As the Israeli-occupied West Bank faces growing economic hardship, Israeli officials said Friday that a far-right minister had tentatively agreed to release some of the frozen funds earmarked for the financially troubled Palestinian Authority in exchange for strengthening Israeli settlements in the territory.
Bezalel Smotrich, the country’s finance minister, has sought to paralyze the Palestinian Authority, which administers parts of the West Bank under Israeli military rule and believes Palestine is a sovereign state. Israel should rule the territory foreverHe has withheld hundreds of millions of dollars in funding for the Palestinian Authority and threatened to let expire a waiver protecting Israeli banks that do business with Palestinian banks.
To appease Mr. Smotrich, the ministers agreed at a meeting late Thursday to measures that included retroactively authorizing five Israeli settlement outposts in the West Bank that had been built illegally, according to Mr. Smotrich’s office and two other Israeli officials who spoke on the condition of anonymity to discuss the sensitive cabinet deliberations.
In exchange, Mr. Smotrich would agree to release funds to the authority and extend the banking waiver, officials said, though he has not yet announced those measures. But even if the temporary reprieve is implemented, Mr. Smotrich could demand even more concessions later.
The details and timeline for legalizing the five outposts were not immediately clear. While much of the international community views Israeli settlements in the West Bank as a violation of international law, the outposts are illegal under Israeli law; authorizing them allows them to legally grow and expand.
As the Israeli military campaign continues in Gaza, a parallel economic crisis is developing in the West Bank, where tens of thousands of people have lost their jobs due to the war, where Palestinian civil servants have not been fully paid for years. months and where Israeli raids are almost daily. have disrupted even basic travel.
Mr. Smotrich has used his position to strike blows against the Palestinian Authority, which administers parts of the Israeli-occupied West Bank. He has blocked most of the Palestinian government’s budget, threatening not to renew a crucial waiver protecting Israeli banks that do business with their Palestinian counterparts.
The measurements have alarm The Biden administration, which wants the Palestinian Authority to have a role in managing the Gaza Strip after the war, also fears that an economic collapse in the West Bank could lead to a surge in violence in the territory, which has yet to experience a mass uprising despite months of rebellion. Deadly Israeli military operations.
The Palestinian Authority has drifted from crisis to crisis for years, struggling to pay its arrears while international aid dwindles. Israel has often withheld taxes it collects in the name of authority in an effort to penalize its leaders. At other times, Israel has sent tens of millions of dollars to keep it afloat.
But many have called the current economic situation in the West Bank the most difficult yet.
After the attack by Hamas on October 7, tens of thousands of Palestinians who worked in Israel were no longer allowed to enter, creating mass unemployment overnight. Israeli military raids, road closures and tighter checkpoints have further stifled the Palestinian economy.
Before the war, Mahmoud Abu Issa, 53, earned more than $2,000 a month – an enviable salary in the poor West Bank – as a construction worker in Israel. He has been unemployed since Israel banned most Palestinian workers, except for irregular jobs like day laborers for around $10 a day.
His son, who worked with him in Israel, had started building a house before the war started. Since their salaries stopped, the house has remained unfinished, he said.
“We sit day and night, hoping that something will change,” Mr. Abu Issa said. “But there’s nothing.”
Under agreements between the two sides, Israel collects and transfers hundreds of millions of dollars in tax revenues to the Palestinian Authority. Mr. Smotrich has withheld these funds, which make up the majority of the Palestinian government’s budget, worsening the government’s fiscal crisis.
As a result, Palestinian leaders constantly struggle to pay their employees, of whom there are at least 140,000, according to officials at the PA Finance Ministry. Many have received only part of their salary, often at irregular intervals, for years; last month, most received only 50% of their salaries.
Shadi Abu Afifa, a father of four who lives near Hebron, saw his $930 monthly salary as an officer in the authority’s security forces cut in half last month. He says his family stopped buying cooking gas and gave up other modest luxuries, like home Internet access, in an attempt to save money.
“If the economy improves, we might start to feel some hope again,” Mr. Abu Afifa said. “Because right now we are in a bad and stifling situation: war, unemployment, everything is adding up.”
U.S. officials have been pressing the Israeli government to release the funds, fearing that renewed economic hardship could lead to more violence in the West Bank. Jake Sullivan, the national security adviser, called this week for the funds to be released “without further delay.”
Last month, after three European countries announced they would recognize a Palestinian state, Mr Smotrich announced he would not renew the waiver – due to expire on July 1 – which protects Israeli banks from legal liability for their collaboration with Palestinian banks.
Lacking their own currency, Palestinians generally use Israeli shekels. If Palestinian banks wish to offer shekel accounts, they must maintain ties with Israeli banks and rely on them to process shekel transactions.
Since 2017, the Israeli Finance Ministry has issued a waiver to compensate Israeli banks, according to Lilach Weissman, a ministry spokesperson. If the waiver is not renewed, Israeli banks could sever ties with their Palestinian counterparts, banking experts said.
“The consequences would be bad and dangerous for everyone,” said Akram Jerab, chairman of the board of directors of Quds Bank, which has 31 branches in the West Bank.
At a cabinet meeting Thursday evening that continued past midnight, Mr. Smotrich agreed to temporarily extend the exemption for four months, said Eytan Fuld, the minister’s spokesman. We don’t yet know what will happen next.
If he ultimately follows through on his threat to let the waiver expire, it could also have economic consequences for Israel, experts say. Palestinian traders would be unable to use banks to pay Israeli suppliers for imported goods. And there would be no way for Palestinians to pay Israel for essentials like fuel, water and electricity, said Azzam al-Shawwa, a former Palestinian banking regulator.
“Israel’s trade is closely linked to Palestine’s,” al-Shawwa said in an interview. “Palestine is one of Israel’s largest trading partners. Is Smotrich prepared to lose that?”
Rawan Sheikh Ahmad contribution to the report.
