Wednesday, April 26, 2006

A U.S.-led campaign targeting banks that help finance the Hamas-led Palestinian Authority faces a key test as Arab League officials in Cairo said they plan to transfer $50 million today to help the cash-strapped government pay its bills.

The Bush administration earlier this month broadened financial sanctions on the Palestinians in the wake of the surprise electoral victory in January of Hamas, which the United States and its Western allies consider a terrorist organization.

The money fight could provoke the first major crisis for the new Hamas-led government, which is almost completely dependent on outside aid to meet its payroll and carry out basic social services.

Hani Shawa, chairman of the Bank of Palestine, confirmed that his bank had denied a request from Palestinian Authority (PA) officials to process foreign aid payments.

“We deal internationally through our correspondent banks all over the world, but we declined to do that for the Ministry of Finance,” said Mr. Shawa, whose bank is the largest in the West Bank and Gaza Strip with 27 branches.

“We feel that if we open a treasury account for them, we might find ourselves facing sanctions from outside parties,” he said.

The United States and many European governments already have suspended most direct aid programs to the Palestinian government, and Israel has frozen the transfer of taxes that it collects on the Palestinians’ behalf.

New Hamas Prime Minister Ismail Haniyeh issued an urgent appeal yesterday to Arab nations, warning of economic collapse if new money is not forthcoming. He appealed to European donors to reconsider the aid freeze.

“If this policy continues, it might lead to chaos,” Mr. Haniyeh told reporters in Gaza.

Many of the PA’s 165,000 civil servants have reportedly not been paid since February. Government employment is estimated to support at least a quarter of the Palestinian population.

Nabil Amr, an aide to U.S.-backed Palestinian Authority President Mahmoud Abbas, complained over the weekend that a $50 million contribution from Qatar was frozen because of the U.S. sanctions.

“The Arab League has not been able to transfer even one penny due to the warnings to the banks and due to the financial siege that has been imposed on the PA,” he said.

But Palestinian Telecommunications Minister Jamal El-Khodary said Sunday that the PA would soon be receiving $71 million from Qatar, Saudi Arabia and the Arab League, and that only one bank, which he declined to name, had objected to transferring money to the Palestinian account.

Arab League spokesman Hesham Youssef in Cairo said the only thing delaying the payment was a holiday in Egypt that has kept the banks closed until today.

“We’re not sending money to Hamas. We’re sending money to the Palestinian Authority, to the minister of finance,” Mr. Youssef told Reuters news agency.

Finance Minister Omar Abdel-Razek said some pledged money had been converted from dollars to euros in a bid to get around the U.S. sanctions. But he did not say how it would be easier to bring in such funds.

Hamas officials said the most pressure had been applied to Amman, Jordan-based Arab Bank, one of the region’s largest financial institutions. Palestinian officials say U.S. pressure led the bank to freeze a long-standing Palestinian treasury account in recent days.

Treasury Department officials say they have been in contact with Arab Bank officials in recent days but declined to discuss the substance of the talks.

The Arab League also has an account at Cairo’s Misr International Bank, which recently came under the control of French financial-services giant Societe Generale.

Misr Chairman Muhammad Madbolly said late Monday that the bank had not been contacted by U.S. Treasury officials and had not received any deposit from the Arab League.

If U.S. officials did contact the bank, Mr. Madbolly said, “the board will meet and discuss what to do.”

But, he added, “until now, the account for the Palestinian Authority is an old one. We didn’t open a new account, and there is no intention to close it.”

• Joshua Mitnick reported from Gaza City. Heba El-Koudsy in Washington contributed to this report.

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