Scoop: Yellen and allies urge Netanyahu not to crater Palestinian economy
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Israeli Prime Minister Benjamin Netanyahu (R) and Minister of Finance Bezalel Smotrich. Photo: Ronen Zvulun/AFP via Getty
Treasury Secretary Janet Yellen and seven foreign counterparts sent Israeli Prime Minister Benjamin Netanyahu a letter, obtained by Axios, warning that his far-right Finance Minister Bezalel Smotrich might be about to cause the collapse of the Palestinian economy.
Why it matters: A key deadline looms: Smotrich has until Oct. 31 approve an extension of the financial correspondence between banks in Israel and the West Bank, without which the Palestinian banking system could implode.
- The U.S. and many of its allies are concerned Smotrich won't sign off, and that the collapse of the banking system could have dangerous ripple effects — potentially including the fall of the Palestinian Authority and a security crisis in the West Bank.
- The Treasury Department and the Israeli prime minister's office didn't immediately respond to questions about the letter.
Behind the scenes: Smotrich, one of the most radical politicians ever to serve in an Israeli government, has made a number of demands of the Palestinian banks to prevent the illicit funding of terrorism.
- The U.S. and its allies have been working to address those demands, and the Biden administration told Israel last week it had determined that the Palestinian banks had met the conditions Smotrich set out, U.S. officials say.
- Nevertheless, it remains unclear whether Smotrich will give Israeli banks the necessary authorization to continue working with Palestinian banks.
- Israel's Security Cabinet is likely to discuss the issue in a meeting on Sunday evening.
- Bypassing Smotrich to grant the approval would require a decision from the Israeli Cabinet.
What they're saying: Yellen and her counterparts from Japan, Canada, the EU, the UK, the Netherlands, Australia, and France wrote to Netanyahu on October 25 "in the spirit of partnership."
- "We write to emphasize our fear that 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," they wrote.
- The finance ministers wrote that if the authorization isn't extended, more than $13 billion in trade facilitated by the ties between Israeli and Palestinian banks will cease, "damaging Israel's economy and exacerbating an already dire economic situation in the West Bank."
- In such a scenario, finance flows will become less transparent and thus more dangerous, donor funds needed to stabilize the Palestinian economy could be disrupted and the West Bank and Palestinian Authority will be destabilized, they wrote.
The bottom line: "It is our request that you take steps to decrease the risk of the economic collapse of the West Bank by extending the correspondent banking relationship for banks in the West Bank by at least one year."
