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Palestinian banks agree to cover some govt wages

Posted on: Sunday, 4 June 2006, 08:08 CDT

By Mohammed Assadi

RAMALLAH, West Bank (Reuters) - After threats from militants, Palestinian banks agreed on Sunday to pay out of their own funds 40,000 government workers who have gone without wages for three months.

The banks said they would provide interest-free loans to the Palestinian government's lowest-paid employees, covering one month's salary for 40,000 people at a cost of around $13 million.

By dealing directly with the employees, the banks sidestep the threat of international sanctions against financial institutions that deal with Hamas, the Islamic militant movement that now leads the Palestinian government.

"We are ready to lose millions of dollars but not to risk our relationship with U.S. banks and risk international sanctions," one banking official said of the arrangement.

The announcement came hours after four militant factions, in a rare joint statement, threatened the banks, saying it was their national duty to help the Palestinian people and accusing them of being a "tool of Zionism" if they didn't help.

After talks with the equivalent of the Palestinian central bank, the banks said they would provide the loans to those earning 1,500 shekels a month ($325) or less. The loans will be extended from Monday.

The scheme may be expanded to higher-salary employees on the Palestinian government's 165,000-member payroll later.

A consortium of 22 banks was involved in the discussions.

While a seemingly bold step, the decision was likely only to alleviate partially the funding crunch that has afflicted the West Bank and Gaza, where about 3.8 million Palestinians live, since Hamas came to power in March.

The Israeli government and U.S. and European Union officials had no immediate response to the banks' decision.

Israel, the United States and the EU regard Hamas as a terrorist organization. The categorization has discouraged local, regional and international banks from doing any business with Hamas or the Palestinian government.

OLMERT MEETING

The banks have been discussing what they can do for several weeks, but Sunday's decision came only after four militant factions, representing both Hamas and the more secular Fatah movement, applied pressure in a tersely worded statement.

The factions said that if banks did not help they would be dealt with like "those who besiege the Palestinian people and deprive their children of a livelihood," a reference to Israel.

"Palestinian banks are national institutions and they exist to serve the interests of the Palestinian people," said the statement, the first threats by militants against the banks.

The joint statement came despite a power struggle between Hamas and Fatah's leader, Palestinian President Mahmoud Abbas.

Abbas last month called on Hamas to support a document that implicitly recognizes Israel or else face a referendum on the issue in early July, a vote Hamas could well lose.

Hamas does not recognize Israel's right to exist and has rejected international demands to renounce violence, recognize the Jewish state and abide by existing interim peace deals.

Abbas has given Hamas 10 days to accept the document and has said the deadline will expire on Tuesday.

Hamas has shown little inclination of accepting the document. Haniyeh said on Friday that it needed more detailed discussion and on Sunday rejected out of hand any referendum, saying it would be illegal to hold such a vote.

Israeli Prime Minister Ehud Olmert was quoted by Israeli officials as telling his cabinet on Sunday the document was "completely unacceptable and not the basis for anything."

As part of his efforts to continue a dialogue with Israel despite Hamas's rise to power and his own weakness, Abbas is expected to hold talks with Olmert in the coming weeks, although no date has been set.

Olmert planned to meet Egyptian President Hosni Mubarak in the Sinai resort of Sharm-el-Sheikh later on Sunday to brief him on his plan to set Israel's borders with or without Palestinian agreement.

(Additional reporting by Nidal al-Mughrabi in Gaza and Corinne Heller in Jerusalem)

Source: REUTERS

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