Smotrich extends waiver allowing Israeli, Palestinian banks to cooperate
Extension is finance minister’s quid pro quo for legalizing 5 West Bank settlements and sanctioning PA officials in response to legal action taken against Israel
Finance Minister Bezalel Smotrich has extended a waiver that allows Israel’s banking system to cooperate with Palestinian banks in the West Bank despite the existence of sanctions, the minister’s spokesperson said on Sunday.
The waiver, which was due to expire at the end of June, allows Israeli banks to process shekel payments for services and salaries tied to the Palestinian Authority. Without it, the Palestinian economy would have taken a hit.
Smotrich extended the waiver by four months during a cabinet meeting on Thursday night, his spokesperson said.
It was one of two steps Smotrich agreed to take after the cabinet passed a series of sanctions he was demanding against the Palestinian Authority over Ramallah’s support for trying Israel in international tribunals and for countries advancing its statehood effort through international recognition.
The steps the Israeli cabinet took included recognizing five illegal Israeli outposts in the West Bank, advancing plans for thousands of new settler homes, imposing movement restrictions on senior PA officials and authorizing Israeli enforcement against allegedly illicit Palestinian construction in Area B — a violation of the Oslo Accords.
Those agreements from the 1990s also require Israel to transfer to Ramallah each month Palestinian tax revenues collected on the PA’s behalf. Smotrich has refused to do this since April, bringing the authority to the brink of collapse, despite repeated warnings by Israel’s security establishment and the international community. The tax revenues account for some 70 percent of the PA’s annual income.
In exchange for the sanctions passed by the cabinet on Thursday night, Smotrich agreed to partially release three months worth of tax revenues.
Earlier this year, Israel and the PA agreed to transfer the Gaza portion of tax revenues to Norway, which would eventually release it to Ramallah upon approval from Smotrich. But that agreement fell apart after Norway joined Spain and Ireland in recognizing a Palestinian state.
The US had pushed Smotrich to sign a one-year extension to the corresponding banking waiver, but the finance minister sufficed with just a four-month extension.
The waiver he signed extends the indemnity to Israeli banks that cooperated with Palestinian ones once Israel’s sanctions against the PA were passed.
US Treasury Secretary Janet Yellen has said it was important to keep open the Israeli-Palestinian correspondent banking relationships to allow battered economies in the West Bank and the Gaza Strip to function.
The Palestinian economy relies heavily on this relationship to process transactions made in Israeli shekels. Some 53 billion shekels ($14 billion) were exchanged at Palestinian banks in 2023, according to official data.
It’s unclear if the quid pro quo will placate Washington, though. A US official said earlier this month that the sides are liable to find themselves in the same situation a month or two down the line “if and when [Smotrich] decides to hold up the funds again.”
“These funds cannot continue to be held for ransom. They belong to the Palestinians,” the US official told The Times of Israel, referring to the tax revenues Israel has withheld.
The Biden administration fears the collapse of the PA would lead to chaos in the West Bank that would be exploited by Hamas and Palestinian Islamic Jihad cells to open a new front to the war in Gaza, a second US official said this month, adding that the concerns are shared by the Israeli security establishment.
Such a collapse would also scuttle US planning for postwar Gaza, where Washington hopes a reformed PA will eventually return, reuniting the West Bank and the Strip under one political entity and establishing a pathway to a future Palestinian state.
Israeli security forces in the West Bank cooperate with the PA on law enforcement, and Israel’s security chiefs have warned against moves that could destabilize the tenuous situation.
Smotrich, whom the coalition agreements gave extended authority over civilian affairs in the West Bank, has recently vowed a “mega-dramatic” shift in how the West Bank is governed. He has previously called on the government to annex the territory if Ramallah did not pull support from international legal action against Israel.
