Barak tries economic war to beat the intifada

The Jericho casino, the Holy Land's only legal gaming house, closed last week. Since it opened two years ago, 2,500 punters have lost (and occasionally won) hundreds of thousands of dollars every day at its roulette wheels and fruit machines. Most were Israelis, driving through the bare, scarred canyons of the Judean wilderness across an unmarked border into the Palestinian state-in-the-making.

The Jericho casino, the Holy Land's only legal gaming house, closed last week. Since it opened two years ago, 2,500 punters have lost (and occasionally won) hundreds of thousands of dollars every day at its roulette wheels and fruit machines. Most were Israelis, driving through the bare, scarred canyons of the Judean wilderness across an unmarked border into the Palestinian state-in-the-making.

A month ago, when the Palestinians launched their second intifada, an uprising this time with guns as well as stones and petrol bombs, gamblers played safe and stayed at home. The tables were deserted, the 184 rooms in the luxurious hotel next door empty.

The Austrian company which manages the casino will not say how much it is losing. Nor will Yasser Arafat's Palestinian Authority, which takes 30 per cent of the profits in taxes. The 2,000 employees, mostly Palestinian, do not know whether they will keep their jobs. As the violence escalates, it looks as if it will be a long time before the punters return.

The Austrians can afford to sit out the mayhem. The Palestinians, whose economy is being held to ransom by their Israeli foes, cannot.

The closure Ehud Barak imposed at the end of September prevents 125,000 day labourers getting to their jobs in Israeli building sites, farms, hotels and factories. It blocks the export and import of materials and produce. At its most severe, it prevents movement of goods and services between Palestinian communities.

Salam Fayyad, an economist who represents the International Monetary Fund in the West Bank and Gaza, is predicting a recession, which could set the Palestinian economy back for years. "The crisis," he said, "is having a dramatic impact on a very small economy for which an open-trade system is essential. The closure isplacing a stranglehold on the economy and on its future prospects."

The Palestinian Economy and Trade Ministry estimates that the siege cost at least $346m (£239m) in its first month. United Nations economists in Gaza put it at $250m.

Either way, it blew a huge hole in an economy that was finally starting to take off. Unemployment tripled overnight to 30 per cent. Farmers and manufacturers are losing almost $2m a day in exports, to Israel and the Arab world.

Mohammed Hassan Shamlay, a chicken farmer from the West Bank village of Haris, lost $10,000 during October. He was trapped in a double bind. He couldn't get the feed he buys from Israel, and he couldn't send his fowl to market in neighbouring Arab towns. "If it goes on like this," said Mr Shamlay, a burly man in his late forties, "I'll go out of business."

He will not be alone. The Palestinian economy has few natural resources, apart from its manpower, brainpower and a fragment of a land which is not exactly flowing with milk and honey. Most of its firms are small-scale family enterprises. They manufacture furniture and textiles, but not machinery. They process foodstuff, much of it imported.

Bethlehem and Jericho make money from hotels and restaurants, especially beforeChristmas, but the tourists are not coming. "All our groups have cancelled," said Olof Jurva, manager of Bethlehem's Jacir Palace, a five-star InterContinental. He expected 60 per cent occupancy this autumn, but all 250 rooms are empty. His 200 local staff are working two-weeks-on, two-weeks-off. Seven bars and three of the hotel's four restaurants are closed.

Labourers who work in Israel take home an average of $28 a day. That is double what they would earn in the West Bank or Gaza but it still leaves them precious little to save for a rainy day.

Businesses may be better off but their cushion is limited too. And the Palestinian banks cut off credit two weeks ago,to individuals and to compa-nies, for fear that loans might never be repaid.

Soon, consumers will stop buying more than staple necessities. Firms will lay off workers. Shops will have to slash prices to tempt people back. The recession will gather pace. "The demand effect is very likely to be devastating," warned the IMF economist, Salam Fayyad. "It won't be long before you'll see shops closed or working shorter hours."

Israeli bureaucracy is not making things easier. More than 900 truckloads for Palestinian territories, are stuck at the Israeli ports of Haifa and Ashdod. So are 1,000 new and used cars. At the same time, Israel is delaying the monthly transfer of about $30m in tax revenue paid by Palestinian workers or importers. Saeb Bamya, director-general of the Economy and Trade Ministry, accuses Israel of trying to bring the Palestinian Authority and the Palestinian people to their knees. "They are ready to use any instrument in their hands," he said. "They want to put us in a very critical situation for political reasons."

The Israelis do not deny wielding the economic weapon. "We are not trying to starve them out," said a government spokesman, "but we are using any means to convince the Palestinians to stop the violence. There is a struggle going on, Palestinians versus Israelis, and Israel is entitled to take every measure to defend itself."