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U.N. Secretary General Kofi Annan and US Secretary of State Condoleezza Rice during a news conference in London, Monday. (AP)
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| By Israel Insider staff and partners January 31, 2006 |
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The Palestinian Authority is heavily dependent on foreign assistance. With Western aid suddenly in question following Hamas' victory in legislative elections, the Palestinians could face a serious financial crisis.
Money is quickly turning into a powerful and effective bargaining tool for Western, and Arab, nations who want to see Hamas assume a more moderate political agenda.
In Lebanon, however, a senior Hamas official said an aid cut would have no impact on Hamas policy. Further, with the United States and Europe threatening to cut funding, the Islamic militant group says it will turn to the Arab and Muslim world to finance day-to-day expenses.
Here is a look at the Palestinian finances (Sources: Palestinian Finance Ministry and World Bank):
BUDGET
2005 total: $1.96 billion
2006 projected deficit: $660 million.
FOREIGN AID
Total annual aid: $900 million
MAJOR DONORS
EU and individual European nations: $570 million - $270 million for salaries of Palestinian workers and $300 million for development and infrastructure projects.
United States: $400 million exclusively for development projects
Saudi Arabia: $46 million.
TAX REVENUES
2005 (projected): $396 million
ADDITIONAL INCOME
Customs duties and value added tax collected by Israel each month: $55 million
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President George W. Bush said he would not support a Palestinian government made up of Hamas. "The Hamas party has made it clear that they do not support the right of Israel" to exist, Bush said after meeting with his Cabinet. "And I have made it clear that so long as that's their policy that we will not support a Palestinian government made up of Hamas." Bush said Hamas must get rid of its arms and disavow terrorism. U.S. Secretary of State Condoleezza Rice tried Monday to persuade other nations to cut off assistance as well.
In Brussels, European Union foreign ministers jointly urged Hamas to recognize the state of Israel, renounce violence and disarm, and threatened to cut off financial assistance if the demands were ignored.
U.N. Secretary-General Kofi Annan also said that future aid for the PA will depend on a Hamas-led government's willingness to renounce violence and recognize Israel.
A Hamas leader rejected demands by Western donors to recognize Israel and disarm in exchange for foreign aid, after Hamas and Palestinian leader Mahmoud Abbas appealed to them to rescue the bankrupt Palestinian Authority.
As donors wait to see how Hamas will react, concerns mount that the region could dip further into chaos if countries like Iran step in to pay the Palestinians' bills - or if nobody pays them at all.
Government officials in the oil-rich countries of Saudi Arabia, Kuwait, and Qatar, the most likely donors, are staying clear of the subject for now.
Analysts say that although most wealthy Gulf nations - and even Europe and the United States - will not stand by and watch the Palestinians starve, the Arab and Muslim world was not likely to provide the kind of cash Western nations were giving the Palestinians before Hamas won 74 out of 132 seats in parliament last week.
"Money is going to be the weapon and a very effective one," said Gulf analyst Mustafa Allani of the Gulf Strategic Studies Center. "If Hamas wants to deliver basic requirements for the Palestinians, basic services, they're going to need money, and if this is going to be the point of pressure, I think Hamas is going to have to consider a major shift in political ideology."
Some say that Hamas is already showing small signs of softening. At a Monday news conference, the militant group asked the international community to keep the aid flowing, promising not to use the money for violent activities.
"We call on you to transfer all aid to the Palestinian treasury," Ismail Haniyeh, a Hamas leader in Gaza, told the news conference. "We assure you that all the revenues will be spent on salaries, daily life and infrastructure. You can review this."
Haniyeh also called for talks with the so-called Quartet of Mideast peacemakers - the U.S., EU, U.N. and Russia. The Quartet convened in London on Monday to discuss how to proceed now that Hamas, which has killed hundreds of Israelis in dozens of suicide bombings, has come to power.
The rhetoric continues, and so do the threats, and now Hamas is eyeing the Arab and Muslim world for financial support, though it's seeming less and less likely that fellow Arabs will meet any shortfall.
Palestinian leader Mahmoud Abbas arrived in Jordan on Tuesday on a diplomatic tour that will also take him to Egypt aimed in part at ensuring that Arab financial help for the Palestinians continues.
Supporting a Hamas-led government that calls for the destruction of Israel and advocates violence as a solution to the decades long conflict would be seen as political suicide by the wealthy Arab nations, who enjoy strong backing from the United States.
Still, Hamas is looking to the Arab world's powerhouses, including Egypt, for help. A Hamas delegation is slated to conduct a regional tour that will include Egypt, Saudi Arabia and Iran, an official said, speaking on condition of anonymity.
Indeed, even if the U.S. and Europe cut off all direct and indirect funding to the Palestinians, the money won't entirely dry up.
No doubt, Islamic charities, private donors, and the non-governmental organizations sympathetic to the Hamas agenda from around the world will continue to send money to the Palestinians. Hamas has its fans in the Muslim world and has survived since it was created 19 years ago through donations that some believe have reached tens of millions of dollars a year.
Iran is another possible benefactor. Already believed to fund the Lebanese guerrilla group Hezbollah, the Islamic Republic congratulated Hamas on its victory and appeared ready to chip in if the West cuts off aid.
"Iran will enter the scene and would help the new Palestinian government," said Mashallah Shamsolvaezin, an adviser to the Middle East Strategic Studies Center in Tehran, an organization closely affiliated with the Iranian Foreign Ministry.
Ephraim Kam, deputy director of the Jaffee Center for Strategic Studies, a Tel Aviv think tank, says Iran could provide several million dollars in extra aid, if the West turns off the taps. Such a development would only increase Iran's popularity in the region.
But several million dollars is pocket change compared to what Hamas needs to run the Palestinian Authority, a government with an annual operating budget of about US$1.6 billion.
Today, nearly two-thirds comes from international donors - mostly from Europe, international donor agencies, the United States and Asian governments.
The group of 8 industrialized nations promised an additional $9 billion last summer, most of it as private investments over the next three years.
The Hamas victory puts all that at risk.
Acting Israeli Prime Minister Ehud Olmert said Sunday that after Hamas sets up a government, Israel will stop transferring tens of millions of dollars a month to the Palestinians in customs and taxes it collects on their behalf.
Palestinian leader Mahmoud Abbas called Israel's threat "severe" and appealed to European donors to maintain their aid.
"The European countries must understand that the Palestinian people are in bad need of this aid," Abbas said. "I hope to God that they will change their positions, both Israel and the European countries."
If the West cuts off funds and the Arab governments don't give it, the Palestinian territories will slip further into poverty and desperation, an option analysts say no one is willing to risk.
"The West doesn't want to give money to Hamas, but it doesn't want the PA to collapse either, (knowing) the deepened human misery that would bring," said Kam, the Israeli analyst. "They could find a third way. I expect aid to decrease, but I imagine some will continue, because no one in the West will want to see the PA collapse."
The AP contributed to this report.
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