updated 4/9/2006 9:06:39 AM ET 2006-04-09T13:06:39

Palestinian Finance Minister Omar Abdel Razek said in interviews published Sunday that the Hamas-led government's financial crisis is worse than he thought and he does not know when he will be able to pay salaries for the government's 140,000 workers.

The admission was the latest sign that international pressure on Hamas was taking a heavy toll on the government, less than two weeks after it was sworn into office. Prime Minister Ismail Haniyeh acknowledged last week that his government was broke and had missed its April 1 pay date.

At the time, Abdel Razek said Hamas was in touch with Gulf Arab countries to raise money and expected to pay the salaries by April 15. But in interviews to Palestinian newspapers Sunday, Abdel Razek said he no longer expects to meet even that target.

"I did not have a full picture of the magnitude of the problem," he was quoted as saying.

International cuts in aid
Hamas has come under intense international pressure to renounce violence and recognize Israel, but has refused to comply. With the government already out of cash, the precarious situation is only likely to worse. Last week, the European Union and United States, which list Hamas as a terror group, cut off tens of millions of dollars in aid to the Palestinian Authority.

Israel also has suspended about $55 million in monthly transfers of tax duties collected for the Palestinians, and at least one Israeli bank is in the process of severing ties with the Palestinian Authority.

Despite the cash crunch, Haniyeh said Saturday that his government would not change its policies, despite what he said were U.S. and European Union attempts to “blackmail” Hamas.

I want to affirm here that this siege and this blockade have one aim and one target, to blackmail the government,” Haniyeh told reporters in Gaza. “They are not going to blackmail us or make us give in on the rights and principles of the Palestinian people.”

Palestinian officials said the Arab Bank, the largest financial institution in the Palestinian areas, also has asked the government to withdraw its money, fearing it could be sanctioned for dealing with Hamas. The Arab Bank did not return messages seeking comment.

International aid and the tax transfers make up the bulk of the Palestinian budget. The government is the biggest employer in the West Bank and Gaza Strip, and its salaries support about one-third of the Palestinian population.

A collapse in the government could have devastating consequences. After more than five years of fighting with Israel, about 43 percent of Palestinians already live in poverty, contributing to a wave of chaos in the Palestinian areas.

"We'll have a big crisis," said a senior Palestinian official. The official spoke on condition of anonymity out of fear of disrupting sensitive talks with local Palestinian banks, and even Israeli officials, to resolve the problem.

Hamas remains hopeful it can solve its financial woes with help from Arab and Muslim countries. But the money has been slow in coming. Even if Hamas raises the cash, it is unclear how it can pay the bills without bank accounts.

Banks cut off dealings with Palestinians
For dealings in the Palestinian areas, the government's main account is with the Arab Bank, while Israeli banks play a key role in the Palestinians' substantial commercial relations with Israel.

The senior Palestinian official said the government is in the process of closing its main account at the Jordan-based Arab Bank, which ordered it to withdraw its funds out of fear the bank could be subject to U.S. sanctions.

The official said the government tried to move its account to a second, unidentified bank but was rebuffed for the same reason.

Israeli banks are also reviewing their ties with Palestinians. Bank Hapoalim, the country's largest bank, said last week it is ending relations with the Palestinians, and Israel's Discount Bank said it is consulting the country's central bank and may follow suit.

Abdel Razek said officials were in contact with Israel's central bank over the issue. Hamas officials were not involved in the talks, and Bank of Israel officials did not return messages seeking comment.

Bank Hapoalim and Discount Bank are the two Israeli banks authorized to handle financial dealings between Israel and the Palestinians under economic accords signed in the mid-1990s.

The Palestinians depend on Israel for key resources such as petroleum, electricity and water, and use the Israeli banks to pay for the supplies in Israeli currency.

Yoram Gabbay, a former Israeli economic negotiator, said Israeli businesses will be hesitant to trade with the Palestinians because they won't know how they will be paid. The suspended tax transfers also were handled through the Israeli banks.

"If there is no banking process, it could lead to chaos on the Palestinian side," he said.

© 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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