From: Aftenposten
Date: 3.11.2008
S E C R E T TEL AVIV 002447
SIPDIS
NEA/IPA INR/TNC TREASURY FOR GLASER, D.
E.O. 12958:
DECL: 10/28/2018
TAGS: PREL, KPAL, KTFN, EFIN, IS
SUBJECT: CASHLESS IN GAZA?
REF:
A. 10/22/08 AGOR-BURNETT HOLMSTROM ET. AL. E-MAIL B. TEL AVIV 2144
C. TEL AVIV 2291 D. TEL AVIV 1742 E. TEL AVIV 1508 F. TEL AVIV 1075
G. TEL AVIV 624 H. 07 TEL AVIV 3201 I. JERUSALEM 1840
Classified By: DCM Luis G. Moreno for Reasons 1.4 (b) and (d)
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SUMMARY
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1. (S)
Since the Hamas takeover, Israel has designated Gaza as a
`hostile entity," and maintained an economic embargo
against the territory. Under this designation, decisions on
shekels in circulation in Gaza and the territorys economy in
general are treated by the GOI as security matters, and
therefore are subject to the same high levesl of uncertainty
that the GOI uses to keep potential sources of security threat
off-balance. Israeli officials have confirmed to Embassy
officials on multiple occasions that they intend to keep the
Gazan economy functioning at the lowest level possible
consistent with avoiding a humanitarian crisis. The
Palestinian Authoritys request for a guaranteed "floor"
transfer rate of NIS 100 million per month will not be
seriously considered by the GOI until after January 2009, when
the Palestinian political situation becomes more clear. In any
case, given the size of the population and economy in Gaza,
GOI interlocutors find it implausible that the number of
workers on the Palestinian Authority,s (PA) payroll there and
the amount of money to be paid each month accurately reflect
the current size of the territory,s civil service or its
future government service requirements, nor do they agree with
the PAs contention that these payments are buying loyalty.
Furthermore, GOI officials doubt the effectiveness and
authority of the Palestinian Monetary Authority (PMA) to
regulate and police banks in Gaza. Israeli officials reject
the PA,s argument that denying banks the liquidity to pay PA
salaries in full bolsters the Hamas regime. While some
acknowledge the gains to Hamas from a weakened formal banking
sector in Gaza, they argue that such gains are small relative
to the cost of giving Hamas greater access to shekels or the
economic benefits they bring to Gazans. A USG policy that
encourages the GOI to review its present policies (as
requested by the Office of the Quartet Representative and the
PA) while pressing the Israelis to approve as much funding
each month as possible under security constraints, assisting
the PA to improve its regulatory regimes and due diligence
procedures, and continuing to foster direct dialogue between
officials of the GOI and PA on Gaza issues in the monthly
Joint Economic Commission meetings is our best bet for
minimizing economic/political gains to Hamas in Gaza.
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GAZA IS A HOSTILE ENTITY
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2. (C)
While the GOI believes that maintaining the shekel as the
currency of the Palestinian Territories is in Israel,s
interests, it treats decisions regarding the amount of shekels
in circulation in Gaza as a security matter. Requests by
Palestinian banks to transfer shekels into Gaza are ultimately
approved, partially approved, or denied by the National
Security Council (NSC), an organ of the Israeli security
establishment, not by the Bank of Israel (BOI). As part of
their overall embargo plan against Gaza, Israeli officials
have confirmed to econoffs on multiple occasions that they
intend to keep the Gazan economy on the brink of collapse
without quite pushing it over the edge (see reftel `D').
The PAs request to set an NIS 100 million floor on monthly
transfers to Gaza is being looked at, but no action will be
taken until after January 2009, when the Palestinians
political situation becomes more clear. Complicating the Gaza
issue, and Palestinian banking as a whole, is Bank Hapoalim,s
recent decision to terminate its correspondent banking
relationship with the Palestinian banking sector (see reftel
`C'). Hapoalim remains determined to stand by its
objective to sever ties on November 30, though observers have
their doubts that Hapoalim will follow through on the
initiative (septel).
3. (SBU)
The GOIs monetary policy towards Gaza is consistent with its
declaration that Gaza is a "hostile entity." Some observers
have told Emboffs that political pressure arising from the
issue of captured Israeli soldier, Gilad Shalit, may have
influenced high-level Israeli officials to tighten their
stance on monetary policy (see ref `A'). However, this has
not been raised or confirmed by any high-level GOI contacts.
The GOI position on cash to Gaza has remained negative since
the Knessets declaration that it was a hostile entity.
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THE PAYROLL DILEMMA: WHO IS ACTUALLY RECEIVING
PA PAYCHECKS IN HAMAS-CONTROLLED GAZA?
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4.(S)
The PA contends that Hamas, ability to pay its workers,
salaries each month combined with the inability of the PA to
do so causes further deterioration in support for PA/Fatah
relative to Hamas (reftel `I'). The GOI, on the other
hand, believes that many of the estimated 77,000 wage earners
on the PAs payroll may actually be Hamas members or
affiliates. Israeli security analysts argue that a
considerable portion of the civil service salaries that the PA
attempts to pay each month to its Gazan employees actually
find their way to Hamas or Hamas supporters (see reftel "D").
They have therefore determined that full coverage of the
payroll is contrary to Israel,s security interests, even if
Hamas gains some political advantage from being able to pay
its salaries in full. Whether money finds its way into the
territory by means of the PA payroll or the Hamas payroll,
says the GOI, Hamas experiences a net increase in its funding.
Israeli analysis suggests that it is best to deny the
terrorist regime a larger pool of funds in Gaza, no matter the
origin, preferring to minimize Hamas, ability to purchase
weapons or equipment for use against Israeli civilians. Thus,
they reject the PA,s argument that denying banks the liquidity
to pay PA salaries in full bolsters the Hamas regime (see
reftel `I').
5.(S)
Furthermore, GOI officials, while often praising the
credentials of PA technocrats, doubt the effectiveness and
authority of the Palestinian Monetary Authority (PMA) to
regulate and police Palestinian, and especially Gazan banks.
This double standard in the treatment of Gaza and the West
Bank by the GOI is yet another example of how Gaza is becoming
increasingly isolated from the West Bank, despite the best
efforts of the PA/Fatah to maintain unity. These issues come
to the fore at the end of every month when the PA tries to
make payment to its `employees' in Gaza.
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HOW MUCH MONEY DOES GAZA ACTUALLY HAVE?
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6.(S)
Observers speculate as to the amount of shekels circulating in
Gaza. The BOI has established a history of routinely approving
all requests from the Palestinian banks to exchange spoiled
shekel notes from Gaza for new notes. This is not a security
issue as it does not increase the total number of shekels in
circulation. In order to support a minimal level of commerce
and provide for minimal necessities such as food, utilities,
and medical supplies, analysts agree that there must also be a
certain outflow of cash from the territory to Israel, the West
Bank, or other countries. The September 11, 2008 report of the
International Crisis Group Middle East Briefing estimates this
outflow as 30 percent of Gaza,s total shekel holdings each
month. Unfortunately, since Gaza tends more and more towards a
cash economy based upon movement of goods through its tunnels
to the Sinai, it becomes increasingly difficult to estimate
this amount with accuracy. Udi Levi (strictly protect), a
high-ranking official in the Israeli security establishment,
commented to Econcouns in October that at least 1.8 billion
shekels are currently unaccounted for in Gaza.
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WHO APPROVES THE INTRODUCTION OF NEW CASH TO GAZA?
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7.(C)
The NSC, an organ of the Israeli security and intelligence
community, ultimately has the final say in permitting new
liquidity into Gaza. When the PA or a Palestinian commercial
bank ask to move shekel bank notes into Gaza, the request is
usually submitted to the BOI. The BOI defers to the NSC though
it may act in an advisory capacity to inform the NSC on the
state of the Gazan economy or possible consequences of action
or failure to act. When the NSC ultimately approves a
particular amount, the IDF routinely permits the cash to enter
Gaza. In determining how much new liquidity can enter Gaza at
any given time, the NSC considers several factors, including
the humanitarian situation in the territory. The NSC abides by
the principal that Gaza should receive just enough money for
the basic needs of the population but it is not interested in
returning the Gazan economy to a state of normal commerce and
business. The agency tries to approve a reasonable amount of
new money for entry into the territory each month; however, it
will not permit any large scale transfer of assets from
Ramallah-based banks to their branches in Gaza for fear of
improving the purchasing power of entities wishing to harm
Israel. NSC officials have been unable to advise econoffs of
any particular formula used in arriving at a figure, but the
fluid state of Gazan, PA, and Israeli politics make it
difficult to anticipate factors that might have a bearing on
the decision from month to month.
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SO WHAT SHOULD THE USG DO?
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8.(S)
Embassy Tel Aviv has encouraged the GOI to review its policy
on Gaza liquidity, as requested by the Office of the Quartet
Representative and the PA. As noted above, we do not expect
that review to result in any changes until the political
situation between Hamas and Fatah becomes more clear,
presumably after January 9, 2009. In the meantime, we believe
the USG should continue to encourage the Israelis to approve
as much funding as possible each month, consistent with our
mutual political/security objectives in Gaza. We should
continue to assist the PA to improve its regulatory regimes
and due diligence. Finally, the USG should continue to promote
use of the Israeli-Palestinian Joint Economic Committee as the
appropriate venue for resolving Gaza liquidity issues.
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