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Stopgap measures

By Erica Silverman

The European Union announced Saturday that a `temporary international mechanism` to deliver direct assistance to Palestinians had been approved by the Quartet (the EU, the United States, the United Nations and Russia) to mitigate an ensuing humanitarian crisis in the Palestinian territories after the US and EU instituted a strict policy of economic and political isolation ostensibly targeting the Hamas-led Palestinian Authority (PA). Reactions in the West Bank and Gaza, where hospitals lack basic medications, grocery stores are operating on lines of credit, and over a quarter of the population have not been paid since February, were less than enthusiastic. `People here will believe it when they see it with their own eyes. For now we are only staying alive,` said 25-year-old Fadi from Gaza City. The EU, the US and other donors froze hundreds of millions of dollars in direct aid when Hamas legislators were sworn into office in March.

In May, the Quartet began crafting the aid mechanism that bypasses the PA, channeling funds directly through President Mahmoud Abbas. An EU spokeswoman said the EU will offer $126 million for the programme, although the statement did not mention the payment of PA employee salaries, opposed by the US and Israel. The mechanism will immediately cover essential supplies to the health sector and payments to healthcare service providers through an emergency World Bank programme. The European Commission will provide utilities such as fuel. By July a fund will be established to meet the basic needs of the most impoverished Palestinians. Direct payments will be made to individual bank accounts.

`It is welcome, but at the same time this is not the right way, the Quartet should deal directly with the Palestinian government,` said Parliament Speaker Aziz Duwaik regarding the EU aid mechanism. Finance Minister Omar Abdel-Razeq, Hamas, expressed his initial approval.

`The international community should realise there must be dignity. Choosing to only pay certain sectors and forcing civil employees to apply for humanitarian assistance is humiliating,` said Eyad Sarajj, a political analyst in Gaza City. It is anticipated that PA employees in the healthcare and education sectors will be paid, while security forces (some 80,000) will be left empty handed. `It is a recipe for disaster. The people with the guns are not being paid,` Diana Buttu, former legal advisor to Abbas told Al-Ahram Weekly. Privatising the PA through an increase of NGOs to fulfil the role of the government moves the Palestinians further away from statehood, warned Buttu.

By Sunday, World Bank and IMF officials and the President`s Office had yet to review the actual mechanism, anticipating further ironing out of the details upon the arrival of EU External Relations Commissioner Benita Ferrero-Waldner Monday for a two-day visit. Ferrero-Waldner will meet with President Abbas and Israeli Prime Minister Ehud Olmert, avoiding the Hamas-led government.

`There can be no progress on any front without dialogue between Israel and President Abbas,` said the Commissioner, reiterating there will be no contact with the government until Hamas accepts the Quartet`s principles of eschewing armed struggle, recognising Israel and respecting all previous agreements reached between parties to the Israeli-Palestinian conflict. The EU statement said the mechanism could also be used by Israel to channel withheld Palestinian tax revenues -- the root of the humanitarian crisis. As punishment for Hamas`s electoral victory, Israel has withheld $54 million in monthly tax -- which albeit barely covers the salaries of nearly 165,000 PA employees -- in violation of the Paris Protocol signed in 1994 in conjunction with the Oslo Accords.

Of note, the EU statement also responded to Olmert`s intent to draw Israel`s final borders by 2010 with or without an agreement with the Palestinians, asserting that the EU `will not recognise any change to the pre-1967 border other than those agreed by both sides.`

Meanwhile, Foreign Minister Mahmoud Zahar, Hamas, who was recently stopped with $20 million in cash stuffed in suitcases at the Rafah crossing after returning from a seven- nation tour, announced at a press conference Saturday in Gaza City that Hamas would continue funnelling cash through the crossing along the Egypt-Gaza border, claiming it legal. The EU border mission stationed at the terminal as observers claims it violates the terms of the agreement that established passage for Palestinians at Rafah.

On the Israeli side, Bank Hapoalim and the Israeli Discount Bank have decided not to sever ties with Palestinian banks, after announcing their intent to do so last month following fears that they may be subject to US sanctions. The Israeli central bank persuaded Israeli banks to maintain relations, assuring the Palestinian Monetary Authority (PMA) will receive new `working procedures` this week that will be reviewed and then passed to Palestinian banks, according to a PMA official. Israeli banks claimed that Palestinian money laundering laws were insufficient. Palestinian banks depend on Israeli banks for check clearances, letters of credit, and other commerce-related services. The PMA is an independent institution that functions as a Palestinian central bank, although according to the Paris Protocol, Palestinians are obliged to use Israeli currency. The protocol also stipulates reciprocal relations between Israeli and Palestinian banks. Transfers between Palestinian and Israeli banks in 2005 totalled more than $2.2 billion.

What is compelling the international community to boycott the PA? The US Treasury Department decided to ban all financial transactions with the PA after Hamas took office. Local, regional and international banks, fearful of facing US anti-terrorism sanctions and lawsuits filed in US courts, have refused to deal with the PA, creating a liquidity crisis and leading the Arab Bank to close the PA`s `single treasury account`. Thus, the PA has been unable to receive funds from abroad and emergency assistance from the Arab League amounting to $70 million.

The worst is yet to come, despite the EU aid mechanism. Loans from Palestinian banks are guaranteed by government salaries, which the `mechanism` avoids paying. $380 million worth of credit lines have been granted to PA employees, according to the PMA, and if these loans are defaulted the banking system could collapse since the value of the loans exceeds the capital of the banks. Banks have extended the life of the loans for another three months. But after 90 days, Palestinian banks will begin losing when they are forced to use bank revenue to cover customer loans. Twenty per cent of all loans from banks operating in the West Bank and Gaza have been granted to PA employees. Meanwhile, the Palestinian stock exchange has dropped over 1,000 points in less than five months.

Is there an exit strategy? Senior Fatah and Hamas officials said Sunday they were close to reaching an agreement on the Prisoners` Document that implicitly recognises Israel. The agreement may include an initiative to dissolve the Hamas-led government, replacing it with a new government that would facilitate the resumption of international aid -- possibly a cabinet of `technocrats` and a commitment by Hamas to join the Fatah-dominated Palestinian Liberation Organisation.

For now, Palestinians are taking second jobs, sliding into debt, and praying that their first vote cast in competitive parliamentary elections will not cost them their lives.

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