Palestinian Authority Near Financial Collapse
Middle East Envoy Warns International Donors

Scott Wilson
Washington Post Foreign Service
Tuesday, February 28, 2006 11:00 AM

Washington Post staff writer Scott Wilson , who is based in Jerusalem, was online Tuesday, Feb. 28, at 11 a.m. ET to discuss the possible financial collapse of the Palestinian Authority and what this could mean for the incoming Hamas government. Middle East envoy James D. Wolfensohn has warned international donors that funding is needed soon in order to pay for salaries and sustain government services.

Read more: Palestinians on Financial Brink, Envoy Warns , ( Feb. 28, 2006 )

The transcript follows.

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Scott Wilson: Hi everyone. Excuse me for being late. I'll get right to your questions.

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Washington, D.C.: If the Palestinian Authority is only leading the government for two more weeks, what will happen when Hamas takes over? Will international donors be less likely to assist?

Scott Wilson: This is the key question. The United States and Israel have been leading a diplomatic effort to cut off funding to the Palestinian Authority once Hamas, which the US and Europe designated a terrorist organization, forms the next cabinet. There are signs some countries may not go along with this, fearing the Palestinian government will collapse. And Iran has offered in principle to make up the shortfall, something that the US and Israel fear.

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Albuquerque, N.M.: Wasn't the impending financial crisis a foreseeable issue that Palestinians knew would arise by their voting for Hamas? If so, shouldn't they have to accept the consequences of their vote?

Scott Wilson: It may have been foreseeable, and as some Israeli analysts have said, the international community may have an obligation to respect a free election but not necessarily the government that's elected. I'm not sure many Palestinians thought through the international consequences - keep in mind they don't consider Hamas a terrorist organization - and many voted to punish the previous ruling party, Fatah, for its corruption.

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Harrisburg, Pa.: What might be the result of letting the Palestinian Authority to collapse financially and forcing them to negotiate a broad agenda with Israel?

Scott Wilson: That seems like a fairly big assumption - collapse means negotiation. The result of a collapse would mean a greater Israeli involvement in the West Bank and perhaps Gaza again, given its responsibility under international law for the health and welfare of the residents of the occupied territories. Israeli officials say they don't want economic pressure to force a collapse, but rather to force Hamas to renounce violence and accept a two-state solution to the conflict before its forms the cabinet.

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San Juan Capistrano, Calif.: What entities (governments or others) are likely to provide financial help to the Palestinians in the near future?

Scott Wilson: Direct aid may be limited to Arab countries and perhaps Iran. The US, European Union, the United Nations and others are looking for ways to either channel money directly to Mahmoud Abbas, the Palestinian Authority president from the rival Fatah movement, or NGOs to administer humanitarian aid to the Palestinians. The idea would be to avoid any channel Hamas controls - namely, the ministries.

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Bethesda, Md.: Isn't there a qualitative difference between withholding aid, given to a government of an underdeveloped jurisdiction, and tax and customs payments collected on that government's behalf, as Israel is doing? Are those taxes legally considered aid or intergovernmental money exchanges done because of logistics of employing one jurisdiction's workers on another jurisdiction's soil are against respect for mutual sovereignty? Could, for example, one U.S. state refuse to remit sales taxes to another on interstate commerce because of policy disagreements?

Scott Wilson: Interesting question. The sales taxes and customs revenues Israel collects on the PA's behalf is not considered aid. Israel agreed to transfer these monthly collections - which amount to about one-third of the PA's income - as part of the 1993 Oslo accords. It is considered Palestinian money, and UN officials, among others, say the Israelis do not have the right to freeze the money (it's in an escrow account.) This is different from international aid, which of course is given at he discretion of the governments involved.

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Oslo, Norway: Why would the U.S., Russia and other nations committed to fighting terrorism expect Israel to be tolerant of Hamas and provide them with money? Shouldn't the other peaceful nations encourage Israel to fight terrorists like Hamas and cut all funding?

Scott Wilson: As noted above, Israel does not give the Palestinians money. It transfers sales and customs fees collected in the occupied territories to the Palestinian government, as per agreement. The world does not expect Israel to go easy on terrorism, given how much it has suffered. But there are questions being raised about whether crippling the Palestinian Authority may in fact create violence.

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Columbus, Ohio: Why do you say that the U.S. and Israel "fear" that Iran might make up any financial shortfall of the PA? Who have you spoken with in the U.S. about this and what were their reasons for fearing that scenario? I don't quite get that.

Scott Wilson: I've talked to a number of US officials, as well as Israelis, who believe Iranian influence in the Palestinian Authority would be extremely harmful to future prospects for peace. Iran's president recently called for Israel to be "wiped off the map," so you can imagine that its financial influence inside the PA would not be something Israel or the United States would welcome. Iran already funds Hezbollah, the radical Shiite group in southern Lebanon, that is a sworn enemy of Israel. (Israel occupies the Shebaa Farms, which Lebanon claims as its land, although the United Nations considers it part of Syria.)

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Munich, Germany: If the bankruptcy of the Palestinian Authority will serve to reduce stability and security between Israel and Palestine, what does Israel have to gain by withholding tax and customs revenue transfers that could prevent this bankruptcy?

After all, seeing how Sharon was at one time an opponent of Palestinian self-government, is it so unreasonable to believe that Hamas could eventually make the same transition to a stable two-state solution? It certainly can't if the Palestinian Authority is bankrupt and nonfunctional.

Scott Wilson: As noted, Israel is applying pressure to influence Hamas before it forms the next cabinet, not collapse the government, according to Israeli officials. And Palestinian and Israeli analysts believe that Hamas could modify its position and recognize Israel, much as the PLO did with Oslo 13 years ago. Israel also considered the PLO as terrorist organization before Oslo. But there are also many Israelis, particularly those in the security and intelligence agencies here, who say Hamas will never change and giving it any control over territory will lead to more attacks against Israel.

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Ramallah, Palestine: Israel controls the lives of Palestinians on a daily basis if there is a Palestinian Authority or not. They cannot travel, go to school, go to work, import or export goods, get licenses to build, with the permission of the Israeli authorities. At the same time they speak of peace and continue to take large "pieces" of the West Bank for their expanded settlements and prison wall. So if the west and the world cut financial aid to the Palestinians because they exercised there democratic right to choose there representatives, maybe it is a good thing to let Israel pay for their occupation with U.S. tax payer money.

Scott Wilson: This is an argument that was being made even before Hamas' victory,a actually, and an interesting one. I talked to some younger members of Fatah before the elections, and they talked favorably about dissolving the PA and calling instead for the right to vote in Israel - a strategy called the binational solution. It would be a radical break in Fatah's strategy since before Oslo - i.e., an independent Palestinian state - but, given some of the everyday difficulties Palestinians face as you outlined and the sense that neither negotiations nor armed attacks will resolve the situation, one that is gaining momentum in some quarters.

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Anonymous: "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," Wolfensohn wrote. Am I missing something. Has past investment been succeeding to date? If so, which investments. I'd love to see the follow-up to the flower greenhouses investment made after the Israeli pullout. I read Wolfensohn's statement and it sounds rather deluded.

Scott Wilson: There has been tremendous corruption in the PA, a main reason Fatah lost its monopoly on power. The Palestinian attorney general recently outlined more than 20 cases that he said have amounted to more than $700 million in stolen public money - much, if not all of it, from foreign donors. These cases all date to Yasser Arafat's time in power, but it has discouraged future investment in the territories. The greenhouses actually got off to a good start, but the crossings between Israel and Gaza have been closed quite a bit (the main crossing for agricultural products and other goods - Karni - is closed right now.) Israel has done so for what it says are security concerns.

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Houston, Tex.: Is it true that payments to the PA from Israel are actually taxes collected by Israel on behalf of the Palestinian state?

If so, are those funds currently being withheld by Israel?

Scott Wilson: Yes

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Baltimore, Md.: I am discouraged that the reporting around paths to take in the Middle East has been so limited to the absolutist positions. Recognition of Israel along their current borders necessarily means the end of hope for a viable Palestinian state. Radical Arab control over the region means Jews being tossed into the sea.

Why is it that no one is proposing the sort of middle ground solution this administration has demanded of Sunnis, Shiites, Kurds, and Turkmen in Iraq? If a unified multiethnic, democratic republic in which all citizens are afforded the franchise of full citizenship is good enough for Iraq, why isn't it good enough for the land of greater Palestine?

Forget the 67 borders and start from the position that the region should not be an ethnically exclusive state surrounded by barbed wire and minefields in which followers of a different religion are relegated to second class citizen or criminal status. Make them contributing and represented citizens with full rights to property, assembly, and speech.

The U.S. should insist upon this. If not to be a true fair broker to be ideologically consistent.

Scott Wilson: The US position, as outlined in the peace program known as the roadmap, is a two-state solution. That is the middle ground the administration insists on, but as you said, the absolutists on both sides have problems with it.

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Rock and a hard place: I think the long-term lesson here for the democracies of the world is that we need to work on stamping out corruption in the "approved" transitional governments, otherwise the radicals will use clean government as a wedge issue to get into power.

Scott Wilson: Interesting point, no debate here.

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Alexandria, Va.: Why did Israel recently begin withholding these taxes? Were they passing them over before? How did the PA's financial system work on a practical level?

Scott Wilson: Israel has been passing over the tax and customs money for years. Each month it transfers the revenue, roughly $55 million. It actually made the transfer after Hamas won the Jan. 25 elections, but does not plan to do so again unless Hamas changes.

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Albuquerque, N.M.: Is there any movement within the Palestinian territories to tell Hamas to simply accept that Israel has a right to exist and to accept the previous agreements between the PA and Israel?

If not, wouldn't that prove that the Palestinian people fear retaliation from Hamas since a simple acknowledgment along those lines would allow funds to continue?

Scott Wilson: Mahmoud Abbas, head of the Fatah movement and the PA's president, did exactly this in his speech to the new legislature on the day it was sworn in. He demanded Hamas renounce violence, accept Israel, and pursue negotiations based on a two-state solution. But his party just lost the elections....

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Bethesda, Md.: Will Hamas' election and the implication, repeated frequently, that Palestinian voters rejected a two state solution by voting for a designated terrorist organization, strengthen the election prospects of Israeli militants like Likud and Netanyahu? Will coverage of the Israeli Knesset campaign be given as much space as the Palestinian Legislative Council campaign was given, as well as its results?

Scott Wilson: So far Kadima, the self-described centrist party created by Ariel Sharon and now headed by acting PM Ehud Olmert, has not shown signs of losing support. It's polling to win about 40 seats, or a third of the Knesset, more than double its closest rival. But there's a month left and that's a long time here (just look what happened in January.) I plan to cover the Knesset elections as best I can.

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Arlington, Va.: "It is considered Palestinian money, and U.N. officials, among others, say the Israelis do not have the right to freeze the money (it's in an escrow account.)" So the argument from the U.N. is that Israel is required to pass these funds along to Hamas, even if they will be used for terrorism - is it any wonder that US support for the U.N. is falling?

Scott Wilson: That was the position articulated in recent days - before Hamas has installed its cabinet. The US, as a member of the Quartet (which also includes the UN, Russia and the EU), endorsed funding the PA until Hamas installs its cabinet (due to happen late next month). I don't know if the UN will change its policy once Hamas does so.

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San Diego, Calif.: What is the fuss about? Isn't this democracy in practice? Palestinians know that Hamas is a hated organization in the West and yet they elected Hamas. Freedom has a price and it appears that the "in your face" election of Hamas will have a heavy price for Palestinians.

Why should we bail them out?

Scott Wilson: Many diplomats would answer your question by saying to avoid chaos and violence, as James Wolfensohn did in a letter to the Quartet over the weekend.

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Washington, D.C.: Like many people in the western press, you have now twice asserted that the main reason that Fatah was voted out was due to corruption. If that is the case, and the Palestinian people don't really agree with/the nihilistic agenda that Hamas so regularly espouses, then why doesn't it make perfect sense to offer Hamas the choice of either adhering to their stated goal of destroying Israel and not collecting the aid, or renouncing their violent tradition and recognizing Israel. After all, if you're correct, then the Palestinian people don't really even believe in Hamas's stated goals (despite the fact that they continue to espouse virulently anti-Semitic and anti-Israel propaganda). Of course, if keen western observers are incorrect, and the Palestinian people really do believe in what Hamas stands for, including destruction of Israel, then this may be a problem.

Scott Wilson: I didn't' say it was the main reason, but a main reason. Another main reason is that many Palestinians saw Fatah's strategy of negotiation with Israel as fruitless - the separation barrier is going up, settlement activity continues, checkpoints dot the West Bank. Israel has very real security concerns. But you are right in saying that Palestinians also voted for a different program, to some degree, one that embraces violence against Israel.

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Scott Wilson: Thanks to everyone for participating. Hope to join you again soon.

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