AID CUTOFF TO PALESTINE ATTEMPT TO BRING HAMAS TO HEEL

by Fawzia Sheikh

(IPS) JERUSALEM -- The economic situation in the Palestinian territories following the rise to power of the armed group Hamas is rapidly growing bleak on news that the Israeli government plans to deny payments for civil servants, and that this may be followed by foreign aid cuts.

Israel will withhold an estimated $45 - 55 million in tax transfers and customs duties it collects on behalf of the Palestinian Authority (PA). The move is in response to Hamas's refusal to lay down weapons, recognize Israel's right to exist and embrace a dialogue of peace.

Not only is Israel taking action, but international donors are holding closed-door meetings and speaking openly about halting foreign aid to a government that advocates the annihilation of its neighbor and supposed peace partner.

About 34 donors and international organizations each year contribute more than a billion dollars to the Palestinian Authority. The EU, the largest donor, gives $600 million while the U.S. injects $400 million, with relatively small contributions from the rest.

"The severing of aid and of the taxes due to Palestinians in the Occupied territories will result in large-scale famine and political chaos," Prof. Jamil Hilal, a sociologist at West Bank's Birzeit University told IPS.

"The fragmentation of the Palestinian territories into Bantustans through checkpoints and the separation wall, which Palestinians name as the Apartheid Wall, has increased the rates of unemployment," he said.

One-third of the labor force is unemployed, he said, and poverty has increased because the security perimeter Israel is building to prevent suicide bombings restricts the movement of commodities and labor.

Palestine has a combined population of 3.6 million in the West Bank and Gaza. According to the World Bank, unemployment runs at more than double the rate before the second Intifadah, the 2000 Palestinian uprising against the Israelis. Almost half of Palestinians live below the poverty line.

Moreover, the Palestinian Authority's budget deficit has ballooned to $800 million, said the World Bank in a report issued last December.

"Palestinian Authority fiscal expansion...is unsustainable; unless checked, it will lead to functional bankruptcy," the report warned. The inability to meet monthly salaries and deliver basic services will be the most likely results.

Former president Jimmy Carter, who last month led a team of electoral observers to the territories, has become an advocate for giving Hamas a chance. Otherwise, he said, a backlash of aid cuts will make ordinary Palestinians such as police officers, teachers and healthcare workers suffer even more.

And such misery, he warned, may begin the next chapter of violence against Israel, which has halted attacks following a ceasefire in 2004.

Hamas managed to secure a surprising 76-seat majority in the 132-member Legislative Council in the first parliamentary elections in 10 years, and dethroned the late Yasser Arafat's Fatah party that has dominated politics for 40 years.

Hamas has repeatedly sworn that it will not disarm until Israel retreats to pre-1967 borders that saw Palestinians in control of the West Bank and Gaza.

Fatah was once hailed as the best hope to achieve a peace with Israel, but its reputation was ruined by accusations of corruption, and its powerlessness to restore law and order.

But Hamas's new political status soon spurred talk of a possible financial fall-out that is now becoming reality.

Middle East experts believe the loss of aid from western governments seems a foregone conclusion. Yet the public policy think tank, the Israel-Palestine Center for Research and Information in Jerusalem, says Hamas expects Islamic states such as Saudi Arabia, Qatar and Iran, as well as Muslim charities, to pick up the slack.

Hamas is already holding talks with Saudi Arabia, which gives an estimated annual 40 million dollars.

"I think they will get enough money to cover salaries," Gershon Baskin from the center told IPS. Salaries of public servants take $35 - 40 million dollars a month from the public purse. But he says Middle East donors will not go so far as to offer investment or infrastructure money.

Despite the fact some Muslim countries professing brotherhood with Palestinians tend not to translate their solidarity into significant financial assistance, Baskin believes Hamas has "a lot better chance" than the PA of obtaining money especially from Iran. Moreover, he says, Hamas is likely to gain Iran's favour because of its refusal to engage in a formal peace process with Israel.

"But the PA will not be a recipient of major bucks as in the past," he said.

Hamas, however, never planned to rely on donor aid. Its economic agenda includes plans to halve salaries of parliamentarians from a monthly 3,000 dollars, as well as to combat corruption by investigating members of the previous government accused of stealing money.

Critics in the past pointed fingers at Fatah, including Arafat himself, for siphoning government funds for personal gain that compromized a fair part of the Palestinian budget.

"They have yet to be tested," Baskin said of Hamas's financial policies. But he says the militant group definitely wants to hit home the message that it is more disciplined than its predecessor.

In the face of slashed transfer payments and the looming threat of aid cuts, Hamas's campaign promise of fiscal responsibility may yet be a sparkle of economic hope in the territories.