While the bulk of the Arab world is awash with liquidity arising from the burgeoning oil price, Palestine finds its economic circumstances severely straitened. The election of a Hamas government in January 2006 reverberated through international institutions and many have implemented systems to sever links with the new party in power. The local stock exchange has collapsed by more than  20% following the election, while the Palestinian Authority is facing a cash deficit of at least $110 million a month. GDP growth has also declined from a comparatively robust 8% in 2005 to as little as -0.2% in 2006 and -0.6% in 2007.  Events in  Lebanon have done nothing but further destabilise Palestine politically and economically.

The country’s parlous state is being exacerbated by the closure of the banking system to the outside world. International banks are prohibited under the Patriot Act from dealing with terrorist governments. So any dealings with Palestine’s Hamas controlled institutions are barred. According to Nabil Sha’ath, the former Foreign Minister for Palestine and a member of parliament for the Fatah Party, speaking at the recent World Economic Forum meeting at Sharm-el-Sheikh, ‘The banking system is prohibited from dealing with Palestine. Even before the Hamas election, it was becoming very difficult for people to transport money to non-governmental organisations. They said there was a ‘potential risk of money laundering. So every Palestinian is a suspect for money laundering activities.’

Sha’ath continues, ‘Through its control of the banking system and its use or misuse of the anti-terrorism act, the United States has clamped down on transfers of funds by any banks. Palestinian  banks are threatened with extinction if they move money to the Palestinian Authority.’ Funds provided by Saudi Arabia and Qatar to the Arab League for onward transfer to the Palestinian Authority have also been withheld, says Sha’ath, although those countries are staunch supporters of the United States.

Munib Masri, a leading Palestinian businessman and local director of The Arab Bank,  says, ‘There is a total block on transferring funds to any part of the government of Palestine unless the money is for humanitarian aid. It has been very difficult. This is an unparalleled situation.’ 

While the Palestinian Authority is excluded from participating in the formal banking system, officials may be resorting to desperate means to move money around. An official was recently apprehended at the Egyptian border carrying no less than Euro 600,000 in cash on his person. He was arrested and the Attorney General of Palestine is currently investigating. But Kamel Husseini, the CEO of the Palestinian Standards Institution, says that desperate times give rise to desperate measures. ‘The new Government is trying to find alternative routes to normal practices for transferring money which is sometimes not done properly. They (the Hamas leadership) may be trying to react to the crisis by saying we have the right to get money in and  get money out. They are improvising and resorting to primitive ways of doing things which are not acceptable. The pressure is so abnormal that they will do anything to sustain themselves.’

The closure of banking system to the Palestinian Authority has had particularly dire effects for the  Palestinian Authority’s employees, says Masri. ‘Large number of civil servants have not been paid as a result of the clampdown. Many individuals who have no political involvement have been affected.’ The affect on the employees of Palestine Authority is devastating, says Ismail Haniyah, the Prime Minister of Palestine, who is a Hamas member. "The Palestinian Authority will face a cash deficit of at least $110 million a month which it needs to pay full salaries to its 140,000 employees, who are the breadwinners for at least one-third of the population.’