DEMARCHE REQUEST: IMMEDIATE BUDGET SUPPORT FOR

UNCLAS STATE 008722

SENSITIVE

SIPDIS

2ND C O R R E C T E D COPY (CAPTION AND PORTION PARAS MARKING)

E.O. 12958: N/A
TAGS: EFIN PGOV PTER PHUM KPAL KWBG
SUBJECT: DEMARCHE REQUEST: IMMEDIATE BUDGET SUPPORT FOR
THE PALESTINIAN AUTHORITY

REF: A. STATE 732

B. KUWAIT 22


1. (U) This is an action request: see paragraph 3.

2. (SBU) Summary: Special Envoy George Mitchell's trip to the
region demonstrates the start of the Obama Administration's
active U.S. engagement in the Middle East peace process.
Empowering the Palestinian
Authority (PA) is a focus of Mitchell's trip and critical to
the success of the Israeli-Palestinian track of peace
negotiations. The PA needs urgent support from foreign
donors to make February salary payments to its employees in
both the West Bank and Gaza. Not making these payments and
accruing arrears would constitute a major political blow to
Prime Minister Salam Fayyad and the improved reputation he
has built for the PA. In addition, the PA's immediate budget
crunch limits its ability to take the lead in addressing the
humanitarian and recovery needs in Gaza. Last year, the
U.S. made the largest single contribution to stabilize the PA
budget. European Union (EU) countries played a critical
role, but contributions from regional countries were also
important; Saudi Arabia, the United Arab Emirates (UAE),
Kuwait and Algeria provided significant budget support to the
PA in 2008 to help it avoid an end-of-year budget crisis and
pay off outstanding arrears and private debt. This cable
follows a previous demarche to Arab and European capitals
(ref A) and requests that posts again emphasize the PA's
urgent need for budget assistance. End summary.


3. (U) Action Request: The Department requests that action
addressees' demarche relevant government officials to achieve
the objectives listed below and report responses via front
channel cable.

Objectives
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4. (U) Objectives include:

-- Stress that Middle East Special Envoy George Mitchell
intends to intensify US engagement in the peace process and
has indicated that support for the PA is an essential
component of bringing stability and peace to the region.
Arab assistance to help empower the PA is critical to the
success of this renewed effort.

-- Urge addressees to provide immediate budget assistance to
the PA so that it can make salary payments on February 4,
including to its 77,000 employees in Gaza.

-- Emphasize that budget support will help the PA take the
lead on meeting the humanitarian and recovery needs in Gaza,
including through direct transfers of assistance to families
who lost their homes in the recent fighting.

-- Express appreciation for 2008 contributions from Saudi
Arabia, the UAE, Kuwait, and Algeria, which helped the PA
avoid a budget crunch at the end of 2008. Stress that the PA
needs a similar influx of Arab financial support now.

-- Stress that addressing the PA's immediate budget needs
cannot be postponed until the international pledging
conferences that are being planned in Cairo and Europe.

Reporting Deadline
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5. (U) Please report all host country responses to NEA/IPA Desk
Officer Andrew Lentz no later than February 4.

Background
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6. (SBU) According to the IMF, the PA's revenues in 2009 will
fall short of expenditures by $1.1 billion, or approximately
$95 million per month, affecting the PA's ability to pay
public sector salaries and provide essential public services.
PA Prime Minister Salam Fayyad has reported that he
presently does not have sufficient donor funding in the
pipeline to meet this shortfall and that his government will
not be able to make this month's salary payments on February
4 - including to 77,000 employees in Gaza - without assuming
short term debt. The costs associated with the recent
fighting in Gaza are not included in the IMF's estimate and
place a further strain on the PA's budget. The PA has
indicated that it may be forced to postpone future salary
payments in order to fund its strategy for assistance to Gaza
in the absence of alternative financing. Accumulating salary
arrears now would erode confidence in the government.


7. (SBU) Saudi Arabia ($210 million),the UAE ($133 million),
Kuwait ($80 million) and Algeria ($62.5 million) provided the
majority of Arab state budget support to the PA from Arab
states in 2008. Saudi Arabia already has pledged $1 billion
to assist with Gaza reconstruction, although it has not
specified the mechanism through which this assistance will be
delivered or if any of this money will be in the form of
budget support to the PA. Kuwait responded to a previous
demarche about the PA budget (ref B),indicating that it
plans to provide the PA with an additional $80 million in
2009 but did not specify its timetable. Algeria and the UAE
have not indicated if or when they intend to commit budget
support to the PA this year. Support from these four Arab
states would help send a strong signal of support for the PA
and help solidify its lead role in addressing the
humanitarian situation in Gaza.


8. (U) Special Envoy Mitchell is traveling in the region to
demonstrate active US engagement in the peace process and
refocus international diplomatic efforts. Through his
meetings in Israel, Egypt, Saudi Arabia, Europe and with the
Palestinian Authority he is seeking to advance several
near-term objectives: consolidating the ceasefire in Gaza;
increasing and sustaining humanitarian assistance into Gaza
and enhancing assistance to the West Bank; and bolstering
Arab moderates. Central to achieving these objectives is
empowering the PA. The US provided the PA with $150 million
in direct budget assistance in October 2008 as part of our
fiscal year 2009 contribution. The contribution brought our
calendar year contribution to the PA's budget to $300
million, the largest level of assistance to the PA from a
single nation.

Point of Contact
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9. (U) The point of contact is NEA/IPA Desk Officer Andrew
Lentz, ext. 7-2268, email lentzan@state.gov.
CLINTON