RAMALLAH, July 1 (JMCC) - The International Monetary Fund declined a request, submitted by Israel, that it bail out the Palestinian Authority to the tune of $100 million dollars,
reports Haaretz.
The surprising request appears to have grown out of a relationship between Palestinian Prime Minister Salam Fayyad and Bank of Israel Governor Stanley Fischer that began when they were both working for the IMF.
In April, as the Palestinian Authority's financial crisis continued, Fayyad asked Fischer to intercede with the international body, reports the Israeli newspaper. Palestinians could not make the request themselves because the Palestinian Authority is not a state.
The plan therefore, was for Israel to take the loan on the Palestinians' behalf, have the PA repay the loan to Israel, and Israel would repay the IMF.
The IMF rejected the Israeli request, however, saying it did not want to set a precedent of a state taking a loan on behalf of a non-state entity.
Israel's approach to the IMF began to take shape during the IMF's annual conference in Washington in mid-April. PA Prime Minister Salam Fayyad met during the conference with Bank of Israel Governor Stanley Fischer and the two discussed the PA's serious financial crisis.
According to a senior Israeli official, Fayyad explained to Fischer that the euro crisis in Europe and the financial crisis in the United States made it impossible for Western nations to increase their financial assistance to the PA. At the same time, Arab states were not transferring funds that they had promised, and Palestinian banks were refusing to extend any more credit to the government due to its inability to make debt payments.
This economic squeeze was giving the PA a serious cash-flow problem that was making it hard to pay salaries to government workers, particularly to security personnel. Salaries are being paid late, and many only get half their salaries when they are paid.
Fayyad told Fischer that the PA needed $1 billion to make its payments for the coming year and asked him to help the Palestinians get a bridge loan from the IMF. Since the PA is not a state and not a member of the IMF, it cannot qualify for a loan, even if its circumstances might merit it.
Fischer discussed the matter with Prime Minister Benjamin Netanyahu and got a green light to proceed.
The IMF refused the request, however, preferring not to set a precedent.
Meanwhile, the Palestinian Authority is reporting that it is in its worst financial crisis ever, according to the AFP. Coffers are empty with no funds available for July salaries or to pay off debts to local companies. The shortfall is in part due to Israel's withholding of tax revenues last year and to donors not living up to commitments to the Palestinian Authority, which is highly dependent on foreign aid.
(This article was corrected from its original version, which incorrectly stated - as did
Haaretz - the amount requested from the IMF.)