Israel sought $1 bln IMF loan for Palestinians

JERUSALEM, July 2 Mon Jul 2, 2012 2:49pm IST

JERUSALEM, July 2 (Reuters) - Israel unsuccessfully sought a $1 billion loan from the International Monetary Fund (IMF) for transfer to the Palestinian Authority to prevent its financial collapse, Israeli and Palestinian officials said on Monday.

The IMF turned down the request, according to Israel's Haaretz newspaper, because it did not want to set a precedent of one state getting a loan on behalf of a none-state body.

The aid-dependent Palestinian economy in the West Bank is facing a deepening financial crisis due to a drop in aid from Western backers and wealthy Gulf states as well as Israeli restrictions on trade.

"We attempted to obtain a loan of $1 billion from the IMF through Israel. We didn't succeed," a senior Palestinian official, who spoke on condition of anonymity, told Reuters.

A source in Israeli Prime Minister Benjamin Netanyahu's office confirmed that the IMF turned down Israel's loan request on behalf of the Palestinians. The source gave no other details.

Haaretz said Palestinian Prime Minister Salam Fayyad and Bank of Israel chief Stanley Fischer, both former IMF officials, decided Israel would ask for the bridge loan because the Palestinian Authority is not a member state and cannot receive financial support from the IMF.

Under interim peace agreements with Israel, the Palestinian Authority exercises limited self-rule in the West Bank, territory Israeli forces occupied in a 1967 war.

The IMF's representative office for the West Bank and Gaza Strip did not provide an immediate comment. Fayyad's office was not immediately available for comment. A spokesman for the Bank of Israel declined to comment.

A brief report by the IMF on the economic situation in May described the Palestinian Authority's fiscal crisis as "very challenging" and said foreign aid to the PA was "far less than needed to finance the deficit" of around $1.3 billion in 2012.