Yellen sends Netanyahu letter warning of war’s economic toll on Israel, Palestinians

US Treasury secretary says Israel resuming tax revenue transfers to Palestinian Authority, says she urged reinstatement of Israeli work permits for West Bank Palestinians

US Secretary of the Treasury Janet Yellen gives a press conference a day ahead of the G20 Finance Ministers and Central Bank Governors meetings in Sao Paulo, Brazil, February 27, 2024. (Andre Penner/AP)
US Secretary of the Treasury Janet Yellen gives a press conference a day ahead of the G20 Finance Ministers and Central Bank Governors meetings in Sao Paulo, Brazil, February 27, 2024. (Andre Penner/AP)

SAO PAULO — Israel has agreed to resume transferring tax revenues to the Palestinian Authority to fund basic services and bolster the West Bank economy, and money has begun to flow, US Treasury Secretary Janet Yellen said on Tuesday, noting that she had sent a personal warning of the war’s economic toll to Prime Minister Benjamin Netanyahu and calling on him to take specific steps.

“The United States has urged the Israeli government to release clearance revenue to the Palestinian Authority to fund basic services and to bolster the economy in the West Bank,” Yellen said during a press conference ahead of the G20 Finance Ministers and Central Bank Governors Meeting in Brazil.

“I welcome news that an agreement has been reached and that funds have started to flow,” she said of Norway’s decision to accept the Israeli framework for transferring tax revenues to the PA last week.

In the remarks, Yellen said she had also urged Netanyahu in a recent letter to implement “a number of steps that the US believes must be taken,” adding that the steps include “reinstating work permits for Palestinians and reducing barriers to commerce within the West Bank.”

“These actions are vital for the economic well-being of Palestinians and Israelis alike,” Yellen said.

The Treasury declined to release a copy of the letter and gave no details on when it had been transmitted. According to The New York Times, the letter was sent on Sunday.

Barak Ravid of Axios noted that the letter was sent only to Netanyahu and not to Yellen’s Israeli counterpart far-right Finance Minister Bezalel Smotrich who, he said, is being ostracized by Washington. For Yellen to deal directly with the Israeli premier rather than the finance minister is unprecedented in US-Israel relations, Ravid assessed.

According to The New York Times, the letter was the most public expression of concern so far from the US about the economic consequences of the war for both Israel and the Palestinians.

Israeli leaders have been largely dismissive over the effect of the war, and its massive cost, on the economy. Smotrich dismissed the US rating agency Moody’s recent downgrade of Israel’s credit rating, saying it did “not include serious economic arguments.”

Palestinian leaders say their ability to govern has been effectively blocked by Israeli restrictions, including withholding of tax revenues due under the Oslo Accords signed 30 years ago.

For months, the PA has been unable to pay full public sector salaries because of a row over the refusal by the finance ministry to release part of the funds.

Prime Minister Benjamin Netanyahu, right, and Finance Minister Bezalel Smotrich attend a Knesset vote on the state budget, February 7, 2024. (Yonatan Sindel/Flash90)

Under interim peace accords reached in the 1990s, Israel’s Finance Ministry collects tax revenues on behalf of the PA and makes monthly transfers to Ramallah, but a dispute broke out over the payments in the wake of Hamas’s October 7 terror onslaught.

The Israeli cabinet refused to transfer the portion of the funds that Ramallah uses to pay for services and employees in Gaza, arguing that the money could reach Hamas. The roughly $75 million in revenues amounts to about a quarter of the entire monthly transfer.

Protesting the move, the PA refused to accept any of the tax revenues, which make up the vast majority of the PA’s annual budget. Unable to pay its employees in full for months, the move has risked Ramallah’s complete financial collapse.

While the PA’s dissolution would ostensibly put Israel on the hook for providing services to some three million Palestinians in the West Bank, Jerusalem — led by Smotrich — largely refused to budge.

Last month, the cabinet approved a framework under which the Gaza portion of the funds would be transferred to Norway, which would then be required to hold onto the funds until Smotrich signed off on their release to the PA. The cabinet decision bars those funds from ever being sent to Gaza and risks the permanent cessation of all future transfers if that restriction is violated.

She said the US was also working with the humanitarian sector to help assist innocent Palestinians and get legitimate aid to where it is most needed.

File: Palestinian workers crossing into Israel at the Tarkumiya checkpoint near the southern city of Kiryat Gat, November 14, 2019. (Hazem Bader/AFP)

“We continue to explore options for strengthening the West Bank economy” following an executive order issued by US President Joe Biden earlier this month, Yellen added.

Israel’s suspension of permits for West Bank Palestinians to work in the country had caused significant unemployment, she said, and was also damaging to the Israeli economy.

War erupted when Palestinian terror group Hamas led a devastating October 7 assault on Israel that killed 1,200 people, mostly civilians, amid horrific atrocities including widespread gang-rape, torture and mutilation of victims. The thousands of attackers who burst through the border from the Gaza Strip into southern Israel also abducted 253 people of all ages who were taken as hostages in Gaza.

Israel responded with a military offensive to topple the Hamas regime in Gaza, destroy the terror group, and free the hostages.

Since the war started more than 150,000 West Bank Palestinians have found themselves unable to enter Israel for work. An additional 17,000 from the Gaza Strip had permits to enter Israel legally for work, but are also unable to make the journey as the conflict continues.

Their current inability to enter for work, combined with the departure of the majority of the roughly 30,000 Thai farmhands who worked in Israel until October 7, has left a severe shortage of laborers in the Israeli agricultural and building sectors.

A Thai worker drives his co-workers to work on a tractor, February 22, 2011. (Nati Shohat/Flash90)

Yellen said Washington supported the World Bank’s commitments to emergency food security assistance in Gaza, economic support for the West Bank, and other ongoing loan programs by regional development banks and the International Monetary Fund in neighboring Egypt and Jordan.

She said Washington had not seen a significant impact of the conflict on the global economy, but would continue to monitor the situation closely.

Yellen noted that Washington had also led efforts to counter the financing of Hamas and responded to Houthi attacks in the Red Sea.

In December, the Finance Ministry estimated that the government’s decision to prohibit the entry of most Palestinian workers from the West Bank could cost the economy billions of shekels a month if it continues.

The following month the government was said to be mulling bringing 80,000 workers from abroad as a stopgap for jobs in construction and agriculture normally filled by Palestinians.

Biden and his administration have backed Israel’s operation in Gaza as necessary to root out Hamas.

IDF troops seen operating in Gaza in this handout photo cleared for publication on February 27, 2024. (IDF)

Washington also recently imposed sanctions on four Israeli men accused of being involved in settler violence against Palestinians in the West Bank.

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