Hamas’ Suitcase Economy

JERUSALEM – Mahmoud Zahar says he will not be deterred in bringing suitcases stuffed with millions of dollars in cash into the Gaza Strip when he returns from his travels abroad. "We are going to continue to bring money in through Rafah crossing," he said recently, referring to the Gaza-Egypt border terminal.

The Palestinian foreign minister is one of two Hamas ministers in the past week to resort to this tactic in a desperate effort to contend with the effects of a Western boycott that has left the new Hamas-led government bankrupt. The unusual practice prompted a letter from the European monitoring mission that oversees operations at the Rafah crossing, saying that the cash-in-suitcase method was a violation of border agreements.

But Zahar, who brought in $20 million on June 16 in four suitcases on his return from a seven-country tour, including Indonesia, China, Pakistan, and Iran, remained defiant. "This is a legal process," he insisted. "We are not going to allow anyone to prevent us."

(On Wednesday, the Rafah crossing was closed for a day by European Union observers after Israel issued a warning of a possible suicide attack, drawing criticism from Palestinian officials who contended that the shutdown was a ruse to halt the cash transfers).

This week, thousands of government workers lined up outside postal banks in Gaza to receive three $100 bills each – courtesy of the cash ferried in by Zahar and his Hamas ministerial colleagues. In the West Bank, government workers started receiving their $300 partial payment on Wednesday. (The cash to Hamas came from private donations and charities.)

But with government expenses amounting to $160 million a month, and life under sanctions becoming increasingly harsh for ordinary Palestinians, the suitcase funds are at best a stopgap solution. Already three full paydays for government workers have been missed, and the fourth is due in 10 days.

Overall, the Palestinian Authority, which is the largest employer in the West Bank and Gaza, still owes more than $300 million in unpaid salaries. Ahmed Youssef, an adviser to Hamas Prime Minister Ismail Haniyeh, conceded that the cash being brought in through the Rafah crossing could at best "ease the situation for a month or two."

The decision by the U.S. and European countries to cut aid to the Hamas-led government, which was formed in March, along with the $50 million in customs duties Israel collects every month for the Palestinian Authority and is withholding, has cost the Palestinians hundreds of millions of dollars in financial assistance. Until Hamas recognizes Israel, renounces violence and accepts previous Israeli-Palestinian peace accords, Western countries say, the aid tap will remain tightly shut.

On Wednesday, Palestinian officials said Hamas would accept a proposal that recognizes Israel’s right to exist and a negotiated two-state solution, although a final document has yet to be formally approved.

Arab countries, so far, have failed to provide salvation. They have pledged over $660 million in assistance this year, but have yet to deliver. Arab leaders face pressure not to help Hamas, which has been labeled a terrorist group by both the U.S. and European Union. Arab banks have also been reluctant to transfer money to the Palestinian government, fearing they could run afoul of U.S. anti-terror legislation which includes sanctions.

"There have been a lot of promises from Arab states but the signs [of something happening] are not encouraging," Ahmed Tibi, an Arab lawmaker in the Israeli parliament, told IPS. "The reason for this is U.S. pressure."

In Gaza, only postal banks handled the money brought in by the Hamas ministers, since commercial banks fear being exposed to anti-terror sanctions.

But with the humanitarian crisis in the West Bank and Gaza worsening, and Western powers fearing a descent into chaos in the occupied territories, the Quartet of Mideast peacemakers, including the U.S. and the EU, agreed over the weekend to activate an aid mechanism that will allow for the transfer of $125 million in humanitarian funding to the Palestinians.

The money will be transferred via a World Bank fund, enabling the Quartet to bypass the Hamas-led government, and will be used to directly fund health care, utilities, and social services. A mechanism for funding poor families will take longer to put in place.

"We have two aims with this mechanism … to stave off the danger of a humanitarian crisis … and to signal also clearly to this new government that indeed there can be no business as usual with a government that has not yet accepted these … fundamental principles of peace," said EU External Relations Commissioner, Benita Ferrero-Waldner, who was in the region on Monday to discuss the funding mechanism.

The EU on Wednesday called on countries worldwide, including Israel, to contribute funds to the World Bank account. It wants Israel to channel the $50 million in tax payments it collects every month on behalf of the Palestinians into the new fund, but Prime Minister Ehud Olmert has yet to agree.

"The money will go to the people," said Javier Solana, the EU’s top foreign policy official. "It is not a mechanism to support the [Palestinian] government [but] to support the people that are in need. That is the whole idea behind the mechanism."

Palestinian President Mahmoud Abbas is not enamored with the Quartet plan: "The mechanism is not clear and is not complete and will lead to abolition of the role of the government and of the PA [Palestinian Authority]," the official MENA news agency quoted him saying.

Under intense pressure to alleviate the cash crunch, Hamas leaders have been negotiating with Abbas and his Fatah Party over the formation of a national unity government that would not include Hamas ministers and would be made up of technocrats. Palestinian leaders hope this will open the way for the lifting of sanctions.

"The unity government is a mechanism for getting out of the political isolation the government now faces," says Tibi, who once served as personal adviser to Yasser Arafat. "I’d say there’s a fifty-fifty chance it will happen."

Continued sanctions, says Tibi, are counterproductive. "They will create more and more poverty, and more and more anger."

Western countries, he adds, are "punishing the Palestinians for holding a democratic election. Personally, I was not satisfied with the result, but the decision [to elect Hamas] was a democratic decision."