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Israel warned against halting cash flow to Gaza

(Agencies)
Updated: 2008-12-15 19:15

Following a new round of rocket attacks, Israel suspended cash shipments altogether, starting in October. By last week, Gaza banks only had 47 million shekels ($12 million, 9 million euros) in their vaults, less than one-fourth of what is needed to cover Fayyad's monthly payments to Gaza.

Palestinian supporters of Hamas attend a rally in Gaza City, Sunday, Dec. 14, 2008. Tens of thousands of Hamas supporters marked the Islamic militant group's 21st anniversary with an outdoor rally Sunday, and the show of strength included a play featuring a mock-captive Israeli soldier begging for his freedom. [Agencies]

A few days later, Israel sent an emergency shipment of 100 million shekels ($26 million, 20 million euros) in bank notes, less than half of the 250 million shekels ($64 million, 48 million euros) requested by Fayyad. Government employees were able to withdraw only part of their salaries from the banks.

Israeli government spokesman Mark Regev said he expected Israel would send more shipments.

However, Oussama Kanaan, the chief IMF representative in the Palestinian territories, said Israel and the Palestinian Authority must reach a long-term agreement on regular monthly shipments of shekels. "People have to have some comfort that the same serious problems will not be recurring every month," he said.

A disruption of the cash flow will undermine the Palestinian banking sector as a whole, hurt trade between Israel and the Palestinian areas and divert resources to unregulated cash transactions, the aid officials wrote to Israeli Prime Minister Ehud Olmert. "The aggregate, and no doubt, unintended result of those policies is to weaken the institutions of Prime Minister Fayyad's government ...," the officials wrote.

The letter also addressed the decision by Bank Hapoalim and Israel Discount Bank to sever ties with Palestinian banks by the end of the month. The banks are concerned they might run afoul of international anti-terrorism regulations by dealing with Gaza banks and thus be vulnerable to lawsuits. Once the ties are cut, it would be increasingly difficult for Israeli and Palestinian traders to do business.

The aid officials noted that severing the ties would undermine Palestinian banking institutions that "have imposed stringent laws against money-laundering and the financing of terrorism."

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