To return to the new Peace Now website click here.

Hard Questions, Tough Answers with Yossi Alpher - July 24, 2006

Q. What are Israel's prime strategic considerations regarding international involvement? Q. How is the war affecting Israel and Lebanon economically?

Q. With US Secretary of State Condoleezza Rice arriving in the region, it appears that a phase of intense international involvement in the Lebanon and Gaza wars has commenced. What are Israel's prime strategic considerations in this regard?

A. First, the Olmert government and the IDF want time to continue attacking Hizballah, reducing its capacity to fire rockets at Israel and softening it up for a favorable settlement. The general understanding is that, rhetoric aside, Rice will not support a vigorous effort to reach a ceasefire until she returns to the region after an Asia visit, in a week or 10 days.

At the same time, Israel has begun an extensive series of contacts with European and other emissaries (French Foreign Minister Philippe Douste-Blazy and German Foreign Minister Frank-Walter Steinmeier just visited Jerusalem) with the objective of formulating an acceptable scheme for some sort of international force to enter southern Lebanon under the terms of an eventual ceasefire. One reason for starting early on this project is the amount of time it could take to put together a force.

Defense Minister Peretz has indicated he would prefer a NATO force. The NATO idea follows upon several years of enhanced Israel-NATO relations and discussions of an eventual NATO role in the Middle East. Certainly for Israel, NATO is preferable to the European Union or the United Nations. Already, however, the talks have encountered hesitation by the French and Germans to send their own soldiers--Germany on account of its special relationship with Israel, and France in deference to French public opinion, which is expected to oppose the idea, and its upcoming presidential elections. The US, incidentally, while supporting the international force idea, is not expected to contribute troops either in view of its other commitments in the region. So the composition of an international force is not at all clear.

Still ahead is also detailed discussion, including among the Israeli public, of the mandate of an international force. Israel's experience with UNIFIL in the days when Israel occupied southern Lebanon indicates that a force charged with keeping the peace independently between Israel and its neighbors in Lebanon will inevitably find itself in conflict with Israel, to the detriment of Jerusalem's relations with, say, the NATO members composing the force. Rather, an international force should be charged with training, supporting and "escorting" the Lebanese Army to the country's southern border. Only if the force reinforces a direct Israeli-Lebanese commitment to a peaceful border can it be effective.

The situation in Lebanon reflects considerable evolution in Israeli thinking about an international force. It is the very weakness of the Lebanese government, which cannot on its own sustain a military deployment in the South to replace Hizballah and, indeed, may not even be able to enforce the demand that a war-weakened Hizballah leave the South, that informs the Olmert government's request to the international community to provide such a force. A second factor is the recognition, on the part of Israel, the moderate Arab states and the West, that to some degree Israel's current armed confrontations with two Islamist neighbors in Lebanon and Gaza are a microcosm of the broader regional and international confrontation with nuclearizing Iran and other Islamist forces. International involvement in the solution to these confrontations confirms that thesis and reinforces Israel's place in an emerging alliance against violent Islamist forces. This explains PM Olmert's statement that Arab countries should participate in the projected international force.

While Olmert obviously did not mean Syria, there is nevertheless growing recognition that, without a Syrian role as well, it will be all the more difficult to resolve the crisis in Lebanon. Syria would demand renewed peace negotiations with Israel as a minimal condition for helping. Here a lot would depend on Olmert's readiness to entertain such an idea, which almost certainly means sidetracking his West Bank convergence plan (which in any case has become highly problematic in light of the war), and on Washington's agreement to withdraw its long-standing veto over such talks.

Meanwhile, there are indications that some sort of preliminary negotiations over the form of a ceasefire and the return of the Israeli soldiers held by Hizballah may have begun. Yesterday, Lebanese Foreign Minister Fawzi Salloukh, a Shi'ite who maintains close contacts with Hizballah, announced that the two soldiers were in good health and in a safe place. Such pronouncements usually constitute the first phase in negotiations (the assumption being that Israel will not "deal" until it has received assurances that its soldiers are safe). Certainly there are enough international emissaries going back and forth to support the notion that initial negotiating contacts have begun.

Turning to Gaza, where negotiations have been going on for some time through Egyptian and other good offices, the outlines of a settlement appear to be in place: mutual ceasefire, return of Corporal Gilad Shalit and delayed Israeli release of prisoners to President Mahmoud Abbas. Conceivably, even Damascus-based Hamas leader Khaled Meshaal, a hard-liner, is now on board. The main problem appears to be the extreme fractionalization of Gaza's armed groups, including various splinters of Hamas' Ezz a-Din Qassam Brigades. It has simply been impossible to get everyone inside Gaza to agree.

Israel, incidentally, has an interest in keeping the Gaza and Lebanon negotiations separate, in order to lower the price to be paid in released prisoners on both fronts and to deny Hizballah leader Hassan Nasrallah the kind of pan-Arab Islamist role in Gaza that he assigned himself when Hizballah abducted the two Israeli reservists on July 12.

Q. How is the war affecting Israel and Lebanon economically?

A. Israel entered this war unexpectedly, but in good economic shape, with annual growth of around five percent and a budgetary reserve. The war effort itself is estimated to be costing the country around $50 million a day, but this figure does not factor in lost productivity in the north, where much of the economy has ground to a halt. Moreover, as additional reserve units are called up, the costs to the economy will increase; if, due to additional escalation, there is a massive call-up of reserves, the damage will grow considerably. Incidentally, the relative shut-down of the economy in Haifa and the north, including Haifa Port and the Haifa Bay petrochemical complex, is the most extensive in Israel's history since 1948. If rocket attacks were to close down the economy in the Tel Aviv area in a similar fashion for any length of time, the consequences for the economy would be extremely serious.

The Finance Ministry maintains a reserve of several billion shekels that should cover much of the damage inflicted by Hizballah's rocket attacks. Ministry officials are on the spot to assess damages in real time and schedule compensation. Paying salary compensation for, say, half the one million Israeli residents of the north, whose work has been affected by the attacks would, for a month, cost around NIS 3.5 million ($1 = approximately NIS 4.50). In fact, the actual cost will be far less than this figure--only 31 percent of manufacturing plants in the north are still closed, while most have returned to work, in some cases with employees wearing protective helmets and flak jackets. Already, however, employers and the Finance Ministry are at loggerheads over the conditions for compensation.

One positive factor is the dollar and euro exchange rates, which have not risen appreciably since the war started, and the readiness of the major international credit rating firms not to downgrade Israel's status. Perhaps the most encouraging element is the public's ongoing confidence in the government and its war strategy, which is reflected in the economy's capacity thus far to manage. During the worst of the intifada years, 2001-2003, for example, the public responded to suicide bombings by radically reducing its consumer activity, with devastating consequences for the economy.

But even as matters currently stand--and we have no idea how much longer the war effort will continue--it is already clear that the tax cut incentives and additional budgetary allotments for education, health and welfare planned for the next year or two will have to be postponed in favor of allocations to the military to replenish losses and absorb lessons of this conflict. Already, for example, Defense Minister Amir Peretz has called for a concerted R & D effort to produce effective counter-measures to Palestinian tunneling in Gaza and Hamas and Hizballah's rockets. PM Olmert's West Bank convergence plan will also almost certainly be affected for budgetary reasons--if it emerges intact politically from this war. Nor can we know how quickly the tourist industry will recover.

Perhaps the most important factor in assessing the war's long-term economic damage is foreign investment. Here, too, it is too early to tell. A conservative estimate published today put the loss of national income at only half a percent--assuming the war ends in the coming days and the threat of Hizballah rockets is removed.

The bottom line? If necessary, the country can fight on for additional weeks without any disastrous damage to the economy. This gives the Olmert government additional flexibility in its decision-making regarding the timing of a ceasefire.

Turning to Lebanon's economy, the situation is far, far worse. The damage inflicted by Israel on the Lebanese infrastructure is estimated at anywhere between one and several billion dollars. The tourist industry, which was recovering rapidly before the war and supplying up to 70 percent of national income, has collapsed. With sea and air ports closed, imports and exports are limited to the land borders with Syria. While Lebanese monetary reserves are estimated at around $13 billion--the fruit of several productive years prior to the war--the national debt is still huge.

As with its previous economic recovery following years of civil war, Lebanon will be dependent on investment from the oil-rich Gulf states. Saudi Arabia and Kuwait have already transferred $100 million, while Iran (!), via Hizballah, has offered help as well.

When the war ends, Israel will have an obvious interest in ensuring that Lebanon is rebuilt quickly--and not by Iran. Saudi Arabia's extraordinary support for Israel's war effort against Hizballah and PM Olmert's offer to include Arab troops in an international force stationed in southern Lebanon point to the extent of potential Arab involvement in rebuilding and reshaping Lebanon after the war.