Peace Bust Imperils $2.2 Billion for Aid-Needy Palestinians

Bucking U.S. warnings to keep his distance from Hamas won’t come cheap for Palestinian President Mahmoud Abbas.

Already hobbled by anemic tax collection and depressed economic growth, the West Bank-based Palestinian Authority stands to lose more than $2 billion a year, or half its budget, following the collapse of peace talks with Israel. Western powers have threatened to withhold aid after Abbas, challenged to give Palestinians hope by laying out an alternative vision of achieving statehood, announced a reconciliation pact with the Gaza Strip’s militant Hamas rulers.

Without the aid, the PA may struggle to keep writing paychecks for its 170,000 employees, from postal clerks to prison guards, undermining 20 years of government-building efforts.

Hamas, the Islamist movement considered a terrorist group by the U.S. and Europe, says patching up the seven-year rift that produced rival governments in the West Bank and Gaza is worth the cost.

“We have gotten used to facing all sorts of threats and we can accommodate any circumstances,” Hassan Yousef, one of the founders of Hamas, said in an interview in Gaza City.

Joint Government

The sides announced on April 23 they’d form a joint government within five weeks. While two similar deals since 2011 fell apart, circumstances may be more favorable this time because both parties are under pressure. Hamas has been hurt financially by the ouster of Egypt’s Muslim Brotherhood-backed government, while Abbas has seen the collapse of his peace talks with Israel, which Hamas opposes.

Azzam al-Ahmad, chief negotiator for Abbas’s Fatah party, will return to Gaza this week for more talks with Hamas as a May 27 deadline looms for forming a joint cabinet, spokesman Ahmad Assaf said today in a phone interview from Ramallah.

The reconciliation effort has included goodwill gestures, such as lifting bans on the distribution of the east Jerusalem-based Al Quds newspaper in Gaza and the Hamas daily Felesteen in the West Bank.

In an effort to neutralize tensions, Hamas and Abbas’s Fatah party are negotiating to assemble a 15-member cabinet made up of “technocrats,” meaning professional people unaffiliated with either movement.

Automatically Yanked

If Abbas does conclude his agreement to govern with Hamas, under U.S. law, there’s a risk that the annual $440 million that American taxpayers contribute to Palestinian society will be yanked automatically. Similar terms govern the European grant of 426 million euros ($584 million), said David Kriss, the EU spokesman in Tel Aviv. Israel has already said it will withhold at least some of the $1.2 billion it collects annually for the Palestinians in customs tariffs and other payments.

Together, the sanctions could chop $2.2 billion from the authority’s $4.2 billion budget. Hamas’s Yousef expressed hope the Arab League would honor an April 28 pledge to make up for any foreign aid cut because of the reconciliation agreement, although league members in the past have reneged on financial commitments to the PA.

“We all know that the PA survives only through foreign donations and without them, it could collapse,” said Ahmed Awad, a political scientist at Al-Quds Open University in Gaza City.

Unwanted Collapse

Others are skeptical about the doomsday scenario. After Kerry visited the region more than a dozen times on his peace mission, it’s doubtful the U.S. would want the Palestinian Authority to fall apart and risk renewed fighting with Israel, said Nasser Abdel Karim, director of research at the Palestine Economic Policy Research Institute in Ramallah.

As the talks broke down last month, Abbas himself several times voiced the possibility of shutting down the Palestinian Authority and “handing back the keys to Israel,” shifting the economic burden. Aides said the idea was more an expression of frustration than a realistic threat.

“The U.S. doesn’t want to undermine the progress it’s made in the peace process,” Abdel Karim said, adding: “It’s not in Israel’s interest to let the PA collapse and have to deal with the unrest.”

Cutoff Precedent

It wouldn’t be the first time the U.S. turned off the aid spigot, though. When Hamas teamed up with Abbas’s Fatah organization in 2006 to form a joint cabinet, the Bush administration suspended all assistance to the authority. The money was restored after Hamas pulled out of the alliance and threw Fatah out of Gaza.

Under the Palestinian Anti-Terrorism Act of 2006, aid is frozen in the event of a power-sharing government that includes Hamas as a member, or an administration over which it exercises “undue influence.” To avoid the cutoff, Hamas would have to explicitly commit to non-violence, recognize the state of Israel and accept previous Israeli-Palestinian agreements, something it has refused to do in the past.

European governments have promised Abbas “unprecedented economic, political and security support” if he persuades Hamas to recognize Israel and renounce violence, according to a May 12 statement by the Council of the European Union. “Engagement with a new Palestinian government will be based on its adherence to these policies and commitments,” the EU said.

Netanyahu Appeal

With all the talk of cutting off funds, U.S. and Israeli officials have said they want to avoid such a step. Israeli Prime Minister Benjamin Netanyahu appealed to Abbas in an April 28 interview with CNN to “tear up your pact” with Gaza’s rulers.

When international donors were slow paying their pledges in 2011 and banks balked at providing more credit, former Prime Minister Salam Fayyad cut salaries in half temporarily, triggering street protests and demands that he resign. Only when he warned that the authority was on the brink of collapse did the money come through.

“I know the consequences that we will face,” said Nimer Tirawi, a police officer in the northern West Bank city of Nablus. “I live from paycheck to paycheck and it’s barely enough to get by.”

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