DEMARCHE REQUEST: KEEPING THE PA AFLOAT

C O N F I D E N T I A L STATE 071463 E.O. 12958: DECL: 07/02/2028 TAGS: KWBG KPAL IS PGOV PREL ECON SUBJECT: DEMARCHE REQUEST: KEEPING THE PA AFLOAT REF: STATE 054640 Classified By: NEA A/S David Welch for reasons 1.4 (B) and (D) SUMMARY -------------- ¶1. (SBU) Department requests action addresseespost urge host country at appropriately senior level to urgently identify funds in support of the Palestinian Authority (PA) budget. If host country has outstanding pledges to the PA, including commitments made through the Arab League, post should press for quick disbursements of budget assistance. OBJECTIVES -------------- ¶2. (SBU) Department instructs Embassy to pursue the following objectives: -- Engage with host government and stress the importance of continued support of the Palestinian Authority under Mahmoud Abbas and Salam Fayyad. -- Note USG,s fulfillment of our Paris pledge of more than USD 550 million USD for the Palestinians in 2008. -- Relay serious USG concerns that if additional funds are not identified, the PA will not be able to meet its expenses through the second half of 2008, which will cripple the government and stall important security, economic and political progress towards the creation of a Palestinian state. -- Urge Host government to identify and disburse additional budget assistance to the PA. -- (If Raised) Emphasize progress on Israeli-Palestinian negotiations. ADDITIONAL OBJECTIVES FOR KUWAIT -------------- -- Note USG understanding that the Cabinet Council must approve the transfer of $80 million in budget assistance to the PA through the World Bank Trust Fund. -- Underscore the importance of a quick Kuwaiti disbursement. -- Remind the GOK that it committed to an annual pledge of $92.4 million to the PA at the 2003 Arab League summit in Beirut. -- Note that unexpectedly high food and fuel prices have contributed to the large PA budget gap and have increased humanitarian hardships for the Palestinian people. Direct food and fuel assistance would also be welcomed in addition to urgently needed budget support. ADDITIONAL OBJECTIVE FOR THE UAE -------------- -- Express appreciation for UAE support so far in 2008, but urge the immediate disbursement of its $42 million annual Arab League Commitment to the PA. -- Note that unexpectedly high food and fuel prices have contributed to the large PA budget gap and have increased humanitarian hardships for the Palestinian people. Direct food and fuel assistance would also be welcomed in addition to urgently needed budget support. OBJECTIVE FOR ARAB LEAGUE -------------- -- Urge the Arab League to do all it can to urge those member states thatwho have not disbursed funds committed by at the 2003 summit of the Arab League in Beirut to do so urgently. -- Urge the Arab League to work with member states to identify additional funds to support the PA budget this year. -- Note that unexpectedly high food and fuel prices have contributed to the large PA budget gap and have increased humanitarian hardships for the Palestinian people. Direct food and fuel assistance would also be welcomed in addition to urgently needed budget support. REPORTING DEADLINE -------------- ¶3. (SBU) Embassy should report results of efforts by cable by July 11. POC in the Office of ISRAEL and Palestinian Affairs on this issue is Alon Sachar, SacharAX@state.sgov.gov; tel: 202 647-2267) BACKGROUND ON PA BUDGET AND SUPPORT -------------- ¶4. (U) On June 30, President Bush signed legislation authorizing close to $400 million for the Palestinian Authority in 2008 and 2009 supplemental funding. This additional funding ensures that the USG will meet its commitment, made by Secretary Rice at a donors conference in Paris on December 2007, to provide more than $550 million in assistance to the Palestinian Authority in 2008. The USG provided $150 million directly to the PA in March 2008 as budget support. As pledged in Paris, the USG is also preparing to make a similar budget support contribution to the PA in Fiscal Year 2009, and the bill signed by the President includes $150 million for that purpose. ¶5. (U) The IMF now estimates that the PA will face a serious fiscal gap in the second half of 2008, despite Prime Minister Salam Fayyad,s significant efforts to control public spending and reduce subsidies. ¶6. (U) At the December 17 Paris donors conference in support of the PA, about $1.1 billion in direct budgetary support was pledged to the PA in 2008, and roughly $180 million more has been pledged since. Most of this pledged support has already been disbursed to the PA. The United States and Europe have account for the vast majority of budget assistance to the PA in 2008 (roughly $700 million out of $930 million total disbursed through June). ¶7. (U) Only three Arab countries have disbursed funds to the PA this year, totaling under $230 million, to the PA. SAUDI Arabia has disbursed $75.6 million, the UAE has disbursed $91.6 million and Algeria has disbursed $62.5 million. Kuwait has yet to disburse any of the $300 million it pledged in Paris, including the $80 million that it committed to provide in budgetary support through the World Bank Trust Fund during the MEETING of the Ad Hoc Liaison Committee in London on May 2. ¶8. (U) Secretary Rice, when questioned about Arab support for the Palestinian budget, said that &I think that states that have resources ought to be looking not for how little they can do, but how much they can do.8 ¶9. (C) If the PA does not receive additional funds immediately from donors, it will soon be unable to cover monthly expenses, including paying civil servant salaries, maintaining health facilities, and providing other essential services. PA budget crisis could undermine PM Fayyad,s credibility with Palestinians. Prime Minister and Finance Minister Salam Fayyad has made his ability to pay debts and salaries on time a centerpiece of his credibility with Palestinians; a budgetary crisis could significantly undermine the viability of his government. ¶10. (C) BACKGROUND FOR RIYADH ONLY: Both Secretary Rice and NEA Assistant Secretary David Welch have recently raised this matter with SAUDI Ambassador Jubeir, who seemed amenable to exploring whethersee if the SAUDI contribution to the Palestinians could be increased. BUDGET SUPPORT COMMITTED AT THE 2003 ARAB LEAGUE SUMMMIT -------------- -------------- ¶10. (C) Direct budget assistance pledged at the Arab League summit held in Beirut in 2003 (in million USD): Algeria: 52.8 Bahrain: 13.2 Comoros: 6.6 Djibouti: 6.6 Egypt: 56.1 Iraq: 66.0 Jordan: 6.6 Kuwait: 92.4 Lebanon: 13.2 Libya: 79.2 Mauritania: 6.6 Morocco: 33.0 Oman: 13.2 Qatar: 26.7 Saudi Arabia: 92.4 Somalia: 6.6 Sudan: 9.9 Syria: 9.9 Tunisia: 9.9 UAE: 42.9 Yemen: 13.2 BACKGROUND ON PROGRESS TOWARDS PEACE -------------- ¶11. (SBU) Since the Annapolis Conference in November 2007, Israel and the Palestinians have been engaged in serious and substantive negotiations on the core issues between them. The two sides have built an impressive structure for the negotiations, including regular meetings at the leadership, negotiator and technical levels. The Palestinian Authority has made progress in imposing law and order, especially in the northern West Bank city of Jenin, with Israeli cooperation. ¶12. (U) The Israeli government also worked successfully with the Palestinian Authority in the PA,s hosting of a May 21-23 investment conference in Bethlehem that reportedly raised $1.4 billion for new projects that would create 35,000 new jobs for Palestinians. ¶13. (U) ISRAEL has taken some qualitative steps, such as removing some high-profile checkpoints and increasing permits for Palestinians to work in Israel. ¶14. (U) Post should draw further on REFTEL for more background. POINT OF CONTACT -------------- ¶15. (U) Please contact NEA/IPA Alon Sachar at (202) 647-2268 or via e-mail for any additional information to meet our objectives. RICE