PALESTINIAN UNREST CUTS INTO ISRAEL'S ECONOMIC GROWTH

PALESTINIAN UNREST CUTS INTO ISRAEL'S ECONOMIC GROWTH

Behind the dramatic images of turmoil in the streets, the Palestinian uprising is settling into an economic war of attrition between the residents of the occupied territories and Israel.

The two sides, which have been locked in an awkward relationship during 21 years of occupation, are both suffering as a result of boycotts and strikes by the Palestinians and economic reprisals by the Israelis.Until the intifadah - as the Palestinian revolt is called - began five months ago, the occupied West Bank and Gaza Strip served as a major market for Israeli goods and as a source of cheap labor for Israeli contractors and industrialists. Heeding the call of the uprising's leaders, Palestinians are buying as few Israeli products as possible, and many laborers are refusing to work for Israeli bosses.

It hasn't created a real dilemma yet, said an Israeli economic analyst. However, Gad Yaacobi, the minister of economic planning, is predicting that the Palestinian moves will cost the Israeli economy about $650 million over the course of the year. Other economists say it will cut by nearly half the anticipated growth in the country's gross national product this year.

Because of the Israeli construction industry's reliance on cheap Arab labor, building is near a standstill. Factories producing textile goods and paper products also employ many from the territories, and production has been

cut back.

The unrest is now cutting into the tourist industry. Most visitors who bought prepaid packages before the trouble began followed through with plans and came to Israel and to the territories for religious holidays this spring. But now many hotels stand almost vacant. A new Hyatt hotel on a slope of Mount Scopus with a majestic view of the Old City has been forced to trim its staff, and there were reports last week that only 80 of its 526 rooms were occupied.

The problem is far more acute in the territories. Ibrahim Matar, a Palestinian economist from East Jerusalem, acknowledged in an interview that things are getting chaotic. The economy of the West Bank and Gaza is going into recession and depression.

The underground Unified National Command of the Intifadah is restricting merchants in East Jerusalem and the territories to only three business hours a day, and Israeli curfews - which have closed shops completely for weeks at a time - have compounded the problem.

The great Arab restaurants of East Jerusalem, Bethlehem and Jericho in which millions of tourists have dined are now bankrupt and effectively destroyed, Palestinians say.

Trade between the territories and Israel has been substantially diminished, and construction on both sides of the invisible Green Line that divides Jews and Arabs has been brought to a virtual halt.

Meanwhile, thousands of Palestinian workers are refusing to cross into Israel to work, crippling Israel's construction industry while cutting their own purchasing power. Israel, in turn, has imposed tough new restrictions on the residents of the territories by curbing the flow of cash from outside supporters in Jordan and the rest of the Arab world.

According to Mr. Matar, 27 percent of the gross national product in the territories came from salaries drawn in Israel and remittances from Palestinian workers in Arab states who regularly send money to their families. This source of income has been cut in half, he said.

About 100,000 Palestinians ordinarily work in Israel - about half of them illegally - and most are paid minimum wages or even lower day rates. Officials estimate that 30 percent of that work force is on strike.

Two months after the uprising began in December, Israel took steps to cut drastically the commerce between the territories and Jordan to the east by limiting the amount of currency that individuals can bring here.

Under an open bridge policy that has existed for years, Israel permits residents of the territories to go back and forth across the Jordan River over the Allenby Bridge, the link to Jordan. West Bank residents hold Jordanian passports, while Gaza residents, who are stateless, can obtain travel permits. However, Israeli permits and transportation costs can run more than $250 a person, making the trip prohibitive for many poor Palestinians, and those who cross the bridge are subjected to vigorous personal searches.

Travelers who were once allowed to bring about $6,000 are now limited to about $1,200.

There is plenty of money from people who are supporting the intifadah, said Mr. Matar, but we can't get it into the territories. The Union of Charitable Institutions has more than $1.5 million in the bank in Amman for our support, but it is being blocked.

Israel is not allowing Arab banks in the territories to transfer funds, he said, and local money changers, once an important medium of exchange between the territories and Jordan, are no longer being allowed to bring large amounts across the bridge.

Citrus exporters from Gaza, who once did big business in Jordan, are still permitted to sell their fruit in Jordan, but the Israelis are not allowing them to bring back the money so raised.

They hold us by the neck, Mr. Matar said of the Israeli authorities. We are their hostages. They can do anything they want.

The Palestinians have retaliated by refusing to pay regular taxes and the value-added tax that is routinely a part of any purchase made in a store. Nobody is paying because they don't have any money, said Mr. Matar.

Israel countered by forcing Palestinians to show records that they have paid their taxes before issuing any import and export licenses or travel permits to Jordan. Nowadays, it is almost 'Mission Impossible' to get to Amman, Mr. Matar said.