US, 7 more nations warn PM not to let Smotrich buckle Palestinian economy in West Bank
8 Western treasury chiefs pen letter to Netanyahu urging him to ensure far-right minister extends agreement allowing Israeli banks to correspond with Palestinian ones
US Treasury Secretary Janet Yellen and seven of her counterparts sent a letter to Prime Minister Benjamin Netanyahu last week expressing their alarm over the potential collapse of the Palestinian economy in the West Bank if Finance Minister Bezalel Smotrich fails to renew a soon-to-expire agreement letting Israeli banks transact with Palestinian ones.
“Actions taken by some members of your government to deny the West Bank access to financial resources endangers Israel’s security and threatens to further destabilize the entire region in an already perilous moment,” the Western treasury chiefs wrote in a letter obtained by the Axios news site.
The letter was addressed to Netanyahu, as Western countries have maintained a de facto boycott of Smotrich, since he became finance minister in December 2022.
Yellen — along with her counterparts from Japan, Canada, the EU, the UK, the Netherlands, Australia, and France — said that failure to extend the corresponding banking agreement, which is set to expire on Thursday, would weaken oversight of finance flows, disrupt the transfer of much-needed donor funds, and destabilize the Palestinian Authority.
The Palestinian economy relies heavily on the banks’ relationships with their Israeli counterparts to process transactions made in shekels, as the PA does not have its own currency. Some NIS 53 billion ($14 billion) were exchanged at Palestinian banks in 2023, according to official data.
And US officials have warned that failure to maintain banking relations between Israel and the Palestinians would turn the West Bank into a “cash economy,” which would benefit terrorist organizations in the territory and make it harder for the already-weakened PA to fight such groups.
The West Bank economy has been in dire straits over the past year, as tens of thousands of Palestinian day laborers were denied entry into Israel during the war in Gaza sparked when thousands of Hamas-led terrorists stormed southern Israel on October 7, 2023, killing some 1,200 people and taking 251 hostages.
The treasury chiefs urged Israel to extend the banking agreement for at least a year. While the decision currently lies with Smotrich, Netanyahu could bypass the far-right minister by passing a decision during a meeting of his cabinet, which is likely to discuss the matter on Sunday evening.
But Netanyahu has shown little appetite in the past to clash with Smotrich and has preferred placating him by allowing steps to expand Israel’s footprint in the West Bank, in exchange for the finance minister halting punitive measures against the Palestinian economy. Such was the case in late June, when Smotrich agreed to sign a three-month extension to the corresponding banking agreement.
After signing that extension, Smotrich’s office informed US President Joe Biden’s administration that he would be willing to do so once again if the PA took several steps to prevent the illicit funding of terrorism, US officials told The Times of Israel last week, adding that it had informed Jerusalem that Ramallah had met those requirements.
The notification was aimed at leaning on Israel, in light of concerns that Smotrich would not sign the extension. The far-right minister has long spoken in favor of collapsing the PA and annexing large parts of the West Bank.
The US has considered sanctioning Smotrich over his policies, but has held off on the drastic step. US officials told The Times of Israel last month that the move would likely be reconsidered after the presidential election next month.
Reuters contributed to this report.
The Times of Israel Community.