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Viewing cable 10JERUSALEM276, DOES HAMAS HAVE A CASH FLOW PROBLEM IN GAZA?

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Reference ID Created Released Classification Origin
10JERUSALEM276 2010-02-12 15:03 2011-01-28 00:12 SECRET Consulate Jerusalem
VZCZCXYZ0000
PP RUEHWEB

DE RUEHJM #0276/01 0431549
ZNY SSSSS ZZH
P 121549Z FEB 10
FM AMCONSUL JERUSALEM
TO RUEHC/SECSTATE WASHDC PRIORITY 7578
INFO RUEHAM/AMEMBASSY AMMAN 8805
RUEHEG/AMEMBASSY CAIRO 0038
RUEHDM/AMEMBASSY DAMASCUS 8260
RUEHDO/AMEMBASSY DOHA 0498
RUEHTV/AMEMBASSY TEL AVIV 5197
RHEHNSC/NSC WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
S E C R E T JERUSALEM 000276 
  
 SIPDIS 
  
 NEA FOR FRONT OFFICE AND NEA/IPA; NSC FOR KUMAR; TREASURY 
 FOR MOGER/KNOWLES; PLEASE PASS TO USAID FOR ANE/MEA: BORODIN 
  
 E.O. 12958: DECL: 02/11/2020 
 TAG ECON, KPAL, KTFN, PGOV, EFIN, PTER, GZ, EG, QA 
 SUBJECT: DOES HAMAS HAVE A CASH FLOW PROBLEM IN GAZA? 
  
 REF: A. CAIRO 177 
      B. 08 JERUSALEM 1682 
  
 Classified By: Consul General Daniel Rubinstein for reasons 1.4 b, d 
  
 1. (C)  Summary.  Hamas was more than a week late in paying 
 January salaries and, according to Post's Gaza contacts, has 
 not yet paid those salaries in full.  While most contacts 
 report that Hamas faces a liquidity crisis, they disagree on 
 the cause.  Hamas reportedly relies heavily on foreign 
 assistance to support its budget, and the current cash flow 
 problem is most likely a result of Egyptian anti-smuggling 
 efforts.  Gaza-based contacts report that Hamas is cutting 
 costs and increasing its internal revenue collection, through 
 taxes and fees.  The amount of extra revenue that these 
 efforts can generate is limited, however.  Gazans speculate 
 that recent real estate investments may also have tied up 
 some of Hamas's available cash.  End summary. 
  
 Making Payroll? 
 --------------- 
  
 2. (S)  According to Post contacts in Gaza, Hamas was late in 
 paying January salaries to civil servants on its payroll, and 
 has not yet paid those salaries in full.  While Hamas salary 
 payments are typically available on the first day of every 
 month, employees of the de facto Hamas government did not 
 line up at post offices or the Islamic National Bank (the two 
 institutions that Hamas uses to disburse salaries) until 
 February 8 when, according to contacts, Hamas paid low-level 
 employees with salaries up to NIS 1,500 (USD 400) per month. 
 On February 11, Hamas began paying half-salaries for 
 mid-level employees.  XXXXXXXXXXXX (a Gaza-based manager at 
 the Palestinian Agricultural Relief Committee) told Econoff 
 that while he was picking up his exit permit at the Hamas-run 
 "Ministry of Interior," he overheard an employee complain on 
 the phone that his salary was late and he would only receive 
 a portion of it.  The employee further complained that this 
 was at least the third month he had received only a 
 "portion." 
  
 3. (SBU)  According to press reports, Hamas has more than 
 34,000 employees on its payroll who receive USD 16 million in 
 monthly salaries.  Comment:  While we understand these 
 figures to include security forces, our contacts claim no 
 insight into Hamas military structures and cannot confirm the 
 status of salary payments to security personnel.  Reports of 
 Hamas's total wage bill vary widely.  End Comment. 
  
 Hamas's Cash Flow Problem 
 ------------------------- 
  
 4. (S)  Post contacts uniformly commented on Hamas's lack of 
 liquidity, but interpret the nature and depth of the problem 
 differently.  All agree that Hamas relies heavily on external 
 funding to cover its expenditures, particularly salaries. 
 Gazan businessman XXXXXXXXXXXX said that he met with the 
 Hamas "Minister of National Economy," XXXXXXXXXXXX, who 
 claimed that Hamas collects USD 3.5 to 4 million every month 
 through fees and taxes within Gaza, though its monthly 
 expenditures are USD 25 million.  The shortfall is met by 
 funding from outside Gaza, XXXXXXXXXXXX reportedly said.  For 
 instance, according to XXXXXXXXXXXX, employee salaries at 
 Hamas's "Ministry of Education" -- except those receiving 
 salaries from the Palestinian Authority (PA) in Ramallah -- 
 are covered by Qatari donations. 
  
 5. (C)  In addition to continued Israeli restrictions, 
 contacts attribute the liquidity problem to tighter Egyptian 
 security measures on its border with Gaza, including 
 increased interference with smuggling operations.  Gaza 
 contacts note that Egypt has also cracked down on the travel 
 of Hamas officials outside Gaza by restricting their access 
 through the Rafah crossing.  In particular, Egypt reportedly 
 no longer tolerates "Hamas VIP bags," a reference to 
 suitcases of cash transported across the Rafah border into 
 Gaza.  Our contacts believe current inflows of cash are 
 generally restricted to the tunnels. 
  
 6. (S)  XXXXXXXXXXXX, a Gaza-based NGO employee, told 
 Econoff that he believes money can easily pass through the 
 tunnels, but the cash flow has been disrupted elsewhere. 
 Other contacts also report that trade flows through the 
 tunnels remain robust.  XXXXXXXXXXXX speculated that Egypt has been effective in countering bulk cash smuggling within its own 
 borders, thus making it unavailable to smuggle through the 
 tunnels into Gaza. 
  
 7. (C)  Another Gaza contact reported rumors that Hamas has 
 sufficient funds to pay full salaries for six months, but 
 that it is protecting its fiscal position by holding back on 
 payments.  By cutting some salaries, Hamas may be able to 
 stretch the payments out over the full year without external 
 funding. 
  
 8. (C)  According to a local contact, Fatah Central Council 
 member Nabil Shaath and Hamas authorities agreed last week to 
 allow some PA-salaried employees, who had stopped reporting 
 to work, to return to their civil service jobs in Gaza. 
 Hamas will apparently then terminate the contracts of those 
 who had been hired to replace the absent PA employees. 
  
 9. (S)  XXXXXXXXXXXX, a Gaza-based board member of the 
 Palestinian IT Association, believes that money continues to 
 flow into Gaza and that Hamas is more stable financially than 
 it appears.  He reports that Hamas has increased its real 
 estate investments inside Gaza, partly explaining its 
 shortage of cash, and described recent bids on properties by 
 Hamas brokers at well above market prices.  XXXXXXXXXXXX 
 speculated that purchasing real estate is a sustainable 
 investment for Hamas, a money laundering scheme, and/or part 
 of strategy to strengthen its financial position (or physical 
 presence) in Gaza as a bulwark against future events. 
  
 10. (C)  Palestinian bankers claim the delay in salary 
 payments is proof that Hamas cannot borrow from the formal 
 financial sector in Gaza. 
  
 Internal Revenue 
 ---------------- 
  
 11. (C)  Several contacts report that Hamas is both cutting 
 costs and increasing collection of revenue from inside Gaza. 
 They noted that the potential benefit to Hamas is limited due 
 to the current economic situation. 
  
 12. (C)  According to multiple contacts, municipalities in 
 Gaza are stepping up the collection of electricity and water 
 bills.  Hamas-run ministries also charge fees for various 
 services, like the issuance of official documents.  The 
 first-time "registration" fee for a car is USD 12,000, and 
 one contact reported that 40 new cars were recently imported 
 from Egypt.  Gazans must also pay an annual fee to renew 
 their car or motorcycle registration.  New traffic signs are 
 being installed, and traffic laws are being aggressively 
 enforced by the police.  For an infraction, according to a 
 Gazan contact, police typically confiscate a driver's license 
 or car documents and require the driver to retrieve his 
 documents at a police station, where he will likely pay a 
 penalty fee.  In one anecdotal account of more rigorous 
 traffic controls, a man who used his van to transport 
 children to school was confronted by Hamas authorities and 
 instructed to register his van as a school bus, and then pay 
 the requisite taxes. 
  
 13. (C)  Local NGOs report that Hamas is demanding income 
 tax, with payments in cash in order to bypass the official 
 banking sector.  A Gaza contact reported that one NGO 
 deposited a tax payment for Hamas on February 10 at the post 
 office, deducted from staff salaries.  Another contact said 
 that Hamas now demands private schools to pay taxes based on 
 tuition fees, and threatens to shut down schools for 
 non-compliance.  Other contacts have commented on increased 
 taxes and fees on Gazan businesses. 
  
 RUBINSTEIN