PA PAYS SEPTEMBER SALARIES EARLY; GAZA CASH

C O N F I D E N T I A L SECTION 01 OF 02 JERUSALEM 001840 SIPDIS NEA FOR FRONT OFFICE; NEA/IPA FOR GOLDBERGER/SACHAR; NSC FOR PASCUAL; TREASURY FOR ROSE/AHERN/HAJJAR E.O. 12958: DECL: 10/02/2018 TAGS: ECON EFIN KWBG PGOV IS PTER SUBJECT: PA PAYS SEPTEMBER SALARIES EARLY; GAZA CASH REMAINS LOW REF: A. JERUSALEM 1372 ¶B. JERUSALEM 1449 Classified By: CONSUL GENERAL JAKE WALLES, FOR REASONS 1.4B AND D ¶1. (C) Summary: With the help of Saudi and Kuwaiti budget support, the Palestinian Authority (PA) paid public sector salaries on time for August and September, while continuing to pay down wage arrears owed to its employees. The PA has now paid more than USD 300 million in back salaries in 2008, and plans to pay the remaining NIS 150 million (USD 34.9 million) before the end of the year. The lack of NIS notes and coins in Gaza forced banks to make partial payments to PA employees in Gaza, and to use USD and Jordanian Dinars (JOD) in some cases. In contrast, Hamas has enough NIS to pay its employees in Gaza in full through the postal banks. The monthly transfer of clearance revenues from the GOI proceeded smoothly in September, although PA officials report that the GOI withheld NIS 18 million (USD 5.3 million) to enforce a judgment against the PA in a U.S. court. End Summary. Foreign Funds Allow PA Salary Payments for August and September -------------- ¶2. (C) The PA paid August salaries on time to its public sector in the West Bank and Gaza on September 4 and paid September salaries early -- on September 25 -- prior to the Eid al-Fitr holiday. The PA was able to make these two salary payments thanks largely to transfers from Saudi Arabia (USD 100 million) and Kuwait (USD 80 million through the World Bank Trust Fund),as well as continuing European contributions. The PA also paid approximately NIS 1500 (USD 440) to each employee still owed back wages. In 2008, the PA has paid more than USD 300 million in salary arrears, and now owes approximately NIS 150 million (USD 34.9 million),which it expects to pay off before the end of the year. ¶3. (SBU) The PA also received the first payment (of approximately USD 80 million) from Wataniya Mobile following allocation of its frequency spectrum. However, the PA had taken a loan against that full amount to make a previous salary payment (reftels). Low Liquidity Slows PA -- But Not Hamas -- Paychecks in Gaza -------------- -------------- ¶4. (C) The lack of NIS notes and coins in Gaza banks hampers 
the PA's ability to pay its Gaza-based employees' salaries. Gaza banks capped daily withdrawals by PA account holders and distributed some salaries in USD and JOD. (Note: Banking sector contacts report that the increased number of dollars circulating in Gaza is driving down the black market exchange rate as compared to the West Bank. End Note). The Palestinian Monetary Authority (PMA) orchestrated a number of measures to keep liquidity in banks as they distributed September payments, such as unofficially delaying the opening of banks, closing early, shutting down ATMs, and having bank tellers "bargain" with customers for smaller withdrawals. According to UN sources, Hamas, in contrast, had a sufficient stock of NIS to be able to pay its employees in full -- and before the Muslim holidays -- through the postal banks. ¶5. (C) The amount of cash circulating in Gaza banks fluctuates, but it is reportedly now at its lowest level since the formation of the PMA in 1994. According to banking contacts and the PMA, Gaza residents appear to be losing confidence in the banking system and are hoarding cash rather than depositing it. PMA Governor Jihad al-Wazir maintains that Palestinian banks in Gaza require a liquidity level of approximately NIS 300 million (USD 69.8 million) to make monthly salary payments, and, as of September 24, only NIS 70 million (USD 16.3 million) was spread throughout 40 branches in Gaza. In response to PMA requests, the GOI permitted two transfers of cash (totaling NIS 100 million) in September from West Bank banks to their Gaza branches. These transfers, according to PMA officials, left the Gaza banking system short by approximately NIS 150 million as of the end of the month. Clearance Revenue Transfers Smooth, But Include New Withholdings For U.S. Court Case -------------- -- ¶6. (C) Ministry of Finance DG Hatem Yousef said that his monthly discussions with the GOI on transfers of clearance revenues continue to proceed amicably. Previous JERUSALEM 00001840 002 OF 002 disagreements over withholding for electricity payments appear to be settled, though Yousef argues that the PA should be provided invoices in advance for West Bank electricity consumption in order to better enforce payment from municipalities. ¶7. (C) Yousef noted that the GOI withheld NIS 18 million (USD 5.3 million) from the most recent transfer (on September 24) in compliance with an Israeli court order to satisfy a judgment against the PA in a U.S. court. Yousef said that the GOI has informed the PA that this same amount will be withheld from eighteen consecutive monthly transfers. WALLES