MIDEAST: Bank Tightens the Squeeze

By IPS Correspondents Reprint | | Print |

Peter Hirschberg

JERUSALEM, May 20 2006 (IPS) - In yet another blow to the internationally-cornered, cash-strapped Hamas-led Palestinian government, a leading Israeli bank announced this week that it is severing ties with Palestinian banks in the wake of the Islamic movement’s rise to power. The move, however, could also deal a blow to many small Israeli businesses and the widespread business-to-business cooperation between the two peoples.

Announcing the decision, officials at Discount Bank said that they planned to cut ties for fear of violating anti-terrorism laws by doing business with any organisation or financial entity that might have links to Hamas, which has been branded a terror group by the United States, the European Union and Israel. Officials said the decision would take effect within three to six months.

“No suitable framework was found which would enable Bank Discount to provide banking services to the Palestinian banks without it being exposed to the significant risks involved in such activities,” the bank said.

The Discount decision follows a similar announcement several weeks ago by Bank Hapoalim, another major Israeli bank. International banks, as well as some Arab-owned banks in the region, have begun to adopt similar measures, fearing U.S. anti-terror sanctions and private litigation.

Officials at Israel’s central bank said they hoped to find some way to enable the continuation of commercial ties while circumventing contacts with Hamas. Until they do, the decision is likely to further increase pressure on the Islamic movement which swept to power in parliamentary elections in late January.

With Israel withholding 50 million dollars a month it owes the Palestinian Authority in revenues from customs duties on goods passing through the Jewish state, the new Hamas government has been unable to pay the salaries of 165,000 government employees since March. In Gaza, this has led to violent demonstrations by police officers demanding their pay.

The U.S. and the European Union have also been putting the squeeze on Hamas, and despite promises of assistance from Iran and other Arab states, the funding has not been forthcoming.

Western countries have adopted Israel’s demand that Hamas be starved of funding until it fulfills three conditions: recognise Israel, renounce violence, and adhere to interim peace agreements signed between Israel and the Palestinians in the mid-1990s.

Despite five years of violent confrontation between Israelis and Palestinians, commerical ties on various levels have continued unabated, making Discount’s decision all the more worrying for a Palestinian Authority largely dependent on Israel. The Israeli shekel is the main currency in the territories and the Palestinian government purchases essential goods from Israel, like fuel, water and electricity.

But financial activity is not confined to the government level. Palestinian businesses buy food and other commodities like spare parts from Israeli firms. With Israeli banks severing ties with Palestinan banks, this everyday coexistence is now also in danger of evaporating – a development that will harm not only the Palestinians, but also owners of small businesses in Israel.

Asked about the banks’ decision, one Israeli businessman wondered how he would be able to collect his money since his Palestinian clients had paid him with post-dated cheques until the end of the year.

“Ending trade with the Palestinians could cause the collapse of a lot of small firms dealing in things like food and spare parts,” said Ze’ev Vinner, who heads a small-business association in Israel. “They’ve been working closely with the Palestinians for years.”

According to economic agreements signed by Israel and the Palestinian Authority in the mid-1990s within the framework of the Oslo peace accords, only Bank Discount and Bank Hapoalim are allowed to facilitate commercial transactions between Israel and the Palestinians.

While Palestinian President Mahmoud Abbas has called on Hamas to alter its anti-Israel positions, he has warned of an impending humanitarian crisis and escalating violence in the territories if economic sanctions continue. “Life will be frozen and then there will be an explosion of anger and this would lead to a chaotic situation of which we cannot foresee the results,” Abbas warned this week at a press conference after addressing the European parliament in Strasbourg.

Ahead of his first visit as prime minister to Washington next week, Ehud Olmert dismissed as “total propoganda” the claims that the Palestinians face a humanitarian crisis. “We wouldn’t allow one baby to suffer one night because of a lack of dialysis,” he told the New York Times in an interview, adding that Israel would purchase medicines for Palestinian hospitals if necessary.

But the eight government hospitals and 60 government-funded clinics in Gaza are all reporting chronic shortages of vital medications. With the Palestinian Authority effectively bankrupt, there is no money for the hospitals.

Doctors report a growing number of cases of cancer patients whom they are unable to treat because the required medication has run out. Or of patients requiring dialysis whom they cannot treat fully because medical supplies are scarce.

The Israeli defense ministry has drawn up a plan whereby funds from the 50 million dollars in tax revenues Israel is refusing to hand over to the Palestinian Authority will be transferred to an international aid agency for the purchase of medical supplies.. The plan is awaiting Olmert’s approval.

EU leaders, increasingly concerned about a possible humanitarian crisis in Gaza, have announced plans for a “temporary mechanism” in the form of a trust fund that will begin operating in June and will channel money to the Palestinians without it getting to the Hamas-led government.

Residents of Gaza will be praying the fund does in fact start operating soon and that Israel’s central bank does come up with a “creative” method, as one official puts it, to allow Israelis and Palestinians to continue doing business.