Mohammed Najib
Bitterlemons (Opinion)
December 7, 2011 - 1:00am

The Palestinian Authority's latest financial crisis--which Palestinians widely believe was punishment for President Mahmoud Abbas' request for statehood at the United Nations in late September--has seriously impacted various sectors within the Palestinian community, including both civil sector employees and West Bank security personnel.

Israel's blockade of $200 million in taxes over two months forced the PA to borrow the amount needed to pay October salaries (stretched already by the feast holiday Eid al-Adha) for 160,000 public employees in both the security and civilian sectors. These people feed about 800,000 family members.

The PA's income depends mainly on three sources: foreign and Arab donations of about $1.6 billion a year ($130 million a month), taxes collected on the PA's behalf by Israel (another $100-120 million a month), and internal taxes at about $20-30 million monthly.

Even though this is not the first financial crisis the PA has suffered, this one is more complicated and appears to be more serious. Senior Palestinian officials and some international observers in the West Bank have gone so far as to express their deep concern that its continuation will certainly lead to the collapse of the PA.

To see how this would unfold, one most only observe that the financial crisis has already harmed Palestinian security. Fuel suppliers have warned the PA police that they will stop providing them with fuel unless they pay their more than NIS 5 million debt accrued over the past two months. This has forced the police force to reduce its patrols. Similarly, food suppliers have said they will not supply vegetables and fruit to the 8,500 policemen and 980 prisoners in PA police jails in the West Bank, unless their money is paid completely. As a result, the police force went for more than three weeks eating bread and canned meat bought previously and stored.

The inability to pay salaries will weaken the discipline of these security officers, since their commanders cannot respond to their needs, confirms the chief of a Palestinian security branch. So far, it is merely the reason behind this financial crisis--Israel's political attitude--that keeps them loyal to the security institution that protects their homeland.

These personnel can be expected to bear this crisis for three months in a row--but not more. Then they will become unable to feed their families and pay transportation to get to their work places. This has the makings of a serious threat to the PA security services and their performance of their duties.

Surprisingly, main world donors such as the United States seem to care more about the PA security agencies than the rest of the PA. A senior US official met President Mahmoud Abbas at his headquarters in Ramallah following Abbas' return from the UN, informing him that the US intends to stop paying its annual contribution to the PA budget (around $670 million), except for the $150 million dedicated to the Palestinian security services. Abbas rejected that offer and told his US guest: either you pay for all or none, and I will not accept that security is given preference over the rest of PA bodies.

While some Palestinians believe that the PA is being punished by a number of donor Arab states for the ongoing political division between factions Fateh and Hamas, other concerns were raised following Abbas' meeting with Hamas leader Khaled Meshaal in Cairo. The two leaders agreed to reactivate the reconciliation deal between the factions, and form a new national unity government excluding current PA Prime Minister Salam Fayyad. This, some fear, will force donor countries to sharply cut their finances to the PA.

Thousands of PA employees have taken out bank loans to finance the purchase of apartments, vehicles, or business projects. A halt in salaries will render them incapable of paying their monthly installments or responding to their families' needs, broadly harming businesses and the economy.

According to economists, Palestinians are classified into three groups. There are those who are directly and completely dependent on PA salaries in such a way that if the salaries stopped, they would not be able to pay their bills and loans and provide family needs. Even those who have some savings will quickly use that up. The second group provides services to the PA and its employees, including food and fuel suppliers. The third group works in the private sector and would not be harmed by a halt in the PA salaries or the ongoing PA financial crisis.

Overall, because the PA has no control over 80 percent of its income, it will continue being easily affected by those providing donations or collecting its taxes. The PA's ability to loan the money is also limited--banks are not willing to extend much more credit if the crisis extends longer than a couple of months.


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