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Identifier
Created
Classification
Origin
06JERUSALEM563
2006-02-08 04:40:00
CONFIDENTIAL
Consulate Jerusalem
Cable title:  

PALESTINIAN AUTHORITY WILL DISBURSE SALARIES,

Tags:   EFIN  KBIO  KWBG  IS 
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RUCNDT/USMISSION USUN NEW YORK IMMEDIATE 1196
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						C O N F I D E N T I A L SECTION 01 OF 03 JERUSALEM 000563 

SIPDIS

SIPDIS

NEA FOR FRONT OFFICE; NEA/IPA FOR WILLIAMS/WATERS/LOGERFO;
TREASURY FOR NUGENT/ADKINS

E.O. 12958: DECL: 02/06/2016
TAGS: EFIN KBIO KWBG IS
SUBJECT: PALESTINIAN AUTHORITY WILL DISBURSE SALARIES,
STILL SEEKING FUNDS FOR FUEL, EMERGENCY HEALTH AND
EDUCATION EXPENDITURES, AND UNEMPLOYMENT AND SOCIAL
TRANSFERS


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



1. (C) Summary and comment: Palestinian Authority (PA)
Deputy Finance Minister Jihad al-Wazir confirmed February 7
that he will disburse salaries February 8 since he has
managed to cobble together almost USD 113 million. He does
not yet have enough to cover unemployment, retirement, or
social benefits, totaling at least USD 3 million. He also
needs another USD 72 million for fuel supplies and emergency
payments of arrears to health and education sector suppliers.
He confirmed that he had not received any transfers from
Gulf states but expected a letter February 8 from Qatar
confirming its imminent transfer. Given the uncertainty to
date over the delayed payment of January PA salaries, the
local press are reporting reduced domestic consumption and
that some Palestinians are starting to exchange foreign
currency savings into Israeli shekels. Without additional
external financing, the PA will soon reach the point where it
cannot pay salaries or cover its outstanding bills. At that
point, conditions could rapidly deteriorate and a
humanitarian crisis could ensure. End summary.

PA will pay January salaries


--------------------------





2. (C) Palestinian Authority (PA) Deputy Finance Minister
Jihad al-Wazir confirmed February 7 that the USD 54 million
in clearance revenue transferred by the Israeli government
was in the PA's single treasury account. Al-Wazir also
confirmed that the PA had received a USD 25 million loan from
Jordan Investment Bank, that is collateralized against
Palestine Investment Fund (PIF) assets. Al-Wazir also
described a number of smaller credit lines (bridge loans) and
revenue collections that will enable him to disburse January
PA salaries, totaling USD 113 million, on February 8.
Al-Wazir managed to cobble together USD 106.33 million for
the salary payments with the following funding:

-- USD 54 million from clearance revenue that the Israeli
government transferred;
-- USD 25 million loan from Jordan Investment Bank
collateralized against PIF assets;
-- USD 9.78 million income tax payment from Arab Bank;
-- USD 2.8 million extension of credit from Palestine
Investment Bank, against future domestic revenues;
-- USD 2.8 million extension of credit from Jordan Bank,
against future domestic revenues;
-- USD 1.52 million extension of credit from Cairo-Amman
Bank, against future domestic revenues;
-- USD 3.26 million in property taxes collected that will not
be transferred to municipalities;
-- USD 7.17 million in past excess payments for security
retirement benefits;

Al-Wazir said he was waiting for a USD 3.26 million advance
on VAT owed by PalTel and was asking Arab Bank for a credit

line of USD 3.41 million against the future Qatari transfer.

PA still needs funding for
unemployment and other benefits


--------------------------





3. (C) Al-Wazir stressed that he did not yet have enough
funds to pay unemployment benefits to roughly 13,000 "former"
militants and other beneficiaries or retirement and social
benefits (totaling at least USD 4 million). He noted that he
had asked for additional security on the Finance Ministry
offices in Ramallah and Gaza because he assumes those groups
may try to attack the Finance Ministry when they realize
their benefits are not in their accounts. He would like to
be able to make those transfers next week. Al-Wazir added

JERUSALEM 00000563 002 OF 003


that President Abbas plans to hold a press conference
February 8 announcing the formation of a committee to review
all appointments to the security and civil services since
mid-2005.

Still seeking funding for fuel
and emergency arrears


--------------------------





4. (C) In addition to still needing funds to pay
unemployment, retirement, and other social benefits, al-Wazir
said there was another fuel payment due to the Israeli fuel
provider Dor on February 10 for roughly NIS 100 million (USD
21.74 million). He also needs to pay at least NIS 230
million (USD 50 million) in emergency arrears to health and
education sector suppliers, including pharmaceutical
suppliers. Those arrears are in addition to NIS 400 million
(USD 87 million) in non-emergency arrears due to other PA
suppliers. Al-Wazir described the outstanding total of
commercial bank loans at USD 600-700 million. He joked that
he may have been able to delay the financial collapse of the
PA this week but it was likely at the expense of certain
local commercial banks who are now even more likely to face
balance sheet problems.

Nothing to date from Gulf;
not even a letter


--------------------------





5. (C) Al-Wazir confirmed that he still did not have letters
in hand from the Qatari or Saudi governments promising
transfers of budget support. However, the PA had heard from
the Minister of State in the Qatari Foreign Ministry that
such a letter would be sent February 8. Al-Wazir noted that
the PA had heard nothing from Riyadh and he is worried that
they were playing political games.



6. (C) The office of the Quartet Special Envoy relayed that
Quartet Special Envoy James Wolfensohn called Saudi Finance
Minister Assaf February 7, following up on an earlier phone
call, and urged the Saudis to transfer the promised USD 20
million to the PA. Minister Assaf replied to Wolfensohn that
he had spoken with both the King and the Saudi Foreign
Minister and was told that the Palestinians should not expect
USD 20 million from the Saudis.

Effect to date of non-payment
of salaries


--------------------------





7. (SBU) PA employees and their families are already bearing
the consequences of the delayed payment of January PA
salaries, according to ConGen contacts and local press
reports. Commercial banks in some areas are allowing
customers overdraft privileges, in some instances capped at
the amount of the expected salary check. Money changers have
reported a steep increase in the number of people changing
U.S. dollars and Jordanian dinars into Israeli shekels, an
indication that Palestinians are drawing on their savings to
meet daily living expenses. A Gaza laborer interviewed in
local Arabic language daily Al-Hayat Al-Jadida noted that a
single PA salary is often the sole means of supporting a
large, extended family. In the same article, merchants in
the West Bank and Gaza reported a steep drop in sales due to
the shortage of income. A Gaza merchant stated that, with
the dramatic decline in the number of workers allowed into
Israel in recent years, the importance of PA salaries to the
livelihood of Palestinians and the economy as a whole had
become increasingly important. Given the threat of an end to
international assistance due to Hamas, January 25 election
victory, many PA employees are worried that delayed payments

JERUSALEM 00000563 003 OF 003


will be the norm, according to press reports.

Comment


--------------------------





8. (C) Al-Wazir has bought the PA a few more days or weeks,
but the current caretaker government is still very much
living financially day-to-day or as a World Bank official
said February 7, "in liquidity crisis mode." While it
appears to have managed to pay salaries only a week late, the
other looming payments, whether fuel or unemployment
benefits, could cause it still to sink this month. External
funding is still a critical need.



9. (C) Without additional external financing, the PA will
soon reach the point where it cannot pay its salaries or
cover its outstanding bills. This could happen while the
current caretaker government remains in office, or
immediately after a new, presumably Hamas-led government
takes over. Either way, the lack of liquidity in the economy
will have an immediate impact on living conditions.
Conditions could deteriorate rapidly, possibly resulting in a
breakdown in law and order and a humanitarian crisis. End
comment.
WALLES