The death of Yasser Arafat has created new uncertainty in the Middle East, but it has also raised hopes that a rising generation of Palestinian leaders will be able to get along better with Israelis. And peace and stability attract investors.
"Expectations among foreigners are running rampant," says Jim Prince, president and founder of the Los Angelesbased Democracy Council, a nonprofit group that promotes good governance in emerging markets. Prince, 42, an accountant who has worked for the House International Relations Committee and PricewaterhouseCoopers, was asked in 1999 by aid donors and the Palestinian Authority to investigate accounting fraud in that organization and in the process gained the trust
of both Palestinians and investors. So in 2002, when Arafat set up the Palestinian Investment Fund, Prince signed on as governance consultant.
Palestinian sources say the PIF is now seeding the $30 million-to-$50 million distressed-debt fund and seeking foreign investors among those of Palestinian heritage. West Bank and Gaza enterprises have ample distressed debt to go around.
"Most businesses from the 1990s are overleveraged, and private sector banks don't foreclose" because of Islamic banking rules, explains Prince. "But no investor can come in and take over a small business, because they'll be accused of taking advantage of people. There's no legal or political framework -- no trust." To help allay investor concerns, the PIF is taking a 40 percent stake in the debt fund.
"The upside is huge -- assuming you have the stomach for investing in Palestinian areas or want to help out," says Prince. "If a business is viable now -- in the worst of times -- it can't get worse."
