Palestinians Faced With Cash Crisis : Mideast: Newly autonomous areas have virtually no funds to pay for public services. Leaders fear decline in support and possible disorder.

Not even a month old, the Palestinian Authority is facing a crisis that could bring its collapse--an acute shortage of cash.

Although promised $2.4 billion for economic development over five years, the new Palestinian administration has virtually no funds with which to operate--no money to pay its police and civil servants, no money to maintain local hospitals, trash collection and other public services, no money for its own telephones and office lights.

“The situation is very, very serious,” said Saeb Erekat, the authority council member for local government. “Our institutions are brand new, and they need money to operate and meet the people’s needs. Without money, they won’t function. The whole effort could fail for the lack of start-up funds.”

Palestinian leaders fear that public support for the self-governing authority, which already is controversial as a product of many difficult compromises with Israel, will decline rapidly if it falters in any way; thus, inability to pay its workers, maintain public services and expand the economy could lead to a total loss of legitimacy and perhaps rebellion against it.

Freij abu Midan, a Gaza Strip lawyer with responsibility for justice on the authority council, warns of possible food riots in Gaza if the new administration does not receive enough assistance to begin full operations and to launch its initial development programs.

“We had many promises that we would get the money as soon as we signed the Cairo Agreement on autonomy,” Abu Midan said in Gaza City. “It has been nearly four weeks, and we have received only a fraction of our immediate and most urgent needs.”

The crisis is so serious that Israeli Prime Minister Yitzhak Rabin is looking at ways to assist the Palestinians, perhaps by continuing a public works program that employs 16,000 in the Gaza Strip, perhaps by lending the Palestinian Authority some of the operating funds it will need for June. “I am worried because, if it will not work, it will not take more than three months . . . until there will be no food,” Rabin said over the weekend.

Senior Israeli officials, military and intelligence alike, have sketched alarming scenarios of possible riots, bloodshed and even civil war for the impoverished Gaza Strip, home to more than 850,000 Palestinians, if the new authority does not establish itself fast and effectively--with the money to back it up.

“Unless money is immediately pumped into the institutions of the Palestinian autonomy by the donor countries, these institutions will collapse within days or weeks,” Dr. Ahmad Tibi, an adviser to Palestine Liberation Organization Chairman Yasser Arafat, warned in Jerusalem. “Clearly, this will damage the peace agreement immensely and perhaps irretrievably.”

Amid the mounting concern, Faisal Husseini, a senior Palestinian Authority member, sought to assure the Palestinian police and civil servants Monday that they would be paid in June.

“The money’s there,” he told a news conference in Jerusalem, alluding to a $19-million emergency fund.

Hassan abu Libdeh, deputy managing director of the Palestinian Economic Council for Development and Reconstruction, added, “I can say that every single person will be getting his salary on time.”

But Abu Libdeh, whose organization is administering development projects, said the authority would have to tap various foreign sources to meet the payroll--and he named only one, the Johan Joergen Holst Peace Trust Fund, named for the late Norwegian foreign minister who brokered the peace agreement between Israel and the PLO.

Israeli officials estimate the Palestinian Authority will need $600 million to $700 million a year to administer the Gaza Strip and the West Bank; the Palestinian police force alone will cost about $105 million. Local revenues may come to only $200 million to $300 million, depending on local tax rates.

The development program, starting with the 27-year backlog of public works but reaching well beyond to the industrialization of some regions and the rehabilitation of agriculture in others, will cost at least as much on an annual basis, Palestinian economists say.

The money has been slow in coming for these reasons:

* Western donors, mistrustful of Arafat, his secretive ways and past profligacy, have insisted on full accountability of how their money is spent. Arafat, wanting to ensure his own control of the funds, was slow in staffing the Palestinian Economic Council, approving its bylaws and appointing a Western investment bank, Morgan Stanley Asset Management, to oversee it.

* Many Western governments prefer to finance specific projects--and to give contracts to their own companies, thus boosting their exports, as well as providing foreign aid. This has led to a proliferation of proposals to PLO headquarters in Tunis, Tunisia, for projects such as the construction of airports, offshore generation of electricity and a new telephone system, while immediate needs have been ignored.

* The Palestinian Authority’s own tax collections will probably not start for months. A new tax system must be adopted to replace the one imposed by the Israeli army during its occupation; the new administration would like to lower the burden carried by local businessmen to foster an economic resurgence.

Erekat said he hopes the Western countries that pledged extensive economic assistance and development advice last September when Israel and the PLO signed the autonomy agreement will now free substantial amounts to underwrite the authority’s operations.

“We were born without a penny, and we are told that our ability to cope will test our readiness to govern ourselves,” Erekat said bitterly. “In a sense, this is right--if we can run Gaza and Jericho without cash, we are miracle workers.

“Instead of real help, we are getting one delegation of experts after another, flying in first-class and business-class from around the world, spending money on hotels and meals that we could use to pay salaries, and then telling us they will make a recommendation after the summer,” he said.

Palestinians place the U.S. Agency for International Development in this category of donor, although Secretary of State Warren Christopher personally ordered payment of $5 million of the American pledge of $500 million to help speed deployment of the Palestinian police.

Erekat said that authority members, back from weekend meetings with Arafat, were now organizing departmental staffs, drawing up 100-day action programs and working out their budgets. The Palestinian Economic Council, established last November to funnel foreign assistance into priority programs and coordinate development projects in the Gaza Strip and West Bank, will then seek funds from the World Bank and individual donors.

“There is a danger that our planning will become donor-driven rather than Palestinian-driven because of the restrictions on the assistance,” Samir Abdullah, a senior official of the Palestinian Economic Council, said, “but the immediate problem is starting the cash flow--today.”