Economically battered West Bank fears punitive steps by Smotrich

Finance minister has said he will sever key artery enabling transactions between Palestinian Authority and Israeli banking systems

Palestinians queue to withdraw money from an ATM in the main market in Ramallah city in the West Bank on June 9, 2024. (Jaafar ASHTIYEH / AFP)
Palestinians queue to withdraw money from an ATM in the main market in Ramallah city in the West Bank on June 9, 2024. (Jaafar ASHTIYEH / AFP)

Palestinian teenagers bounced on trampolines and jumped through hoops inside a towering tent on the outskirts of Ramallah, the financial hub of the West Bank.

But the circus students weren’t the only ones bending over backward in the pavilion: the school’s director faced financial hurdles to buy the tent from Europe and trampolines from Asia.

“We are suffering with international payments,” said Mohamad Rabah, head of the Palestinian Circus School, describing a bureaucratic process that could delay equipment delivery by up to a month.

Banking in the Palestinian territories is challenging, with the Palestinian Authority (PA) under scrutiny for potential terror financing, hindering transactions.

Israel has controlled the West Bank since 1967, with strong economic ties allowing two Israeli lenders to serve as correspondent banks in the Palestinian territory.

But this may change if far-right Finance Minister Bezalel Smotrich carries out threats to sever a vital banking route next month.

Since the Palestinian terror group Hamas’s devastating October 7 attack on Israel that started the ongoing war in the Gaza Strip, Israel has imposed economic curbs on the PA, withholding tax revenues it collects on its behalf.

Protesting the PA’s policy of making payments to terrorists and the families of terrorists, Smotrich said last week that he had redirected $35 million in PA tax revenues to families of terror victims, a move condemned by the United States.

“The Palestinian Authority encourages and favors terrorism by paying the families of terrorists, prisoners and released prisoners. In accordance with the judgments that awarded compensation to the victims of terrorism, we offset the same amounts from the PA’s funds and are transferring the awarded money to the families of the victims of terrorism,” Smotrich said. “I signed an order that transfers about NIS 130 million from the PA’s frozen funds to victims of terrorism.”

Smotrich has also accused the PA of “support” for Hamas’s October 7 terror onslaught.

Prime Minister Benjamin Netanyahu, right, and Finance Minister Bezalel Smotrich attend a vote on the state budget at the Knesset, in Jerusalem, March 13, 2024. (Yonatan Sindel/Flash90)

After three European countries recognized Palestinian statehood in May, Smotrich told Prime Minister Benjamin Netanyahu he would not extend indemnity to banks that transfer the funds from the end of June.

Israel’s Bank Hapoalim and Israel Discount Bank need protection, expiring on July 1, to avoid sanctions for dealing with Palestinian lenders.

If the waiver is canceled, Israeli firms will not be able to receive money from Palestinian banks or deposit Palestinian checks, impacting business ties.

The Bank of Israel and Finance Ministry declined to comment when contacted by AFP.

‘Humanitarian crisis’

The banking channel used to pay for West Bank imports — including essential goods like water, fuel, and food — handles $8 billion yearly.

Palestinian businesses receive nearly $1.7 billion annually for exports, according to the Palestine Monetary Authority.

“For us, because our economy is dependent on the Israeli economy because Israel is controlling the border, the impact will be high,” said PMA governor Feras Milhem.

Palestinians crowd the main market in Ramallah city in the West Bank on June 9, 2024. (Jaafar ASHTIYEH / AFP)

The Palestinian economy is largely governed by the 1994 Paris Protocol, which granted sole control over the territories’ borders to Israel, including the right to collect import duties and value-added tax for the PA.

Palestinian livelihoods have also been hurt by bans on laborers crossing into Israel in the wake of the Hamas onslaught, which killed some 1,200 people in southern Israel, and by a sharp downturn in tourism in the territory, including a quiet Christmas season in Bethlehem.

The United States has urged Israel to improve conditions, warning that severing the banking route would have a dire impact on the West Bank economy.

“I believe it would create a humanitarian crisis in due course if Palestinian banks are cut off from Israeli correspondence,” US Treasury Secretary Janet Yellen said last month.

Western governments fear Israel’s economic policies could destabilize the West Bank.

“The banking system may collapse and therefore the PA may collapse as well,” a European diplomatic source in Jerusalem told AFP on condition of anonymity. “The PA is in a financial crisis and it could collapse before August.”

A Palestinian vendor unloads his stock in front of a shop in the main market in Ramallah city in the West Bank on June 9, 2024. (JAAFAR ASHTIYEH / AFP)

Digital currency

Palestinian businessmen say their bottom lines have been hit since October 7.

Imad Rabah, who owns a plastics company, said his net income had fallen 50 percent in one year.

Arak producer Nakhleh Jubran said his liquor business had fallen 30% over the same period.

“We have a traditional war in Gaza and we have an economic war in the West Bank,” said Jubran.

Musa Shamieh, who owns a womenswear company, said the Israeli policies were designed to push Palestinians to leave the West Bank.

A street in the West Bank city of Jenin, June 6, 2024. (Nasser Ishtayeh/Flash90)

“They want us to leave our land and they know it will be hard for us to stay if we can’t do business,” Shamieh said.

Israel’s punishing economic policies could eventually drive Palestinian policymakers to pursue sweeping changes to the monetary system.

“We need to work on a plan B when it comes to the trade relations,” said Milhem, governor of the PMA, which uses an image of the Palestine pound, the currency used during Britain’s colonial rule, as its logo.

Yousef Daoud, a professor at the West Bank’s Birzeit University, said the territory could scrap the shekel as its de facto currency in favor of a digital alternative.

“We can make our e-currency, just collect all the shekels, issue an equivalent amount of Palestinian pounds, one-to-one fixed exchange rate, and have the Palestinians deal with e-currency,” he said. “Somehow, eventually, we’ll get rid of the shekel.”

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