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New government is broke, Hamas leader says

GAZA CITY, Gaza Strip - The new Hamas-led government is broke and missed the April 1 monthly pay date for tens of thousands of Palestinian public workers, Prime Minister Ismail Haniyeh said Wednesday.

It was the Islamic militants' first admission they will have difficulty running the West Bank and Gaza without massive foreign aid.

Haniyeh offered no solutions to the cash crunch, pledging only to do his best to make up for tens of millions of dollars in aid being withheld by international donors and appealing to the Arab world to send more donations.

The Palestinian Authority is the largest employer in the West Bank and Gaza Strip, providing salaries for 140,000 people that sustain about one-third of the Palestinians. Haniyeh said it was unclear how the government will meet its payroll.

"The Palestinian Finance Ministry has received an entirely empty treasury in addition to the debt of the government in general," Haniyeh told the first meeting of his Cabinet.

"We are going to do our utmost as a government to pay the salaries of the Palestinian Authority employees despite the cash crisis that we are facing."

Finance Minister Omar Abdel Razek said he is waiting for $80-million from Saudi Arabia, Kuwait and the United Arab Emirates. "If they pay, and I hope they will, we will be able to pay salaries by the middle of the month," he told the Associated Press.

A collapse in the Palestinian Authority would devastate an economy where 44 percent of the population lives under the poverty line of about $2 a day and nearly one-quarter of the work force is unemployed, according to the World Bank.

Haniyeh's Cabinet, sworn into office just a week ago, needs to find ways to make up for foreign aid that Western donors are threatening to withhold, largely because of Hamas' refusal to recognize Israel and renounce violence. In the past, Palestinians received about $1-billion a year in foreign aid.

Israel also froze the transfer of tens of millions of dollars in tax revenues it collects on behalf of the Palestinians since shortly after Hamas' January election victory.

The United States and Canada already announced they are severing ties with the new government, and the European Union is to decide on its aid program next week.

Hamas has softened its statements since taking power last week but stopped short of meeting international demands.

In the latest mixed message, Palestinian Foreign Minister Mahmoud Zahar wrote to U.N. Secretary-General Kofi Annan on Tuesday that the new Hamas government believes its struggle against Israel's military occupation is just, but it wants to live side-by-side and in peace with its neighbors.

Zahar's letter also referred to Israel's "illegal colonial policies," which he said "will ultimately diminish any hopes for the achievement of settlement and peace based on a two-state solution."

[Last modified April 6, 2006, 02:00:13]