PA FINANCES: SALARIES PAID THOUGH STILL SHORT ON

C O N F I D E N T I A L JERUSALEM 001085

SIPDIS

SIPDIS

NEA FOR FRONT OFFICE; NEA/IPA FOR
WILLIAMS/GREENE/LOGERFO/WAECHTER; NSC FOR ABRAMS, DORAN,
MUSTAFA; TREASURY FOR ADKINS

E.O. 12958: DECL: 03/15/2016
TAGS: EFIN ECON EAID KWBG
SUBJECT: PA FINANCES: SALARIES PAID THOUGH STILL SHORT ON
FUNDS, ARAB BANK AND THE PA'S SINGLE TREASURY ACCOUNT

REF: AMMAN 1790

Classified By: Consul General Jake Walles for reasons 1.4 (b) and (d).


1. (C) Summary: PA Deputy Finance Minister al-Wazir
confirmed that the PA had disbursed basic salaries for civil
servants and security service members March 15. Though the
PA was still short on funds, al-Wazir said that Arab Bank had
agreed to re-open a USD 50 million credit line for the PA to
pay salaries based upon the need to defuse the volatile
situation after the March 14 events and expectations that the
PA would receive further external assistance before the
change in government. Al-Wazir said that he expects an
immediate transfer of USD 20 million from the United Arab
Emirates but hoped a second USD 20 million tranche would be
forthcoming as well. Al-Wazir said he planned to complete
March 18 the refinancing of a Palestine Investment Fund
(PIF)-collateralized PA loan with Arab Bank to allow the PA
to repay the final tranche of the USD 50 million refund to
the USG. Both al-Wazir and the IMF ResRep noted their recent
conversations with Arab Bank management about its concerns
about holding the PA's single treasury account under a
Hamas-led government and urged a USG response to Arab Bank's
letter seeking the Treasury Department's counsel. End
summary.

PA to disburse salaries
afternoon of March 15
--------------


2. (C) Palestinian Authority (PA) Deputy Finance Minister
Jihad al-Wazir confirmed March 15 to EconChief that he had
disbursed basic salaries (totaling about USD 90 million)
March 15 to PA security service members and civil servants.
Al-Wazir noted that he hoped to pay unemployment benefits and
other social safety net payments once further external
assistance is received. (Note: Former militants who have not
been formally added to the security services payroll are paid
from the unemployment rolls. In January and February, these
individuals disrupted law and order in the West Bank and Gaza
until they received their NIS 1000 payment. End note.)


3. (C) Though the PA is still short on funds and awaiting
further external assistance from the United Arab Emirates, he
said that Arab Bank had understood the need to defuse the
volatile situation, after the events in Jericho, Gaza, and
Ramallah, March 14, and had agreed to provide the PA with a
USD 50 million credit line on the condition that it would be
repaid before the change of government. IMF ResRep Joel
Toujas noted to EconChief that the PA had paid off the last
Arab Bank USD 50 M credit line with budget support from the
World Bank Reform Trust Fund and Saudi Arabia, so the Arab
Bank had decided to re-open the credit line based upon
expectations the PA would receive enough external assistance
in order to repay the credit line before the end of March
when the caretaker government is expected to leave office.


4. (C) Toujas confirmed that PA domestic revenues of only
USD 10 million were going to pay PA salaries since the
remainder had been used for other expenditures, including the
losses of the Palestinian Petroleum Corporation and interest
payments on the PA's commercial bank bridge loans. (Note:
Al-Wazir was quoted in the Arabic press March 13 saying that
the PA had decided to restart its slight subsidy of retail
fuel prices through the Palestinian Petroleum Corporation in
order to end a taxi strike in Gaza. In February, al-Wazir
had stopped the subsidy, so the price for one liter of
gasoline increased from NIS 3.75 (USD 0.80) to NIS 3.85 (USD
0.82). End note.) Toujas confirmed that the first payment
of 15 million euros from the European Union for the Gaza
power plant's fuel oil had been paid March 10 to Israeli fuel
supplier Dor. Toujas confirmed that this payment helped
reduce net lending in February by USD 10 million. Toujas
also noted that the Israeli Finance Ministry had deducted NIS
65 million from the frozen PA clearance revenues for
electricity payments. There were no deductions for water.

Emirati budget support
may only total USD 20 million
--------------


5. (C) Al-Wazir confirmed that the PA is still short of
funds to cover the salary payments because the promised
Emirati budget support of USD 40 million had not yet
materialized, in cash or via a confirmation letter. In fact,
he noted that the initial transfer was only likely to be USD

20 million, though he hoped there would be a second transfer
of USD 20 million. Al-Wazir acknowledged that he had not
told Arab Bank (or anyone else outside the PA Finance
Ministry) that the transfer is likely to be only USD 20
million because he needed Arab Bank to agree to full the USD
50 million credit line.

Refund of final tranche of
USG cash transfer
--------------


6. (C) Al-Wazir said that, since the PA had managed to
disburse salaries, he hoped to conclude with Arab Bank March
18 the refinancing of a PA loan (collateralized with PIF
assets) in order to refund the final tranche of the USD 50
million USG cash transfer for infrastructure projects in
Gaza. (Note: A USD 30 million first tranche was refunded on
March 1. End note.) (Comment: Post will continue to pursue
this repayment with al-Wazir. End comment.)

Arab Bank and the PA's
single treasury account
--------------


7. (C) Both al-Wazir and Toujas recently raised with
EconChief their conversations with Arab Bank management about
Arab Bank's serious concerns about continuing to hold the
PA's single treasury account once a Hamas-led government
takes over and that Arab Bank had sought USG counsel on the
matter (per Embassy Amman reftel). Al-Wazir told EconChief
March 15 that he hoped the USG would allow Arab Bank to
continue operating the PA's single treasury account. Without
a green light from the USG, al-Wazir said he was certain that
Arab Bank would close the account. He commented that it was
proving difficult to identify a large enough bank that would
be willing to take over this account. He argued for a
separation between political and technical matters, so that
there could be a non-Hamas-affiliated financial system.
Otherwise, he warned, everything will crash the minute a
Hamas-led government takes over. Toujas said he saw no real
alternative to the Arab Bank holding the PA's single treasury
account and urged the USG to respond soon to Arab Bank.
WALLES