Envoy sees crisis in Palestinian funds

JERUSALEM — A special Middle East envoy has warned international donors that the Palestinian Authority could collapse within two weeks unless money can be found to pay salaries, clear overdue energy bills and sustain government services financed largely by foreign aid.

In a Saturday letter addressed to senior diplomats from Russia, the United States, the European Union and the United Nations, envoy James Wolfensohn said Israel's decision to withhold the sales tax and customs fees it collects for the Palestinian Authority has pushed the caretaker government to the brink of insolvency.

Palestinian leader Mahmoud Abbas' secular Fatah movement runs the government. But that will change in a few weeks when Hamas forms the next Cabinet following its victory in parliamentary elections. Hamas has been designated a terrorist organization by the United States and the European Union.

Wolfensohn, a former World Bank president, said the Palestinian Authority needs $60 million to $80 million by the first week of March to pay 150,000 civil-service employees and trainees, nearly half of them in the security forces.

The European Commission, the executive body of the EU, agreed Monday to provide $144 million to the Palestinian Authority, designating most of it for social programs and energy bills. About $20 million could be used for salaries.

"If we do not want to see rising tension leading to violence and chaos — particularly just before the Israeli election — we will have to develop urgently a convincing strategy addressing the PA's financial and developmental needs, not only in the short-term of the next few weeks but also in a longer time frame," Wolfensohn wrote.

Wolfensohn addressed his letter to senior diplomats of the Quartet, as the group of Middle East peace interlocutors is known, before he briefs them this week on the Palestinian Authority's fiscal health. A Quartet member provided a copy to The Washington Post, but Wolfensohn's office declined to comment on its contents.

In the letter, Wolfensohn proposes a donor meeting in mid-March to find ways of financing the Palestinian government without violating anti-terrorism laws that prohibit money from going to Hamas, which refuses to recognize Israel.

"If we don't get this right, I am afraid past investment in the Palestinian development will be lost, a Palestinian economy will not be sustainable, the Palestinian people will live off humanitarian handouts, and security for both Palestinians and Israelis will be in greater jeopardy than it has been for years," he wrote.

The European Union has been considering ways to bolster Abbas, who as Palestinian Authority president has power over the security services and the ability to fire the Cabinet.

Benita Ferrero-Waldner, the European Union's external-relations commissioner, said the money approved Monday would "reduce the pressure on the caretaker government so that President Abbas can continue his important task of building the next government."

Jihad al-Wazir, the acting Palestinian finance minister, said that because all but $20 million of the European aid is earmarked for humanitarian projects and utility bills it will help the government only slightly with its most pressing problem of paying salaries.

"It will help the Israeli companies receive payment for energy bills," al-Wazir said. "But it really doesn't help with our immediate crisis."