Palestinian sees economic woes despite unity deal

RAMALLAH, West Bank, Feb 27 (Reuters) A Palestinian unity coalition will do little to resolve a financial crisis caused by an economic embargo imposed by Western powers and Israel, the Palestinian monetary chief said today.

''It's going to be a difficult year, 2007,'' George Abed, governor of the Palestinian Monetary Authority, told reporters in the West Bank town of Ramallah.

The Monetary Authority acts as a central bank and would become one if a Palestinian state is established under a US-backed peace plan known as the ''road map.'' Abed doubted that the joint coalition being drawn up by the ruling Hamas party and Palestinian President Mahmoud Abbas's Fatah movement would meet the Quartet of West Asia power brokers' conditions for a resumption of economic ties.

''I don't know exactly what signals the new government would send about the three Quartet conditions. I don't expect them to accept them all,'' he said.

The Quartet of the United States, European Union, Russia and United Nations has demanded Hamas drop a refusal to recognise Israel, renounce violence and accept past peace deals as conditions for ending an aid embargo imposed after Hamas rose to power last March.

The embargo has been enforced by local and international banks which have refused to transfer any funds directly to the Palestinian Authority.

The Palestinian budget deficit has grown as a result from 368 million dollars in 2005 to 655 million dollars in 2006, he said.

Israel has also withheld tax revenues totalling more than 50 million dollars a month that it customarily hands over to the Palestinians.

As a result Palestinian government revenue has dropped by 31 percent from 1.557 billion dollars in 2005 to 1.073 billion dollars in 2006, Abed said.

The unity deal ''will not provide a magic solution'' to these problems, Abed said. ''We should be careful therefore to tailor our expectations to maybe partial relief, but not a substantial difference from what we saw in 2006.'' Abed said the Palestinians may count on limited aid soon from Arab states to help pay the salaries of more than 165,000 civil servants who haven't been paid in full in months, and some help for infrastructure projects.

But that won't be enough to meet the economy's needs, he said.

''There's no ultimate relief from the crisis we're in and there may be no signs of growth in the economy in 2007,'' while unemployment and inflation may rise, he said.

Hamas and Fatah reached an agreement in Mecca this month to form a unity government in a deal that stopped short of meeting the Quartet's demands, but were still negotiating the terms of a government.

REUTERS SBA RN0104