JERUSALEM (Reuters) -Palestinian Finance Minister Salam Fayyad said in an interview published on Wednesday he was hopeful the United States would ease banking sanctions that have paralyzed the Palestinian government for more than a year.
Fayyad made the comments to Palestinian daily al-Ayyam after meetings in Washington with U.S. Secretary of State Condoleezza Rice and other senior Bush administration officials.
“The secretary has expressed understanding to linking our ability to improve financial performance and the need to function freely with the banks,” Fayyad told the newspaper.
The banking restrictions have been in place since Hamas Islamists came to power in March 2006, largely forcing donors to redirect funds to President Mahmoud Abbas’s office and a temporary European aid mechanism.
Hamas has resorted to smuggling in cash in suitcases. The sanctions have prevented the Palestinian government from paying its workers their full salaries in over a year.
Hamas and Abbas’s Fatah faction formed a unity government last month, hoping to stem fighting between the groups and ease the sanctions.
Palestinian and Western officials said Washington was unlikely any time soon to lift restrictions that prevent local, regional and international banks from transferring funds directly to accounts within the Palestinian government.
But they said Washington was considering other options proposed by Fayyad, including authorizing transfers to accounts he controls at the Palestine Liberation Organisation.
Since funds have been funneled through Abbas’s office for months, it is unclear how using the PLO accounts will make a major difference in Fayyad’s efforts to reestablish the Finance Ministry’s direct control over government accounts.
“Slowly, slowly it (the economic embargo) is loosening. But they have a lot of obstacles,” said a senior Israeli security source involved in maintaining the economic sanctions.
A Western diplomat involved in the matter said allowing transfers to the PLO accounts may not solve the problem.
“The issue is whether the Finance Ministry itself can operate accounts,” the diplomat said.
Israel has vowed to shun the entire unity government, including Fayyad, but the United States and the European Union have authorized contacts with non-Hamas ministers, including Fayyad.
Rice met Fayyad in his “private capacity” on Tuesday, the State Department said.
A decision by Washington to ease the banking embargo would amount to a policy break with Israel, which wants the freeze on funds to remain in place to keep pressure on Hamas to recognize Israel, renounce violence and abide by interim peace deals.
The PLO recognizes Israel and is headed by Abbas, whom Washington supports.
The EU has been studying the option of funneling money through the new finance minister, though it is unclear how that can be accomplished if banks will not make transfers.
Banks in the region are especially vulnerable to U.S. and Israeli pressure because they rely on “correspondent” financial institutions in Israel and the United States for day-to-day transactions in shekels and dollars.
Under U.S. law, any foreign bank that refuses to cooperate with the United States in cutting off funding to Hamas could have its U.S. assets frozen and lose its access to U.S. financial markets.
U.S. banks could, in turn, be required to terminate any correspondent accounts.