Cash-strapped Hamas struggles even to find bank

JERUSALEM, Apr 6: The new Hamas-led Palestinian government is struggling to find a bank willing to handle its finances, casting doubt on whether it can pay staff or receive foreign aid, Western diplomats and Palestinian officials said.

''You cannot run a government without having a bank,'' said a Palestinian official familiar with the Palestinian Authority's ''single treasury account'', where foreign donors deposit funds so the Authority can pay 140,000 workers and cover other expenses.

A Western diplomatic source said Hamas's difficulties in even finding a banker could ''disrupt the entire payment system''.

Officials of Hamas, which is listed by Washington and the EU as a terrorist organisation and whose charter calls for Israel's destruction, say the banking problem is part of an international campaign against the Islamist group.

A Hamas cabinet minister said yesterday the Amman-based Arab Bank, which has long handled the treasury account, had come under pressure from ''abroad'' to stop working with the Authority now that it was under Hamas control.

No comment was immediately available from the Arab Bank.

As a possible drastic solution, the cabinet minister said Hamas would not object to Palestinian Authority employees opening personal accounts so Arab and European donors could pay their salaries directly, an option some donors were considering.

Western diplomatic sources, speaking on condition of anonymity, said Hamas had been trying to move the Authority's treasury account from the Arab Bank to a local Palestinian bank to try to minimise the risk foreign funds would be frozen.

But the sources said other banks had so far balked at the request, in part because of the Authority's precarious finances and because of fears of a legal backlash from regulators in the United States and Europe.

''Pressure is being put on everyone that can be pressured,'' said a source familiar with Western efforts to squeeze the Palestinian banking system The source said the message from US and European officials to regional banks and donors was: ''If not cut them off, then at least slow up considerably any funding.''

ISRAEL Hamas took control of the Palestinian Authority last week, after winning parliamentary elections in January. The Israeli government has frozen tax revenue transfers to the Authority, and its banks have started severing remaining financial ties.

The Hamas-led government also faces a threatened cut in direct Western aid unless it renounces violence, recognises Israel and abides by interim peace deals.

''This is part of the announced economic war because we have chosen the path of democracy,'' said Palestinian Finance Minister Omar Abdel-Razeq.

Within the last few weeks, funds from the United Arab Emirates and Oman have been taken by the Arab Bank to repay earlier Palestinian loans, diplomatic sources said.

While Abdel-Razeq said the government expected to receive 80 million dollars from Saudi Arabia, Kuwait and UAE, he said it was unclear when the money would arrive. Diplomatic sources said Hamas was scrambling to find a bank to handle these funds.

In a further blow to the Palestinian banking system, Israel's largest bank, Bank Hapoalim, said this week that it was severing the main banking ties between Israel and the Palestinian territories.

Sources said Hapoalim would phase out dealings with Palestinian banks over the next three months, and Israel Discount Bank, the third-largest bank in the country, said yesterday that it may follow suit.

A Palestinian official involved in the banking system said the decision would hurt the economy and trade flows since some imports are backed by Israeli bank guarantees.

Longer term, the decision to sever banking ties could push Palestinians to shift away from the Israeli shekel to the Jordanian dinar as the main currency, the official said.

REUTERS