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Some of the $100 million in tax revenues that Israel transferred to the Palestinian Authority in January went to thousands of Hamas supporters - including those in the security forces - Hamas officials said on Monday.
Meanwhile, a senior PA official in Ramallah said that Israel's decision not to release more of the hundreds of millions of dollars in tax revenues it owes the PA undermines PA Chairman Mahmoud Abbas and his Fatah faction.
Prime Minister Ehud Olmert made the decision against releasing more of the funds last week, following reports that Abbas had broken a promise to use the revenues solely for humanitarian purposes.
"This is not a wise decision," the official told The Jerusalem Post. "On the one hand, Israel is talking about the need to strengthen the moderates among the Palestinians. On the other hand, Israel's decision to refrain from releasing the funds, which are estimated at nearly half a billion dollars, will weaken President Abbas and all the Palestinians who don't support Hamas."
PA Finance Minister Samir Abu Aisheh of Hamas said more than 9,500 new employees had been added to the public sector since the Islamist movement took power in March 2006. These include 5,500 Hamas-appointed security officers and 3,500 workers in the Hamas-run Education and Health ministries.
He admitted that the PA government had failed to fulfill its pledge to implement major financial and administrative reforms. "From day one, we have been forced to adopt a policy of managing one crisis after another," he said.
The main problem facing his government, Abu Aisheh said, was the financial sanctions imposed by Israel, which is continuing to hold on to some $300m. in tax and tariff revenues belonging to the PA.
The salaries of the civil servants account for two-thirds of the PA's day-to-day expenses.
Most of the money Israel transferred in January "went to pay salaries to tens of thousands of civil servants who have not been receiving their full salaries for the past year," the PA official said. "We have more than 150,000 employees who need to provide for their families. If this is not a humanitarian issue, what is?"
Asked if Abbas's office had transferred some of the funds to the Hamas-led government, the official said money was paid directly to the civil servants, including tens of thousands of PA security officers.
"The President's Office is actually functioning as the Palestinian Finance Ministry," he said. "More than 95 percent of the civil servants and security officers are affiliated with Fatah, anyway. An employee is entitled to a salary, whether he belongs to Fatah or Hamas. We didn't expect the President's Office to play the role of a shadow Finance Ministry, but we are hoping that the formation of a unity government will put an end to this phenomenon."
The International Monetary Fund has estimated that despite the sanctions imposed since Hamas came to power in March 2006, foreign aid to the PA doubled to $700m. in 2006 over the previous year. Total foreign assistance to all Palestinian institutions - including that distributed by private Palestinian organizations - increased last year to $1.2 billion from $1b.
Most of the financial aid came from Arab and EU countries and was intended for salaries and welfare payments. But because of the boycott of the Hamas-run Finance Ministry, hundreds of millions of dollars passed through Abbas's office and other parties.
Bir Zeit economics Prof. Nasr Abdel Karim said the Palestinians received approximately $700m. in international aid during 2006, in addition to the $100m. in tax rebates that were released by Israel. Another $300m. in revenue was raised locally, including from taxes.
He said the political turmoil in the PA and the international boycott of the Hamas government were responsible for the fact that the PA had no official budgets for 2006 and 2007.
Abdel Karim said the Hamas government had underestimated the repercussions of the international sanctions for the PA and the economy. "Some of the Hamas ministers were too optimistic in the beginning," he said. "They also failed to tackle issues related to financial corruption and waste of public funds."
He also voiced pessimism regarding chances that the proposed unity government would solve the financial crisis. "I don't believe the unity government will be able to lift the financial sanctions," he said. "The sanctions will continue, as will corruption and mismanagement. Even if the unity government succeeds in solving the current financial crisis, the general economic problem facing the Palestinians will continue."