Palestine faces financial meltdown
BEN LYNFIELD IN JERUSALEM
ISRAEL could plunge the Palestinian Authority into a financial crisis by withholding its main source of income, following the election victory by the militant group Hamas, Israeli officials warned yesterday.
Israel, which called on the international community to boycott a Hamas-led government, transfers about £28 million every month of customs duties and VAT to the authority, which covers the salaries of a majority of its 130,000 employees.
But the Israeli finance ministry director-general, Yossi Bachar, said that Israel may now face "practical problems" in passing on the money because of Hamas's stated aim of overthrowing the state of Israel and its track record of terrorism. The first payment is due next week.
The financial cost of Hamas's landslide victory in Palestinian parliamentary elections on Wednesday is likely to become even worse, with a senior United States diplomat yesterday warning that America would have to freeze millions of dollars in aid to the Palestinian Authority (PA) if a Hamas-led government refuses to renounce terror.
The US gave the PA more than £220 million in direct aid last year and several million more through various UN charities. Without Western aid, the bankrupt Palestinian Authority, which had a £565 million operating deficit last year, would almost certainly collapse.
However the Palestinian president, Mahmoud Abbas, yesterday confirmed that he would ask Hamas to form a new government, as angry activists from his defeated Fatah party called for him to resign. There were also the first armed clashes between Fatah and Hamas followers since the election, with three people being wounded in a gun battle in the southern Gaza Strip.
Mr Bachar, who was in Davos, Switzerland, for the World Economic Forum, gave a strong indication that Israel would withhold the money if Hamas did not alter its stance. "We will face practical problems of how you deal with people that call for the destruction of Israel," he said.
In Jerusalem, the Israeli foreign ministry spokesman, Mark Regev, said "no decision has yet been taken" on whether or not to transfer the revenue. "There are severe legal problems for Israel and the international community since Hamas is recognised as a terrorist organisation. If you have terrorists taking over the PA, how can you expect that people won't rethink their relationships?"
Raanan Gissin, a spokesman for the acting Israeli prime minister, Ehud Olmert, said that next week's payment would go ahead but added that Israel might reassess the transfers when a Hamas-led cabinet is formed.
Meanwhile Jacob Walles, the US consul-general in Jerusalem, said America would not deliver assistance to terror organisations - the US and Europe regard Hamas as one - or a government ministry run by such a group. "I don't see how we would do that if those ministries were controlled by Hamas," Mr Walles said.
"Hamas has to make a choice: if you want to be part of the political process ... you need to recognise Israel; you need to disarm and you need to renounce terror and violence."
Failure of the PA to meet its salary payments, now or when Hamas takes up its posts, would cause havoc, directly affecting 1.1 million people or roughly a third of the population of the Palestinian Authority areas, according to Salaam Fayad, the former PA finance minister.
Speaking in Davos, Mazen Sinokrot, the Palestinian economics minister, urged Israel to maintain its financial ties with the PA. "Israel has always been our major trading partner. I'm sure the Israelis with their wise approach will look at it in a very positive way and will not try to tackle any incorrect issues when it comes to the collection of revenues," he said.
Hamas gained 76 out of the PA parliament's 132 seats and Mr Abbas said yesterday that the party would be asked to form the government. "We are consulting and are in contact with all the Palestinian groups and definitely, at the appropriate time, the biggest party will form the government," he said.
Jimmy Carter, the former US president who met Mr Abbas in Ramallah yesterday, said he told him that the PA did not have enough money to pay salaries at the end of the month, even with foreign aid.
Mr Carter said that US law would require direct funding to be cut off and this "would create an element of chaos unless the money is made [up] by other sources".
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