Treasury Secretary Janet L. Yellen warned Israel Thursday against cut ties between Palestinian and Israeli banks, arguing that such a move would further destabilize the West Bank economy at a time when Palestinians are already facing dire economic conditions.
Ms. Yellen’s comments follow Israel’s decision on Wednesday to withhold tax revenues from the Palestinian Authority in retaliation for three European countries’ unilateral agreement to recognize a Palestinian state. Ms. Yellen and other top economic officials from the Group of Seven are expected to discuss the issue and the humanitarian situation in Gaza at their summit in Stresa, Italy, which begins Thursday.
“I am particularly concerned about Israel’s threats to take actions that would lead to Palestinian banks being cut off from their Israeli correspondent banks,” Yellen said in a speech before a news conference.
Ms. Yellen added that banking channels were essential to processing transactions that import $8 billion a year in food, fuel and electricity from Israel and $2 billion in Palestinian exports. .
The war in Gaza is one of many geopolitical crises weighing on the global economy. Economic policymakers also plan to discuss Russia’s war in Ukraine and continue deliberations on how to use more than $300 billion in frozen Russian central bank assets to provide additional aid to Ukraine. Group of 7 officials will also discuss ways to strengthen sanctions against Russia and how to prevent China from providing military support to the country.
Yellen said Thursday that the plight of the Palestinians would be a topic of discussion with her counterparts and that a move to cut the Palestinians off from the international financial system could fuel a “humanitarian crisis.”
The Palestinian economy uses the shekel, Israel’s national currency, and relies on Israeli banks to process transactions. Israel’s Finance Ministry usually signs an annual waiver protecting its banks from legal exposure related to the transfer of funds to terrorist groups when Israeli banks facilitate transactions with Palestinians.
After granting a three-month extension of the waiver earlier this year, Israeli Finance Minister Bezalel Smotrich indicated he may not extend it again when it expires in July.
United Nations officials said last month that cutting off Palestinian banks from Israel would essentially cut it off from the global banking system and cripple the Palestinian economy.
On Wednesday, Mr. Smotrich also said he had informed Prime Minister Benjamin Netanyahu that he would no longer send tax revenues to the Palestinian Authority, which administers parts of the Israeli-occupied West Bank in close cooperation with Israel. Israeli and Palestinian leaders agreed earlier this year to a deal agreement stipulating that Norway would hold part of the revenue in trust until Israel agreed that it could be sent to the Palestinians. On Wednesday, Mr Smotrich called on the government to immediately cancel the agreement.
The Biden administration also criticized the decision to restrict Palestinian access to tax revenue.
“Israel’s withholding of revenues it collects on behalf of the Palestinian Authority also threatens economic stability in the West Bank,” Yellen said. “We and our partners must do everything possible to increase humanitarian assistance to Palestinians in Gaza, reduce violence in the West Bank, and stabilize the West Bank economy. »
The Treasury secretary declined to say what repercussions Israel might face if it followed through on its threat to cut off Palestinian banks, suggesting that the United States and other Group of Seven countries would rely on diplomatic pressure.
“I would expect other countries to express concerns about the impact of such a decision on the West Bank economy,” Ms. Yellen said. “I think it would also have a very negative effect on Israel. »
In February, Ms. Yellen wrote a letter to Mr. Netanyahu urging it to increase its commercial engagement with the West Bank, saying this was important for the economic well-being of Israelis and Palestinians.
