- The Washington Times - Tuesday, April 11, 2006

RAMALLAH, West Bank — The Palestinian economy is deteriorating “dramatically” in the face of a Western cutoff in aid to the new Hamas-led government, President Mahmoud Abbas said yesterday.

Retailers are refusing to accept checks from government employees, fuel shortages are creating lines at some gas pumps and a top Israeli bank has said it no longer will work with its Palestinian counterparts.

“The situation is deteriorating in a dramatic and tragic way,” Mr. Abbas said, as reported by the Associated Press.

Israel continued to shell the Gaza Strip in retaliation for militant rocket fire at Israeli cities. In the past week, 13 militants and four civilians, among them a 7-year-old girl, have been killed in the attacks.

Most Palestinians are more concerned about the cash crunch, which is being felt a week after the United States and the European Union announced a suspension of tens of millions of dollars in aid to a government led by Islamic militants whose avowed goal is the destruction of Israel.

After five years of violence with Israel that slowed private-sector activity, government spending now accounts for half of Palestinian gross domestic product. International aid agencies have warned of an approaching humanitarian disaster, and signs of financial difficulties already are appearing.

At a Ramallah money changer yesterday, customers with checks from U.S. banks were being turned away for fear that the Israeli banks that normally process the notes wouldn’t handle the transactions.

In another sign of the crisis, Israeli gasoline supplier Dor Alon reduced supplies to the West Bank and the Gaza Strip to press for payment of a reported $35 million Palestinian Authority debt.

Suhail Jaber, the owner of a Ramallah gas station chain, said his daily shipments had been cut by more than 80 percent. Lines have been forming at gas stations and some Palestinian quarries have been forced to cut back production, he said. If the supply isn’t restored within a few days, traffic could be halted.

“I don’t know what will happen,” Mr. Jaber said. “It’s a big problem and we haven’t felt the magnitude of it yet.”

Israel, which is withholding customs taxes collected for the Palestinian government, this week severed nearly all of its ties with the Palestinian government save for Mr. Abbas, a relative moderate and member of the Fatah party, Hamas’ electoral rival.

The international community wants Hamas to recognize Israel, foreswear violence and honor previous peace agreements signed by Fatah. But Palestinian Prime Minister Ismail Haniyeh has called the U.S. pressure “blackmail,” while other Hamas spokesmen said Israel’s actions are tantamount to a declaration of war.

Yet many wonder whether the Hamas government can survive for long under the weight of the economic sanctions. Although Hamas officials said they have pledges of support from Arab and Muslim countries, they can’t say when or from whom the money is coming.

“The problem is very serious, and without huge Arab support the government will not be able to run the administration,” said Samir Barghouti, a Ramallah-based economic consultant to the European Union.

Mr. Barghouti concurred with a widely held expectation that sanctions would bolster Palestinian sympathies for Hamas, but added that the crisis will undermine public confidence in its ability to govern effectively. That eventually could prompt Mr. Abbas to call for new elections.

“Very soon it will affect the whole economy,” he said. “It will affect purchasing power, and the banking sector. If within two or three months people are not receiving their salaries, maybe the president will use his mandate to dissolve the parliament.”

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