British proposal may open rift with U.S. on Hamas

JERUSALEM, May 4: A British proposal to set up a trust fund to help pay overdue salaries directly to employees of the Palestinian Authority has highlighted transatlantic differences over dealing with the Hamas-led government.

Western diplomats said today Britain had proposed creating a fund, an idea also floated by France, to stop Palestinian institutions collapsing under financial pressure.

But they said the Bush administration has moved in recent days to block the proposals.

Palestinian officials acknowledge that U.S. pressure has also thwarted a Hamas-backed plan for the Arab League to deposit donor funds directly into the accounts of government workers.

The United States does not want to take pressure off Hamas to renunce violence, recognise Israel and abide by interim peace deals, the diplomats said. The U.S. embassy in Israel declined to comment on the trust fund scenario.

Supporters say the proposed trust funds would be used to pay some Palestinian salaries and to maintain basic health and education services in a bid to prevent the Authority and its institutions from collapsing under Western financial pressure.

A British government document obtained by Reuters calls for creating a trust fund to ''mitigate the decline in living standards of the Palestinian people and reduce the possibility of domestic instability by sustaining delivery of basic services such as health and education.'' Under the proposal, donors would put money into the trust fund, which would then move the money directly into a commercial bank account outside the Palestinian Authority's control.

The money in the fund would be used for pre-approved services, from workers' salaries to medical supplies. The International Monetary Fund has estimated 45 million dollars a month would be needed for health, education and other basic services.

''Direct payment of salaries to the bank accounts of key workers would help maintain basic services and put money into the Palestinian economy,'' the British document said. U.S. OBJECTIONS The Hamas-led government has yet to pay March and April wages to 165,000 employees. It has been unable to receive funds from abroad because banks fear sanctions by the United States, which regards Hamas as a terrorist organisation.

Despite the U.S. objections, British and other European diplomats say they are pushing ahead with the plans for a trust fund, which would be managed by the World Bank, the International Monetary Fund or the United Nations.

''The work is still going on,'' one Western diplomat said.

''The question is, would they (the United States) block it?'' Another senior Western diplomat said the Bush administration could single-handedly veto the proposals.

Even if the United States agreed to let the Europeans proceed, the senior Western diplomat added: ''It will take a long time to set (a trust fund) up. It might be too late.'' Increasingly desperate for funds, the Palestinian government has also asked Palestinian monetary authorities for an emergency 0 million loan.

While the independent Palestine Monetary Authority said it was reviewing the request, officials said it does not appear to have enough funds to make the loan.

The Authority, which regulates banks that operate in the West Bank and Gaza, has an estimated 41 million dollars in reserves and 26 million on hand in cash, officials said.

REUTERS