U.S. to give assurances to ease funds to Palestinians

By Mohammed Assadi

RAMALLAH, West Bank (Reuters) - The Bush administration plans to issue assurances within days that could ease the flow of funds to an account controlled by Palestinian Finance Minister Salam Fayyad, a U.S. official said on Thursday.

But it was unclear whether the assurances, expected to come in the form of letters to banks and donors, will include restrictions that would prevent Fayyad from using the funds to cover the expenses of the Hamas-led Palestinian Authority, Western diplomats and Israeli officials said.

Fayyad's plan hinges on Arab donors making good on pledges of financial assistance. Arab states have not fulfilled previous promises.

"Our banking regulations generally do not apply to the PLO (Palestine Liberation Organisation) account," said Micaela Schweitzer-Bluhm, public affairs officer at the U.S. consulate in Jerusalem. "We are working with Salam Fayyad to clarify how entities might contribute to this account."

She said the clarifications would be issued "in the next couple of days", but did not provide any details what they would entail.

Fayyad is counting on using the PLO account to receive $55 million that Arab League member states have promised to pay each month to cover about half the salaries of government employees.

Government workers have gone without full wages since Hamas Islamists came to power in March 2006. Western donors have cut off direct funds to the Palestinian government, demanding it recognize Israel, renounce violence and accept existing interim peace deals.

BANK TRANSFERS

In a recent visit to Washington, Fayyad had asked the Bush administration to give a green light to donor nations and banks to use the PLO account to get around a ban on bank transfers to the government itself.

The PLO, which has signed interim peace deals with Israel and is led by President Mahmoud Abbas, has not been subject to U.S. financial restrictions imposed when Hamas won last year's election, a U.S. official said.

Fayyad said earlier this week he had made partial payments to Palestinian workers for the first time and bank executives said he used the PLO account.

But Western diplomats said Fayyad appeared to use funds previously transferred to Abbas's office to make the payment, and has yet to receive money directly from donors.

Fayyad has promised workers will get half their salaries at the start of each month, including money from the PLO account and "allowances" from a European Union aid program.

Once the U.S. letters are issued, a senior Western diplomat involved in the discussions said, the PLO account could begin to receive funds from the Arab League and possibly other donors.

Fayyad would pay "income support" across the board, similar to the European aid mechanism, rather than salaries.