Envoy Says Palestinians Face Financial Collapse 
By Reuters
February 27, 2006
The New York Times
Original Source: http://www.nytimes.com/reuters/news/news-mideast-palestinians.html
 
JERUSALEM (Reuters) - 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 Islamist 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 developed a long-term funding plan once a Hamas-led government is in place, Wolfensohn said in a letter obtained by Reuters from a Quartet member on Monday.
Members of the Quartet -- the United States, the European Union, the United Nations and Russia -- threatened last month 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.
Wolfensohn was expected to brief the Quartet on his findings on Wednesday.
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.'' 
FUNDING GAP
Despite emergency aid from the European Union, the World Bank, Saudi Arabia, Russia and Norway, Wolfensohn said the caretaker Palestinian government still faced a funding gap of $100 million this month, mainly because of Israel's decision to withhold $50 million to $55 million a month in tax revenue.
The projected gap in March will be $12 million to $70 million. ``Unless a solution is found, we may be facing the financial collapse of the PA within two weeks,'' Wolfensohn said.
He said the Palestinian Authority will need $60 million to $80 million 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 also for security and stability for both the Palestinians and the Israelis,'' Wolfensohn said.
Wolfensohn's deficit figures included $138 million in emergency funding from the European Union.
The EU said later in Brussels its package would total 120 million euros ($142 million), including 40 million euros to pay electricity bills and 64 million euros channeled through the U.N. Relief and Works Agency for Palestinian refugees.
In addition, Wolfensohn said Saudi Arabia will contribute $20 million this month. Norway and Russia each planned to contribute $10 million by the end of March, he said.
But any money raised by Wolfensohn at the Quartet's direction would only tide the Palestinian Authority over until the new Hamas-led cabinet is formed, most likely next month.
The Quartet has yet to agree on what to do once Hamas takes over and over how much pressure to exert. Israel has asked donors to freeze all but humanitarian assistance, but some Quartet members favor giving Hamas some time before taking action, diplomatic sources said.
Wolfensohn proposed a meeting of the United Nations and key donors in the second week of March to set a strategy that would not violate rules against aid to groups considered terrorist organisations by the United States and the EU.