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Last Updated: Sunday, 26 February 2006, 19:33 GMT
Cash crisis 'risks Palestinian collapse'
By Richard Galpin
BBC News, Jerusalem

Essential services could collapse in the Palestinian territories if the international community carries out its threat to stop financial help once the militant Islamic group Hamas forms a new government, a Palestinian minister has told the BBC.

Medical staff at the Yafa hospital in the Gaza Strip
The Palestinian Authority may have no money to pay state salaries
Eighty per cent of the hospitals and clinics in the West Bank and Gaza Strip are state-run.

But the government will probably not be able to pay the salaries of doctors, nurses and other civil servants without receiving tens of millions of dollars in budget support every month.

Last year the Palestinians received more than $1bn in assistance from the international community, of which more than a third went directly to the government.

And this year the government will be even more dependent on foreign aid because the Israelis have announced they are going to stop handing over tax and customs revenue collected on behalf of the Palestinians, worth at least $50m a month.

"The message we're telling [the international community] is to look at the Somali scenario," said Deputy Finance Minister Jihad Alwazir.

"When the Somali government failed in the 1990s it took the international community close to 15 or 16 years to try to stabilise the situation."

"It is not in the interest of the region, it is not in the interest of the peace process or the international community to lead us to a Somalia example."

Bankruptcy risk

But so far the United States and, critically, the European Union are sticking to their position that they will not finance a government led by Hamas because they define it as a terrorist organisation.

Projected budget deficit in 2006: $1bn
Monthly PA expenditure: approx $130m, up to 80% spent on salaries of 150,000 civil servants and security force members
PA monthly revenue from local sources: approx $30m
Monthly revenue from tax and customs duty collected by Israelis on the PA's behalf: approx $50m. To be withheld by Israel
Resulting monthly shortfall in PA finances: $80-$100m
Budget support from the international community in 2005: $362m

"There is a limit to what you can ask European taxpayers to do," said Marc Otte, the EU's special representative for the Middle East peace process.

"Hamas is a terrorist organisation. If they don't change their colours in that respect it would be politically and even morally indefensible to continue to support such an organisation."

Mr Otte admitted in a BBC interview that cutting financial assistance could lead to the collapse of the government, or at least to it becoming financially bankrupt.

"It's a responsibility we have to face. It's also a responsibility that the government of Israel will have to face," he said.

All this is part of a strategy by Western and other governments to try to force Hamas to change, following its dramatic victory in last month's election.

They want it to renounce violence, recognise Israel's right to exist and to abide by previous agreements between the Palestinians and Israelis.

But so far Hamas has refused to comply with these demands and is expected to announce the formation of its government within a matter of weeks.

Agencies 'nervous'

Threatening to cut off direct funding to the new government is a high-risk strategy for the international community.

Palestinians at an Israeli checkpoint in Hableh, West Bank
Israel is tightening economic screws on the Palestinian Authority

Although donor countries say they will continue to provide humanitarian assistance to the Palestinian people, UN sources told the BBC it is not always possible to separate humanitarian aid from assistance for the government.

For example, UN agencies and NGOs provide food aid to 1.4 million people in the Palestinian territories.

"Some of the feeding programme is done through the Palestinian Authority," said one UN official. "UN agencies are very nervous."

The same problem could arise in the health sector.

"I don't know how you would provide health [assistance] without dealing with the ministry of health," she said.

'Counter-productive' pressure

Officials are also concerned about the possible collapse of Palestinian institutions and the effect this would have on the delivery of aid, she added.

Palestinian analysts say the pressure being exerted by Western countries before Hamas even forms a government is proving counter-productive.

This will push Hamas to a more hardline position and create more sympathy for the Hamas programme
Samir Abdullah
"This will push Hamas to a more hardline position and create more sympathy for the Hamas programme," said economist Samir Abdullah.

Palestinian leaders, angered that they are being punished because of the result of a democratic election, are also now increasingly looking to Middle Eastern countries for financial assistance.

A Hamas delegation has been touring the region and recently secured a pledge of support from Iran.

But more hope is being pinned on Saudi Arabia, which has ignored American pressure and announced it will fund the new Palestinian government.

For the West, allowing Iran to gain significant influence in the Palestinian territories would surely be a serious own goal.

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