Palestinian Monetary Authority Ready for UN Bid Backlash

Bloomberg News

Palestinian Monetary Authority Governor Jihad Al Wazir said he has readied the financial system to withstand the repercussions that may follow a planned statehood bid at the United Nations as soon as this month.

Palestinian Authority President Mahmoud Abbas said Nov. 11 he’ll resist global pressure to drop the bid or wait until after Israeli elections on Jan. 22. That decision may spur Israel to halt the transfer of tax revenue to the Palestinian Authority, Israeli Finance Minister Yuval Steinitz said this week.

Palestinian Monetary Authority Governor Jihad Al-Wazir said, “The political decision has been taken and the leadership has been very outspoken in saying that there will be repercussions, and we are willing to take these repercussions.”

Palestinian Monetary Authority Governor Jihad Al-Wazir said, “The political decision has been taken and the leadership has been very outspoken in saying that there will be repercussions, and we are willing to take these repercussions.” Photographer: Thos Robinson/Getty Images for The Louis Blouin Foundation

Nov. 13 (Bloomberg) -- Israeli President Shimon Peres urges foreign donors to ensure that aid to the Hamas-controlled Gaza Strip isn't used to buy arms after more than 115 rockets were fired at Israel. He speaks with Bloomberg Television at a security conference in Tel Aviv. (Source: Bloomberg)

“The political decision has been taken and the leadership has been very outspoken in saying that there will be repercussions, and we are willing to take these repercussions,”Al Wazir, 49, said in an interview at his office in the West Bank city of Ramallah. From the window, there is a view of a large hole in the distance, where the monetary authority’s new headquarters is being built, and on the wall hangs an artist’s rendering of the project.

Almost five years after he was appointed to run a financial system that still uses Israel’s currency, Al Wazir, says he has taken “all the mitigation that can reasonably be taken” to ensure the stability of Palestinian banks. Outside his office, a Palestinian pound printed by the pre-state British mandate is displayed, a currency he hopes to resurrect in a future independent state.

Economy, Deficit

More immediate challenges include a slowing economy and a widening budget deficit that has left the government unable to pay its employees.

The Palestinians will breach the Oslo Accords if they proceed with their UN bid, an Israeli official said today, speaking anonymously as he wasn’t authorized to talk on the record. Israeli diplomats were instructed to spread the message that in response, Israel may cancel part or all of the accords, which were signed in 1993 to create a framework toward a final peace agreement, the official said in a phone interview.

Environmental Protection Minister Gilad Erdan said that among the steps Israel should take if the Palestinian UN bid proceeds is annexation of its West Bank settlements.

“When Israel speaks of unilateral steps, it’s not just cancellation of the Oslo agreement,” Erdan said in an interview with Israel Radio today. “Israel should announce in a clear manner that it is also preparing to annex Jewish settlements”in the West Bank.

Abu Jihad

Al Wazir was born in the Gaza Strip four years before Israel captured the territory in 1967. His father, Khalil al Wazir, was assassinated in 1988, when he was Palestine Liberation Organization leader Yasser Arafat’s top deputy.

While the father, known as Abu Jihad, ran operations against Israel from the PLO’s headquarters in Tunis, his son studied electrical engineering at Marquette University, a Catholic institution in Milwaukee, Wisconsin. Later he earned a doctorate in business administration at Loughborough University in Leicestershire, U.K.

Al Wazir’s four-year mandate to serve as governor was renewed this year. His achievements include a deposit insurance law and the creation of a credit bureau to encourage the flow of loans. He has also announced plans to securitize $200 million of government debt in the first quarter of 2013, turning loans from banks into tradable bonds, and to sell $50 million of sukuk sometime after that.

“Financial stability is our brief and we take it very seriously,” said Al Wazir, who has pictures of both Arafat and Abbas in his office. “It’s the external environment you can’t control, and the political environment. You do what you can.”

Two States

Even if Israel decides to cut off the transfer of tax income, it “won’t last long,” Al Wazir said, adding that he expects Arab nations to help offset any lost tax revenue.

Peace talks between Israel and the Palestinian Authority broke down two years ago when Prime Minister Benjamin Netanyahu refused to extend a partial 10-month construction freeze in West Bank settlements and the Palestinians said they wouldn’t resume talks as long as building continued.

“The day after the UN vote, we will sit down with the Israelis,” Al Wazir said. “The whole objective is to salvage the two-state solution.”

In the meantime, the Palestinian Authority is grappling with a budgetary crisis.

‘Serious Risks’

A slump in international aid has hurt a $10 billion economy that depends on donors. Israel’s military occupation restricts trade and investment opportunities, according to the World Bank. The West Bank and Gaza probably grew about 5 percent last year, down from an average of 9 percent in the previous three years, and unemployment rose to 19 percent in the first half of 2012, according to the International Monetary Fund.

The IMF warned in September that the Palestinian economy is facing “serious risks” and urged the government to pursue a contingency plan to cover its “financing gap.” The deficit this year is projected to be around $1.3 billion, compared with a projected $950 million, Al Wazir said.

“We are in a crisis now,” Al Wazir said. Government employees received only one-third to one-half of their October salaries, he said. The shortfall has led to escalating street protests against the Palestinian Authority’s rule.