A push by the United States and its European allies to isolate the Hamas-led government posed an awkward dilemma for the World Bank, which has been a major distributor of aid and policy advisor to the Palestinian Authority.
World Bank officials, who spoke on condition of anonymity because of the sensitivity of the issue, said on Tuesday contact with the new Palestinian government has been ‘limited’ until World Bank President Paul Wolfowitz decides how to proceed.
Although the World Bank insists on its political neutrality, the Palestinian issue is complicated by U.S and European Union views that Hamas, an Islamist organization blamed for dozens of suicide attacks in Israel, is a terrorist organization.
‘As long as Hamas is branded by major donors as a terrorist-related organization it'll be very difficult for the bank staff to proceed, and if they would like to, they will also have to go to the board’ of member countries, one senior bank official said.
‘There is no formal stop in grant disbursements, but they are not going out, so it is a dilemma,’ the official added.
Although there has been no direct order to suspend contact with Hamas government officials, bank officials said they were also seeking legal advice on whether staff could be indicted under U.S. or other law for collaborating with a terrorist group.
‘Even as an employee of the World Bank you may have some protection, but you'll think twice before you really engage because you could be indicted in the U.S. or in Europe,’ said another bank official.
‘As long as it's unclear how much backing you will have from the senior levels and also from the board, it's best not to engage at all,’ the official added.
On Tuesday, the United Nations said it had advised its aid agencies to avoid meeting with Hamas political leaders and to limit contacts to technocrats in the new Palestinian government.
The bank has managed a multidonor trust fund for the Palestinians since 2004 that has been tied to economic reforms, in addition to grant funding for development projects.
Most of the aid in the trust fund is from the European Union, which together with the United States has cut off aid to the Hamas government until it accept demands to recognize Israel, end violence and accept past peace accords.
Since the Palestinian Authority is not a sovereign state, it cannot apply for membership of either the International Monetary Fund nor the World Bank and is therefore not eligible for loans normally available to member countries.
The bank has warned that the Palestinian Authority faces a ‘dire’ economic situation and without aid will not be able to pay wages to 140,000 state employees.