Palestinians ‘facing financial collapse’

US INTERNATIONAL envoy James Wolfensohn said the Palestinian Authority faces financial collapse within two weeks now that Israel has cut off tax transfers in response to Hamas’s election victory.

Even if the Palestinian Authority survived with emergency funding, the financial crisis could bring upheaval unless the quartet of international peace mediators the US, the EU, the UN and Russia developed a long-term funding plan once a Hamas-led government is in place, he said in a letter to a quartet member.

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

Mr Wolfensohn is expected to brief the quartet on his findings tomorrow.

His office declined to comment on the February 25 letter, which warned the quartet that "without a better effort, public finances will not be stabilised and there will be no alternative but deterioration in the overall situation."

Despite emergency aid from the EU, the World Bank, Saudi Arabia, Russia and Norway, Mr Wolfensohn said the caretaker Palestinian government faced a funding gap of $100 million (€84m) this month, mainly because of Israel's decision to withhold $50-55m (€42-46m) a month in tax revenue.

The projected gap in March will be $12-70m (€10-59m).

Mr Wolfensohn said the Palestinian Authority will need $60-80m (€56-67m) next week to begin to pay the February salaries of about 140,000 Palestinian employees.

"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 for security and stability for both the Palestinians and the Israelis," Mr Wolfensohn said.

His deficit figures included $138m (€116.5m) in EU emergency funding.

The EU said later its package would total €120m including €40m to pay electricity bills and €64m channelled through the UN Relief and Works Agency for Palestinian refugees.

Mr Wolfensohn said Saudi Arabia will contribute $20m (€16.9m) this month. Norway and Russia each planned to contribute $10m (€8.4m) by the end of March, he said.

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

The quartet has yet to agree on what to do once Hamas takes over.

Israel has asked donors to freeze all but humanitarian assistance, but some quartet members favour giving Hamas some time before taking action.

Mr Wolfensohn proposed a meeting of the UN and key donors in March to set a strategy that would not violate rules against aid to groups considered terrorist organisations by the United States and the EU.