FAYYAD DESCRIBES FLUID POLITICAL SITUATION,

C O N F I D E N T I A L JERUSALEM 000805

SIPDIS

SIPDIS

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

E.O. 12958: DECL: 02/24/2015
TAGS: PGOV EFIN EAID KWBG
SUBJECT: FAYYAD DESCRIBES FLUID POLITICAL SITUATION,
HAMAS-LED PA WON'T SURVIVE FINANCIALLY BEYOND JUNE

REF: A. JERUSALEM 801


B. JERUSALEM 802

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


1. (C) Summary: In a February 25 meeting with visting NEA
Assistant Secretary Welch, Third Way party leader and former
Finance Minister Salam Fayyad described the political
situation as fluid, with Hamas likely to take longer to form
a government than previously anticipated and not likely to
last beyond June. He said there still was a 50-percent
chance that Fatah would decide to participate in a Hamas-led
government but that President Abbas could prevent such a
development. He described the Hamas leaders that he met with
February 23 as nave. Fayyad said the Hamas-led PA would
soon go broke, even if Arab states provided the small amounts
of budget support that they were sending previously. Fayyad
called on the interim PA to tap the assets of the Palestine
Investment Fund (PIF) to keep the PA financially afloat until
Hamas takes over. He endorsed continuing international
assistance to the Palestinian people, including the private
sector. Fayyad questioned Abbas' ability to play a
leadership role said it was doubtful whether the Presidency
was worthy of donor support. Commenting on ongoing Israeli
military incursions in Nablus, he said the operations risked
provoking a response by Hamas, which in turn could harm
Kadima,s electoral prospects. End summary.

Political Situation Fluid
--------------


2. (C) Third Way party leader Salam Fayyad told Assistant
Secretary Welch, Consul General, and the U.S. Security

SIPDIS
Coordinator February 25 that the political situation remained
fluid. Fayyad described his February 23 meeting with Hamas
leaders (ref A) and stressed that he thought it would take
Prime Minister-designate Isma,il Haniyyah longer to form a
government than the two weeks that Haniyyah had mentioned
publicly. Fayyad stressed that the political situation still
depends on what Fatah decides to do. Hamas clearly wants
Fatah to join a national unity government, and Fayyad said he
believed there was a 50-percent chance that Fatah would join
such a government unless President Abbas firmly opposed it.
Fayyad pressed Assistant Secretary Welch to reinforce this
point with President Abbas; Welch responded that the USG does
not want to see Fatah or any independents join a Hamas-led
government.

Hamas Leaders "very naive"
--------------


3. (C) Fayyad predicted that the Hamas government would fail
by June "at the latest" due to lack of funds and the
incompetence of its leaders, who were "very nave," with no
experience running large organizations. One Hamas leader
with whom Fayyad met had mistakenly thought that the customs
clearance revenue was assistance and not taxes already paid
by Palestinians.

Solidarity of International Community
--------------


4. (C) Fayyad asked Assistant Secretary Welch how solid
international consensus was on withholding assistance from a
Hamas-led PA. Welch said that he believed the international
community would be able to stay together, adding that there
was widespread support to help the Palestinian people.
Welch stressed that he did not believe Hamas would get the
budget support it would need in order to keep the PA
financially afloat. He said that neither the Kuwaitis nor
the Saudis would fund a Hamas government, although the
Qataris might feel obliged to make a small contribution at
some point. Fayyad responded that even if Arab states
provided the small amounts of budget support that they were
sending previously, that would not be enough to keep the PA
afloat.


5. (C) Fayyad acknowledged that he had heard some "quite
nuanced" positions from the Israeli side on the ramifications
of withholding the clearance revenue. Welch concurred that
he had heard similar remarks but that he thought it unlikely
that the GOI would do anything before the elections.

Assistance Recommendations
--------------


6. (C) In terms of directing assistance to the Palestinian
people, Fayyad acknowledged that this was largely how the
USAID program had been structured; therefore he did not see

the need for much of an adjustment. He suggested that
assistance also be directed to the private sector. He also
encouraged the continued flow of assistance through UNRWA,
especially from the Europeans. He cautioned against
redirecting assistance to the Palestinian Economic Council
for Development and Reconstruction (PECDAR),noting that it
was an institution that should have gone out of business when
the PA was created since it works so closely with the PA,
anyway.


7. (C) Fayyad said that the concept of a clearinghouse for
assistance, run by the World Bank, could be helpful,
especially for donors, like the Europeans, who prefer to
channel assistance through entities like the World Bank
Reform Trust Fund so that it does not appear that they alone
are making disbursement decisions.

PIF Should be Used Now
--------------


8. (C) Fayyad said he was dismayed that President Abbas was
allowing the PIF to be managed in the "old way," i.e., with
little transparency. He described the creation of a
transparent and audited PIF as one of the few success stories
of the PA over the last two to three years. Fayyad said he
blamed the Khoury family for its undue influence over Abbas
(ref B).


9. (C) Fayyad questioned how safe the PIF's assets were
under the fund,s current structure. He said that if the
assets are misused, i.e., not used for the benefit of the
Palestinian people, Hamas would likely use the issue to
embarrass Abbas. Fayyad also said he thought that Abbas and
his advisors would not be able to protect this money from
Hamas; he failed to understand why they were not using the
PIF to fund the PA during the current interim phase when
other funding sources were so scarce. Fayyad said that he
had regularly used the PIF to keep the PA afloat while he was
Finance Minister; that had been the key factor in paying
salaries on time for 36 months. He stressed that the PIF was
a reserve for the Palestinian people; the fund was created
with money siphoned from government revenue and monopolies
back in the "bad old days."

An Expanded Role for the President?
--------------


10. (C) Fayyad questioned President Abbas' ability to play a
leadership role. He said that if Rashid Abu Shubak is
appointed as Director General of the Interior Ministry, it
would help shield the security services from Hamas influence.
Fayyad expressed skepticism that Abbas would actually play a
real security role, however. Maintaining a role for Naser
Yusif, for instance, would be &a complete disaster.8


11. (C) Regarding possible international interest in
strengthening the PA Presidency, Fayyad criticized the
current Presidency as &a group of weak amateurs8 and
expressed skepticism that such an effort would be worthwhile.
He expressed doubt that a beefed-up presidency could manage
security or the economy.

GOI Playing with Fire in Nablus
--------------


12. (C) Fayyad pressed Assistant Secretary Welch to caution
the Israeli government on their recent military activities in
the West Bank, especially in Nablus. While Fayyad understood
the political dynamics with the upcoming Knesset elections,
he said Israel was &playing with fire.8 He said that Hamas
was under pressure to react, which could hurt Kadima's
chances.


13. (U) A/S Welch cleared this message.

WALLES