Palestinians face financial collapse: envoy

Mon Feb 27, 12:56 PM ET

JERUSALEM (Reuters) - International envoy James Wolfensohn told Middle East mediators the Palestinian Authority faces financial collapse within two weeks because of Israel's decision to cut off tax transfers after Hamas's election win.

Even if the Palestinian Authority survives the coming month with emergency funding, Wolfensohn said "violence and chaos" could break out unless a long-term funding plan is developed for when a government led by the Islamic militant group is in place.

Wolfensohn issued the warnings in a letter to the so-called Quartet of Middle East mediators -- the United States, the European Union, the United Nations and Russia. A copy of the letter was obtained by Reuters from a Quartet member on Monday.

The Quartet threatened last month to cut aid to a government led by Hamas, whose charter calls for the destruction of Israel, unless it renounced violence, recognized the Jewish state and abided by interim peace deals.

Wolfensohn, who will brief the Quartet on Wednesday about the Palestinian Authority's cash crunch, said it needed $60 million to $80 million next week to begin paying the February salaries of about 140,000 Palestinian workers, including security personnel.

As many as one in four Palestinians are dependent on wages from the Palestinian Authority, prompting fears of unrest before Israel's March 28 election if payroll is not met on time.

"I know I do not need to tell each of you that the failure to pay salaries may have wide-ranging consequences -- not only for the Palestinian economy but also for security and stability for both the Palestinians and the Israelis," Wolfensohn said.

Wolfensohn's office declined to comment on the February 25 letter, in which he urged Israel to consider redirecting the Palestinian Authority's frozen tax revenues to pay its fuel bills to Israeli utilities.

Israel's Foreign Ministry spokesman, Mark Regev, did not rule that out, saying Israeli courts could decide to transfer some of the money to the utilities.

Regev blamed a Palestinian Authority hiring and spending spree for the current crisis. "If there is a financial crisis in the Palestinian Authority today, that is largely due to their irresponsible pocketbook electioneering," Regev said.

FUNDING GAP

Despite emergency aid from the European Union and others, Wolfensohn said the caretaker Palestinian government still faced a funding gap of $100 million in February, mainly because of Israel's decision to withhold $50 million to $55 million a month in tax revenue starting on March 1.

The projected funding gap in March will be $12 million to $70 million. "Unless a solution is found, we may be facing the financial collapse of the PA within two weeks," Wolfensohn said.

Wolfensohn's deficit figures included a short-term aid package unveiled by the European Union on Monday.

But the 25-nation bloc made sure most of the $142 million (120 million euros) contribution would bypass the Palestinian Authority, and only about $20.7 million (17.5 million euros) would help pay salaries.

Wolfensohn said Saudi Arabia would provide the authority with $20 million this month, while Norway and Russia would each give $10 million by the end of March.

But any money raised by Wolfensohn at the Quartet's direction would only tide the Palestinian Authority over until the new Hamas-led cabinet is formed, most likely next month.

The Quartet has yet to agree on what to do once Hamas takes over and over how much pressure to exert. Israel has asked donors to freeze all but humanitarian assistance, but some Quartet members favor giving Hamas some time before taking action, diplomatic sources said.

Wolfensohn proposed a meeting of the United Nations and key donors in the second week of March to set a longer-term aid strategy.

Source

FAIR USE NOTICE

This site contains copyrighted material the use of which has not always been specifically authorized by the copyright owner. We are making such material available in our efforts to advance understanding of environmental, political, human rights, economic, democracy, scientific, and social justice issues, etc. We believe this constitutes a 'fair use' of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. For more information go to: http://www.law.cornell.edu/uscode/17/107.shtml. If you wish to use copyrighted material from this site for purposes of your own that go beyond 'fair use', you must obtain permission from the copyright owner.