JERUSALEM, (Reuters) – A year-old Western embargo on the Palestinian Authority could be eased by Finance Minister Salam Fayyad’s plan to use an outside account to collect Arab funds to pay salaries and other bills, diplomats said on Friday. But the plan, which hinges on the United States making clear that banks and donors can send funds into a Palestine Liberation Organisation (PLO) account under Fayyad’s control, will not in itself fill the Hamas-led government’s funding void nor give it the direct control it seeks over its own finances.
U.S. officials said they were considering Fayyad’s request.
If approved, it could allow Arab donors to transfer hundreds of millions of dollars in promised funds. But Washington said underlying financial sanctions against the Authority itself would remain in place, including a ban on bank transfers.
Western diplomats and analysts said opening the PLO’s taps could be part of a shifting U.S. strategy to bolster Fayyad and others in a month-old Palestinian unity government who come from outside the Hamas Islamist group.
At the same time, such a move could address Arab demands that Palestinian economic woes be eased as a condition for wider peace talks with Israel.
Under Fayyad’s plan, the PLO account would effectively become an external government treasury. It could pay at least partial salaries and contractors in place of the government, which would coordinate expenditures through Fayyad.
Israeli officials played down the impact of the change on Palestinian finances, but said it could nevertheless bolster Hamas, which formed the unity government with President Mahmoud Abbas’s Fatah to end bloody infighting.
The PLO account would supplant accounts held by Abbas’s office, the main channel for foreign funds since Hamas came to power in March 2006 and Western donors froze direct assistance to push the group to recognise Israel and renounce violence.
The World Bank and others have complained of a lack of adequate financial controls in Abbas’s office.
The new payments system would revolve around Fayyad, who has good relations with Western powers and Israel. “The day he leaves, this ends,” a diplomat briefed on the plan said.
International Crisis Group analyst Mouin Rabbani said this shows “some leeway” by Washington that would make it easier for other donors to deal with parts of the government as well as being part of an effort to make Fayyad the “de facto power”.
The Palestinian Authority needs an estimated $115 million for salaries and pensions, and $50 to $60 million more for other expenses, officials said.
Fayyad is counting on getting about $55 million from Arab League members, about half what he needs to pay salaries.
On top of that, the EU Temporary International Mechanism is expected pay $34 million a month in “social allowances” to workers, retirees and poor Palestinians, diplomats said.
Together, Fayyad’s account and the EU programme could cover 70-75 percent of the monthly wage bill, compared to an average of 50 percent of wages paid last year, diplomats said. “He will probably not be able to pay full salaries for a long time because the wage bill is too large,” a diplomat said. “But it is much closer to financing the government than before.”
To cover running costs of ministries themselves, Fayyad aims to use an estimated $15 to $20 million a month in revenues collected domestically by the Palestinians, diplomats said.
Israeli officials say they still hope to convince U.S. policymakers not to ease the flow of funds to Fayyad, but acknowledge U.S. policy is increasingly intertwined with efforts to jumpstart peace talks with Arab states.