , in the field of developing Hamas s military action. He was nicknamed «The commander

Issue 1530

of the battle field.» His fellow fighters have never forgotten the military operations that he has led. They believe these operations were among the most extensive military operations ever to be carried out by the military wing of Hamas against Israelis. These military operations included «The scattered illusion» «The warning explosion» and «The death field.» When Hamas ran for elections on the 25th of January 2006, won the legislative majority, and took hold of the Palestinian government, it was widely expected that Ismail Haniyeh would give Al-Jabari a seat in his cabinet. But this did not occur for two reasons: First, Al-Jabari was wanted by Israel, and second, AlJabari was assigned a more important task by the leaders , of Hamas: transforming Hamas s military operations against Israel into internal security operations in order to protect the Government from its rivals in Fatah movement. Fatah members were cast by Hamas as enemies and traitors. Abu Mohammed called upon all his men in the military wing to become a protective shield of Ismail Haniyeh and his cabinet members, and to assassinate their opponents. And, when an attempt was made to assassinate Haniyeh himself, AlJabari led the military operation that took control of Gaza and turned it into a Hamas colony, after banishing Fatah affiliates. Then began the Palestinian Division period, which all regional and international attempts to end it have failed. As some members of Hamas say, If Hamas› position on reconciliation was to be decided by only few leaders of the movement, then Al-Jabari would certainly be one of those few. The leaders listen to what he has to say, and his opinion on the condition of Gaza and reconciliation with Fatah cannot be ignored. He is the hidden man who has become a powerful figure inside Hamas. He rejects peace with Fatah because he refuses to, give up Gaza. He believes that Hamas s control ,of Gaza is an achievement to Hamas credit, which is no less than the achievement of removing the Israeli authority from Palestine. He also rejects any attempts to deal politically with the Palestinian issue, and insists on resorting to the clandestine and military solution. Despite his eyesight problems, a disease he caught while in prison, he is still in favour of a military solution, and is not willing to abandon ,it, even if it is at the expense of others lives. 41

30 October, 2009

Economics International Economics

International Investor


How Did China

Get Away With It? By Luis Guimaraes Issue 1530


Economics - International Economics

How Did China Get Away with it? Asian Lessons of Recovery

Luis Guimaraes China has arguably emerged out of the financial crisis as a result of the Government’s investment measures. Although successful, these measures do not address other problems at the core of the Chinese economy, such as the role of state owned enterprises. A trend unlikely to change in the near future as a result of the Government’s intention to hold on to power.

Did China buy its way out of the financial crisis? With its strong investmentbacked recovery, China has arguably emerged as one of the early risers of the recession. Although it is early to point out the main reasons behind China’s fast recovery, in an economy where the major players in critical sectors are state-owned, the Government›s swiftly launched November 2008 massive Rmb 4 trn (USD586 bn) stimulus package


30 October, 2009

certainly played a key role in the reawakening of the Asian powerhouse. China›s economy is heavily reliant on foreign direct investment and exports (exports contributed to over 30% of China›s GDP growth in 2007). However, following the credit crunch, as developed countries› abruptly reduced their expenditures, Chinese exporters and manufacturers were amongst the first to suffer from these effects. In fact, even though

Chinese institutions› exposure to US and other toxic assets elsewhere were not negligible, the most painful blow to China delivered by the credit crisis came in the form of a direct impact on the real economy. Faced with an abrupt fall in foreign trade and the risk of its annual GDP growth falling below the 8% «social stability» threshold, the Government took the strategic stance of promoting domestic consumption as a long-term 44

Economics - International Economics solution to export dependence. It accomplished this through fiscal tools such as Government spending, tax rebates and investment, as well as cuts in interest rates. At times attacked by critics sceptical of its overwhelming focus on infrastructural development, the Government›s stimulus package was meant to boost domestic demand and create jobs through investment in large-scale engineering projects. The principle is that spending on infrastructure will initially generate demand in the industries related to it (such as steel, cement, construction), and immediately create jobs. The ultimate goal of this practice is to set in motion a multiplier effect that will boost consumers› willingness to spend their traditionally high savings. Critics, however, maintain that the meagre 1% allocated to social welfare programs is not enough to address the poignant problem of unemployment, which greatly hinders consumption in China. Nonetheless, figures show good prospects, with retail and car sales showing strong growth in 2009, and even property prices bouncing back. In the second quarter of 2009, China,s GDP grew by 7.9%. The Chinese economy managed to storm out of the financial crisis prior to a recovery of its exporting sector, arguably as a result of the Government›s effective action. Nevertheless, it is a dutiful exercise to questionatwhatcosttheGovernment›s intervention was executed. The stimulus package›s projects are only to be partially financed by the central and provincial governments, with a substantial component to be lent by banks. This, together with the dangers of speculative bubbles related to strong economic growth in 2009, could make bad-loan-riskalarm bells ring. Add to this the extra factor that Government approval of stimulus aids is done in stages, which implies that in the eagerness of being at the forefront of growth, competing provinces in China may not be assessing their projects› feasibility properly. As a result, China could be left facing a potentially dangerous cocktail of non-performing loans and inefficient infrastructural projects. Issue 1530

This prospect is further aggravated by the fact the most of the package›s funding is said to be funnelled to stateowned enterprises. Therefore, China’s stimulus package does not address the promotion of private enterprise in China. Consequently, not only are small companies not benefiting from the credit facilities conceded to state owned enterprises, they are also neglected in the attribution of the larger infrastructural projects. Theirs is a struggle for the first derivative of growth, that is, for the increase in consumer confidence enhanced by large infrastructure projects.

following unpopular Governmental action cost President Suharto his position after twenty years in power. The circumstances were certainly different then, as the 1997 crisis was regional in scope and China was not hit particularly hard in comparison to other Asian countries. Since then, however, China has been able to ascend as a key economic power in the region and an important political force worldwide. Either way, after the 1997 example, China took the social impact of its stimulus package into account when it developed strategies to address the current crisis.

Furthermore, China,s current do-it-yourself approach may also be reminiscent of the Asian resentment that followed the IMF,s intervention following the 1997 crisis. These interventions left marks in Asia and created an urge within many Asian countries to achieve economic independence from Western superpowers.

Furthermore, China,s current doit-yourself approach may also be reminiscent of the Asian resentment that followed the IMF,s intervention following the 1997 crisis. These interventions left marks in Asia and created an urge within many Asian countries to achieve economic independence from Western superpowers. This raised the Chinese Government’s awareness of how necessary a sound financial system is for growth to be sustainable. Perhaps the most important lesson learnt from the 1997 crisis was for countries not to open up too quickly to foreign capital, and certainly not before proper regulatory standards are in place.

Asking for China to support the private sector as opposed to state owned enterprises would, arguably, be too much at this stage. Although the emancipation of the private sector would bring about the gradual fading out of the inefficiency and nepotism associated with state owned enterprises, the Chinese regime is not willing to give way of its control of the economy. Indeed, the entrepreneurial spirit of the middle-class presents too strong a liberal wind in what is still an authoritarian state. Political stability, after all, comes first for China, and that was possibly an unspoken directive in Chinese leaders› minds when they designed their stimulus plan. This may have been a lesson learnt from the 1997 Asian currency crisis, most notably from the example of Indonesia, where huge social unrest

Barely 10 years after the Asian crisis, China is implementing many similar responses as the ones exercised then, including Government spending, tax rebates, and control over the currency. If 20082009/ and 19971998/ have something blatantly similar, it is that China›s emerging less scratched than other countries, in the aftermath of the tumult. China is emerging from this crisis as a fast-moving economy able to deal with its problems arguably quicker than anyone else. The question that remains to be seen is whether China’s investment backed stimulus plan can outweigh the other potential obstacles that the economy’s structure may pose for the country in the future. Works in the financial industry in Singapore and is a freelancer specializing in Asian economics. The views expressed here are his own and independent of his current employer. 45

Economics - International Investor

What Goes Up Must Come Down

Managing the Booms and Busts of Oil Prices

The volatility of oil can be challenging to control, turning a potentially profitable resource into an economic and political curse. But countries appear to be learning from past mismanagement of the booms and busts of oil prices. Although more creative strategies have been put into place, upswings are now generally accompanied by prudent spending to provide a cushion for future downswings. A Blessing or a Curse? Its well-known nickname is «black gold». But Terry Lynn Karl said it can be «The Midas Touch» and the man who founded OPEC once called it «the devil›s excrement». As is well known, oil has the potential to rain revenues on a nation, taking the quality of life of its inhabitants to levels enjoyed by the world’s richest. But oil can bring with it peculiar problems and challenges, sometimes an «oil curse»— not only because countries who rely primarily on volatile oil prices for revenues never know when the rug on which they stand might be pulled rapidly from their feet. Oil economies are also prone to certain inefficiencies and market distortions, even in the best of times, if governments do not navigate the storm with the subtlest and most prudent of instruments. Few could have predicted the price of oil to rise to $150 per barrel last year. Even fewer thought it could drop, almost instantly, to one-fifth the price. But compared with the first major shocks of the oil boom age in the 70s and 80s, oil experts have done remarkably well, employing new strategies to deal with problems arising both on the way up and down. In the classic formulation from Karl’s “The Paradox of Plenty,” the first potential problem with an oil boom is economic. In what is often known as the Dutch Disease, massive oil revenues boost demand far beyond what local production can keep up with, and that, combined with a rise in the strength of the local currency, causes the country to be reliant on imports for most of its needs. Money is often sucked out of non-oil domestic production, which falters as the country relies almost exclusively on petroleum revenues for income. The second is political. The ability to spend often takes the place of the need for authority to enforce the rule of law for oil states, and since the government does not need to collect taxes from its population, relations between society and government are based not on a give-and-take but rather on the distribution of rents. Entrenched groups often arise that are privileged by the status quo and opposed to adjustments. These problems accumulated on the upswing become much more serious when prices drop. In Karl’s formation, this is worse in “capital-deficient” countries with large 30 October, 2009

Vincent Bevins populations relative to oil reserves, such as Iran, Venezuela, Nigeria, Egpyt, Syria and Mexico rather than “capital-surplus” countries like Saudi Arabia, Kuwait, Libya, Qatar and the UAE—but all experience similar pressures. As Kiren Chaudhry points out, even in Saudi Arabia, attempts to adjust spending down after the boom of the 70s was ineffective in the face of private elites. In almost all capital-deficient countries, however, the boom of the 70s caused a serious economic blowout and political crisis. Fool Me Once One reason countries have responded more successfully this time (20072009-) is the realization that oil has long-term value. Many countries in the 70s thought their oil reserves would soon run out and thus pushed for big spending projects and rapid industrialisation. Avoiding this rush has made easier one of the most important and obvious aspects of successfully handling an upswing—prudent spending policies which avoid overheating the economy and build up reserves for maintaining spending levels in a downswing. Progress on this front in many countries has been crucial. Some other more creative measures have come out of Latin America. In Mexico, a brilliant hedging mechanism employed by the finance minister allowed the country to collect $8bn when the price did fall. This is well-informed betting is difficult to replicate by those who are less than clairvoyant, but can be useful when prices look unreasonably high. In Venezuela, some more radical approaches have been employed: oil industry

nationalizations and the strict enforcement of tax collection. Taxes help establish a non-oil revenue stream, and nationalisations, though not cheap (economically or politically), can divert money from temporary upswings into the future, when during periods of low prices the state can benefit from a “higher share of lower revenues,” explains Pietro Donatello Pitts, of LatinPetroleum. Saudi Arabia’s strategy, though also successful, was much more conservative. She relied on large reserves and its regulated banking sector helped avoid the creation of excessive credit in boom-times. Much of the spending within the country was on economic diversification and large infrastructure projects. Other gulf states, on the contrary, poured money into real estate, creating problematic housing bubbles. And in Saudi Arabia, “the authorities didn’t succumb to populist pressure to spend excessively and adjust the exchange rate, so they are now well placed with very low government debt and high foreign reserves,” says Brad Bourland, chief economist at Jadwa Investment. Because of its political structure, Saudi Arabia has been able to maintain its conservative spending and exchange rate policies, despite being one of the poorest countries of the Gulf in per capita income terms. Though none of the vagaries of oil’s price nor its negative potential effects have gone away, countries have done well relative to the 1970s. Many have learned some lessons of overspending, if most have avoided the prickly issues of confronting entrenched elites. What happens next will largely be dependent on Saudi Arabia itself, who because of a project to expand output to 12.5m barrels a day, have a large say in moving the price. At the moment they seem likely to prefer medium-level prices and a steady global recovery to high prices that might threaten it, as the Saudi economy is currently performing satisfactorily in the areas that matter to the regime. But with oil prices, little is predictable. London based journalist and political economist. A frequent contributor for New Statesman magazine and most recently for the Financial Times.


Issue 1530

30 October, 2009


Economics - Markets

Confidence Continues to Rise in the GCC

Average UAE Salaries Increase Above Inflation

The Business sector in the GCC has demonstrated a growth in confidence in the third quarter according to the HSBC Gulf Business Index. This is true of their perspective on all measures inclduing turn over, profit margins, and meeting targets. There was a 34% predicted growth in the next three months, representing a 5% increase. Only 16% expect to see their workforce shrink, and 54% expect their business to improve.

The world economy is recovering but unemployment continues to rise amid fears of a double-dip recession. The jobless rate in the U.S. has reached its highest level in a quarter century while in South Africa almost one in four of the workforce is now redundant Unemployment rate September 2008 August 2009 2.5



Netherlands Japan

3.0* 4.0






6.3 7.1 7.8






Euro Zone


United States

JOBLESS U.S.: 15.1 million, EU: 21.9 million, China: 9m registered unemployed, but 30m migrants believed to have lost their jobs


7.8 7.7


Ireland Latvia Spain

8.0 8.1







*June 2009




Picture: Getty Images



South Africa Sources: Eurostat, national figures




23.6 25%


REFENSE Sole Distributor in Middle East Habl Consultancy, an IT provider, announced a sole distribution agreement with REFENSE Technologies for the entire Middle East. Hable will distribute the REFENSE’s vulnerabilities across various sectors in the region. IT vulnerabilities, reports Zawaya, greatly threaten an organization’s stability. According to Zulfiqar Ali Khan, CEO of Habl Consultancy, ‹›Refense helps eliminates the need for performing manual vulnerability assessments and therefore significantly reduces the time, cost and effort required to detect and mitigate vulnerabilities within network devices.›› Issue 1530

The Corruption Perceptions Index ranks 180 countries in terms of the degree to which businesspeople and country analysts perceive corruption to exist among public officials and politicians 10



Employee salaries in the UAE have fared best in comparison to other countries, according to Mercer the HR consulting firm. Mercer additionally noted that the majority of firms reported they would increase salaries in the upcoming year. Other highlights of the survey indicated that Abu Dhabi’s housing allowances were significantly higher in 2009 than those of Dubai. These positive results reinforced the general cautious optimism that has been felt in the region.

0 CPI score Least corrupt Most corrupt Rank Score Rank Score 1 Denmark 9.3 21 Saint Lucia 7.1 N. Zealand 22 Barbados 7.0 Sweden 6.9 23 Chile 4 Singapore 9.2 France Uruguay 5 Finland 9.0 Switzerland 26 Slovenia 6.7 6.6 7 Iceland 8.9 27 Estonia Netherlands 6.5 28 Qatar St. Vincent 9 Australia 8.7 Spain Canada 6.4 31 Cyprus 11 Lux’bourg 8.3 12 Austria 8.1 32 Portugal 6.1 Hong Kong 33 Dominica 6.0 Israel 14 Germany 7.9 5.9 35 UAE Norway 16 Ireland 7.7 36 Botswana 5.8 Malta UK Puerto Rico 18 Belgium 7.3 5.7 39 Taiwan Japan U.S. 40 S. Korea 5.6 Source: Transparency International © GRAPHIC NEWS


30 October, 2009

Reviews Books

Issue 1530




Reviews - Books

Dealing with Depression The Return of Depression Economics And the crisis of 2008 Paul Krugman Penguin Books 2008

This book attempts to answer two main questions: how can we overcome the current crisis? And most importantly how can we prevent such crises from happening in the future?

, aul Krugman s book, The Return of Depression Economics, is an overview of various economies at different points in history. Krugman’s aim is to answer two main questions that have been troubling the minds of economists, politicians and lay people alike: how can we escape the current financial crisis? And what can we do in order to prevent such crises from happening in the first place?


Krugman begins by exploring in detail different reasons for which the «Great depression» occurred in the 1930›s and what we should have learnt from it but unfortunately didn›t. Krugman also examines the Asian economic crisis in the 90›s and the crises of Latin American, Russia and Japan. He explores in detail the different plausible causes that may have led to those crises as well as the different policies that have been employed to deal with them. The book’s greatest advantage and what clearly sets it apart from other recent books that anlyze the financial crisis, is its simplicity. This book uses simple language, so that it may convey its message to economics 30 October, 2009

connoisseurs as much as it can to the interested reader. You will not find undecipherable economic dilemmas here. In fact, in the introduction of the book the author states that his audience should not expect a «solemn, dignified book”. Instead Krugmen declares that the books objectives “are as serious as can be, but the writing will be as silly as the subject demands». With «silly» language and extremely creative examples and thorough explanation, the author makes the book both interesting and easy to understand. Interestingly, Krugman does not address the financial crisis of 2008 as a single incident, but instead links what happened last year in the financial sector with everything that has been wrong with the economies of the world for years. He further highlights the warning signs and market fluctuations that we may have ignored or underestimated saying «I am tempted, to say that the crisis is like nothing we ve ever seen before. But it might be more accurate to say that it,s like everything we›ve seen before, all at once». The author also emphasizes the power of creative ideas. He argues that only

in implementing innovative measures will we be able to overcome the current global financial crisis. The implicit argument here is that the real source of the problem we are confronting today is not a result of a lack of resources but rather a lack of understanding of how to prevent future crises. Krugman concludes that «What the world needs right now is a rescue operation.» He believes that reforming the weaknesses of the economic system is essential but that the priority for policy makers should be to deal with the clear and present danger. Additionally, Krugman recommends that in light of financial globalization, advanced countries should cooperate and coordinate together in order to get credit flowing and prop up spending – an undoubtedly difficult task. Only once the recovery is successful will it be an appropriate moment for reforming the system. While this recommendation is surely sound Krguman fails to consider the importance of political clout for confirming reform. That is, although most everyone agrees that reform is necessary now when the crisis is fresh in our memories, will this still be the case once the economy is more stable? 52

Reviews - Readings

Readings Books Too Big To Fail: The Inside Story of How Wall Street and Washington Fought to Save the Financial System- and Themselves


Andrew Ross Sorkin October 2009-10-27 Andrew Ross Sorkin delivers the first true behind-the-scenes, moment-by-moment account of how the greatest financial crisis since the Great Depression developed into a global tsunami. From inside the corner office at Lehman Brothers to secret meetings in South Korea, and the corridors of Washington, Too Big to Fail is the definitive story of the most powerful men and women in finance and politics grappling with success and failure, ego and greed, and, ultimately, the fate of the world’s economy.

Half the Sky:Turning Oppression into Opportunity for Women Worldwide


Nikolas D. Kristof and Sheryl WuDunn September 2009 Pulitzer Prize winners Nicholas D. Kristof and Sheryl WuDunn take their readers to a journey through Africa and Asia to meet an extraordinary array of women struggling under profoundly dire circumstances—and an equally extraordinary group that have triumphed. Through their stories, Kristof and WuDunn help us see that the key to progress in our world lies in unleashing women›s potential— and they make clear how each of us can help make that happen. Fiercely moral, pragmatic, and inspirational, Half the Sky is essential reading for every global citizen.

Reports US: Join The Landmine Ban Human Rights Watch October 22, 2009 NGO Human Rights Watch argues that The United States Should Participate in a milestone meeting of the international treat banning antipersonnel landmines and make a commitments to join the agreement. The Second Review Conference of the 1997 Mine Ban Treaty is scheduled to open in Cartagena, Colombia on November 30, 2009. More than 100 governments are expected to attend. The U.S. has been invited but has not yet indicated if it will participate.


Painting Democracy on Afghanistan October 23, 2009

Interviewee: Thomas H. Johnson, Director, Culture and Conflict Studies, Naval Postgraduate School Interviewer: Greg Bruno, CFR After extensive high-level diplomacy between Washington and Kabul, Afghan President Hamid Karzai agreed to a November 7 runoff election with his challenger, Abdullah Abdullah. Afghanistan expert Thomas H. Johnson of the Naval Postgraduate School says the runoff election-agreed to after intense lobbying from U.S. officials – will not produce a legitimate leader in the eyes of Afghan voters. Instead, Johnson says the runoff could further destabilize the country, especially if Abdullah wins. Issue 1530


Reviews - Reports

Libya and the West US-Libya Relations Dana Moss Council on Foreign Relations September 10, 2009 How to Squander a Nations Potential The Economist August 20, 2009 A recent speech delivered by Colonel Qaddafi has led the world to wonder how much Libya has changed since it renounced its nuclear weapons programme? Libya has clearly made efforts to reconcile with the West, yet occasional political outbursts strain this progress. What is the future of Libya’s relationship with the West and how does Qaddafi personally impact it?

n September 23, Colonel Qaddafi spoke for the first time at the UN General Assembly. The leader of Libya, who is renowned for his eccentric behaviour, delivered a 90 minute diatribe, in which he demanded an African seat on the Security Council. Much to the dismay of his audience that was not where his speech ended.


After having torn up the UN Charter and suggesting the Security Council be called the Terror Council, Qaddafi also suggested that those who caused mass murder in Iraq be tried. Among many other recommendations, Qaddafi defended the right of the Taliban to establish an Islamic emirate; suggested that the swine flu pandemic was a biological weapon; and that the Israeli and Palestinian territories be combined into one state called Isratine. Interestingly, Qaddafi’s opportunity to speak at the UN General assembly was interpreted as a symbol of his improved 30 October, 2009

diplomatic relations with the West. Nonetheless, since the War on Terror, Libya has become increasingly cooperative with the US. This good behaviour that has not gone unnoticed by the American government, which removed Libya from the States Sponsors of Terrorism list in 2006. According to a review by the Economist on Qaddafi’s impact on Libya, this sense of improved relations has led him to take a more assertive stance on the world stage, with some impact on Libya’s ability to become a closer ally with western nations. What future then does Libya have with the West? More explicitly, how much of Libya’s diplomatic relations are determined by Qaddafi himself, and his eccentric and at times irresponsible ways of governing? Dana Moss, a fellow at the Washington Institute for Near East policy, addressed the future relationship of Libya and the West in an interview for the Council on Foreign relations. The

interview, argued that in the short term relations between Libya and the West could be affected by Qaddafi’s behaviour at the General Assembly. In the long run, however, the United States and Libya share an interest in developing and maintaining a positive relationship. This mutual interest will likely be the driving force of relations between Libya and the West. In particular she argued that the two countries share counterterrorism and business interests. In addition to this, the United States looks to Libya’s abandonment of a nuclear weapons program as a potential model for dealing with Iran and North Korea. However, Moss rightly points out that many differences exist between Libya and other states with contested nuclear programs. For one, Libya’s weapons program was less developed than those of the other “rogue nations,” and more importantly rapprochement


Reviews - Reports occurred as a result of Libyan initiative. More interestingly, Moss points to growing evidence that Libya’s behaviour in recent years shows that rapprochement on specific issues is not as strong if the nature of the regime remains antidemocratic. Although, the LibyanAmerican relationship will never be a warm one so long as Qaddafi is in power, she argues, it will be close, although closeness will be a defined by a matter of degrees. Since rapprochement, Libya’s relationship with the West has been defined by its cooperation with the U.S., more than with other countries. Qaddafi has been helpful by sharing intelligence and establishing an aid corridor for Sudan. However, the relationship between the U.S. and Libya is not with out problems. As Qaddafi’s UN speech demonstrated, he is still willing to promote anti-democratic and particularly anti-American ideas despite the closer nature of their relationship. Moss notes that Qaddafi has been particularly problematic in speaking out against the benefits of an engagement with the U.S. Similarly he has spoken out against what democracy can do for Africa. One particular example of the undermining tone of Qaddafi’s government has been with regard to their suspension of the nuclear weapons program. They have recently argued (March 2009) that the U.S. has been ungrateful with respect to Libya’s ending their nuclear weapons program. More specifically they have argued that “this is why North Korea and Iran are hesitating now to have a breakthrough regarding their projects” said Shalham, their ambassador to the UN. Despite these occasional outbursts, Qaddafi appears equally committed to building a relationship with the West, having noted in his recent visit to New York that this was an aim of Libya’s foreign policy. Issue 1530

Libyan leader Col. Muammar Gaddafi arrives at the United Nations General Assembly at U.N. headquarters in New York City.

© Getty Images

Although the Council on Foreign relations provides interesting advice for the U.S. on how to approach a relationship with Libya, other publications provided different insight with regards to what factors may influence their relationship to the West. The Economist noted that, in addition to their behaviour in the international area, Qaddafi’s performance within Libya has had at least some impact on his relationship to the outside world. More specifically, they noted that success of Qaddafi’s national policy was often reflected in improved relations with the west. They argued, for example, that in recent years Libya’s school children have reached universal literacy rates, and the population of Libya has experienced an increased the average life expectancy by 20 additional years. However, advancements in the social development of the country are considered unremarkable when it is taken into consideration that Libya exports as much oil

per head as Saudi Arabia. That is, while Libya’s internal and external situation has improved, it is clear that Qaddafi is at the source of a significant degree of mismanagement. Only recently has Libya been able to transcend, albeit to limited degrees, the category of pariah which limits its relationship with the West significantly. The analysis of these different publications highlights that Qaddafi, personally, has and will continue to impact the relationship Libya develops with the West. The interview from the Council on Foreign Relations rightly focuses on how Libya’s interests promote the possibility of a closer relationship with the West. Yet, the specificity of Libya’s leadership limits the extent to which the Libyan case can become the model of rapprochement. For the Interview and Report see: 55

The Political Essay

No Right Man For The Job

Karzai and the limits of US hopes for Afghanistan

Kamid Karzai’s government is disappointing under any criteria. Once the West’s biggest hope to lead a stable and respectable Afghan government, Karzai is now considered by US officials as one of the biggest obstacles for rebuilding Afghanistan. This belief, however, ignores structural issues and the fact that never in the last one hundred years did the country had a strong sovereign government.


nce the West’s biggest hope to lead a stable and respectable Afghan government, Kamid Karzai is now considered by US officials as one of the biggest obstacles for rebuilding Afghanistan. This lack of trust in Karzai led the United States to hold off on any decisions to send more troops and civilians before an official outcome to the present political stalemate is announced. No doubt the present Afghan government is not working for the majority of Afghans, nor for the international efforts to rebuild the country. The main question, however, is whether Karzai’s poor government is a circumstantial problem, or if its failure is structurally inevitable and any Afghan government would be weak and corrupt given all the challenges involved. Afghanistan is going through its biggest political crisis since Karzai took office in 2004. US officials much hoped that August’s Afghan election would offer an alternative to Karzai’s weak and corrupt government. Instead, it offered neither a victory for Karzai’s biggest opponent, Abdullah Abdullah, nor his re-election, but a stalemate which is a veritable nightmare for the American strategy in Afghanistan. The good news is that Karzai declared that the constitutional process must be fully respected, and agreed to a runoff to be held on November 7th. The latest internal assessment of the Afghan war by the US army strikingly illustrates Karzai’s poor government performance. The signatory of this assessment, top military commander General Stanley A. McChrystal, describes an endemic situation of corruption and abuse of power that “exacerbates the popular crisis of confidence in the government and reinforces a culture of impunity.” The list of accusations directed at Karzai is a rather long one. At the top is the worsening of the security situation, which many analysts attribute to the government’s alienation of a number of Pashtun tribes who are now allied 30 October, 2009

Islamic faith played a major role. Since then, the history of the country is one of chaos and violence.

Manuel Almeida with the Taliban. Moreover, Karzai’s close connections have been under severe criticism for a long time. General Fahim, named defense minister soon after Karzai became the head of Afghanistan’s transitional government, was soon after involved in allegations of involvement in the drug trade. Also Karzai’s younger brother, Ahmed Wali Karzai, chair of the provinciaVl council in Kandahar, is accused by all sorts of foreign sources of being involved in the drug trade. Not merely involved, it is believed that Ahmed Karzai heads an important drug smuggling group operating in the south of the country. The conviction of US officials that there would be a better man for the job than Karzai is also related to accumulated frustration in seeing no progress from the effort and resources invested in rebuilding Afghanistan. However, in more than one hundred years, never has an Afghan government had effective control over the whole territory and the diversity of people that compose its population. The only peaceful and modernizing period of Afghanistan’s troubled history happened from the beginning of the 1920s until 1973, when King Zair Shah was deposed in a coup. During this period, a weak Kabul government ruled the country through a decentralized form of politics, and the countryside was dominated by clan and/or tribal hierarchies, where

Today, Afghanistan is one of the poorest countries in the world. According to the UN, the profits from drug trade account for more than 50 per cent of Afghanistan’s gross domestic product. And the plans to replace opium with alternative crops seem almost impossible to achieve. Many of its borders are mostly virtual, it is infested by extremists and terrorists from the region and beyond, and its territory is shared by different tribes, clans and ethnicities for whom state sovereignty is simply an aberration. With all this in consideration, it is not reasonable to expect something close to a corrupt-free government in Afghanistan. Independently of the outcome of the run-off, US officials will have to accept one of two realities, or even both. First, that Karzai will have to be part of the solution for the near future of Afghanistan. And second, that any of his successors, now or in the future, are not likely to have a better record in regards to corruption and weakness. If corruption is the big issue, Abdullah Abdullah does not offer much of a hope, judging by its record as Foreign Minister. For the Bush Administration, the spread of democracy was a major part of its foreign policy and dangerous idealism and misconceived views of the US’s role in global politics. Of course, one of the downsides of democracy promotion is that it is a good thing while the favoured ones win. The Bush administration soon discovered this with Hamas electoral victory in Gaza. For the Obama Administration, Karzai has become something similar to what Hamas was for the Bush administration. This is one of the dilemmas of statebuilding, to work with leaders who state builders do not like. In the case of US involvement in Afghanistan, this bitter alliance, with Karzai and his successors, is likely to have to last for at least a few decades. 56

Issue 1530


30 October, 2009

issue1530 English