Jerusalem – The European Union on Monday stepped forward to fill the immediate funding gap for the Palestinian Authority before a Hamas government takes power, providing roughly $142 million in aid, much of which will be funneled through the U.N. refugee agency.
About $47.5 million will go to pay energy bills the Palestinians owe to Israeli companies, $75.9 million will be channeled through the U.N. Relief and Works Agency for Palestinian refugees, and $20.7 million is cash – direct budget support to help pay salaries.
The European Union acted in partial response to a dire letter from James Wolfensohn, the special Middle East envoy for the quartet – the United States, the European Union, Russia and the United Nations.
Writing on Feb. 25, Wolfensohn warned the quartet’s foreign ministers that “unless a solution is found, we may be facing the financial collapse of the PA within two weeks.”
The acting Palestinian finance minister, Jihad al-Wazir, told him he needed “$60 to 80 million next week to begin to pay wages,” Wolfensohn wrote, warning of “wide-ranging consequences” for “security and stability for both the Palestinians and the Israelis” should the payroll not be met.
The financial situation of the Palestinian Authority has worsened, said Wolfensohn, former director of the World Bank.
With estimated internal tax revenues of $35 million a month, and the loss of Israeli-collected tax and customs receipts of about $50 million a month, the Palestinian Authority faces a monthly shortfall of $130 million – $80 million a month even if the Israelis were handing over receipts, and likely more, since the Israelis deduct from those receipts the costs of electricity and water.
For February and March, the period before a Hamas government is likely to take over, he said, the Palestinian Authority may need as much as $360 million in new funds – because of necessary loan repayments, arrears to private suppliers of energy and other goods and the Bush administration’s decision to demand the return of $50 million provided last year for infrastructure improvements and used as collateral for bank loans.
The money from the European Union, while welcome, will not solve the Palestinian money crunch for very long, especially since most of it is not in cash. It will, however, ease the burden of supplier repayments – a large Israeli oil company, Dor Alon, had said Monday that it could no longer supply fuel oil and natural gas to the Palestinians because a check for about $35 million from the Palestinian Authority bounced last week. The European money will presumably ensure the flow of energy to the Palestinians in a chilly, wet winter.
Israeli public companies supply electricity and water to the Palestinians but deduct the cost from the customs and tax revenues the Israelis collect for the Palestinian Authority, which Israel is now withholding because of the victory of Hamas in the Jan. 25 legislative elections.
Israel argues that the swearing-in of the legislature means Hamas now controls the Palestinian Authority, but the United States and the quartet insist that the authority’s president, Mahmoud Abbas, is still running a caretaker government that must be supported, and that any funds cutoff should only take place once Hamas forms a government, which may not happen until the end of March.