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US Pressure Mounts to Safeguard PA’s Financial Lifelines
Washington D.C. - The Biden administration is stepping up pressure on Israel to renew a critical banking waiver, which expires in July, to prevent a catastrophic economic crisis in the West Bank and potentially destabilize the region.
The Waiver’s Importance
The waiver, which allows Israeli banks to clear funds for Palestinian banks, is seen as a lifeline for the Palestinian economy. Its expiration could lead to a severe financial crisis, exacerbating already high tensions between Israelis and Palestinians.
International Condemnation
Israeli Minister of National Security Itamar Ben Gvir’s plan to restrict the movement of Palestinian officials has drawn international condemnation, including from US lawmakers. Democratic Senator Chris Van Hollen of Maryland has suggested that Washington should sanction Ben Gvir and his colleague, Bezalel Smotrich, for undermining peace and stability in the West Bank.
Sanctions Packages
The US has already issued an executive order allowing sanctions against non-US citizens deemed to be undermining peace and security in the region. Officials have indicated that they are developing sanctions packages against Smotrich and Ben Gvir, which could be imposed quickly.
Concerns about Hasty Sanctions
However, there are concerns that imposing sanctions too hastily could embolden extremist elements and hasten the very outcomes the US seeks to avoid.
The High Stakes
Preventing an economic collapse in the West Bank is crucial not only for the Palestinian people but also for Israel’s security. An Israeli defense official told Crisis Group that an economic and social debacle could have a detrimental impact on Israel’s security, while Israeli press reports suggest that the military, Shin Bet, and Mossad all oppose Smotrich’s plan.
World Bank Warning
The World Bank has warned of potential disruptions in trade, increased transaction costs, and a decline in economic confidence if the waiver is not renewed. The US and other countries should ramp up pressure on the Netanyahu government to renew the waiver, emphasizing the urgency of the situation and making clear that non-renewal would harm bilateral ties.
Alternative Solutions
If Israel declines to renew the waiver, the US, European, and Arab states should plan alternative stopgap measures to mitigate the economic fallout. This could include:
- Injecting foreign currency into the Bank of Palestine
- Creating special purpose mechanisms for financial clearing and payment
Additional Measures
The US could also consider providing comfort letters or opinions from the Department of Justice to reassure Israeli banks that they will not face enforcement action for facilitating transactions with Palestinian banks.
The Consequences
Non-renewal of the waiver before July 1 risks precipitating a severe financial crisis in the West Bank, causing enormous harm to the Palestinian population. Israel should renew the waiver, and the US should urge it to do so, clarifying the costs of inaction to bilateral ties.
Contingency Planning
The US and other countries seeking a just and durable settlement of the Israeli-Palestinian conflict must also make contingency plans in case Israel does not renew the waiver or renews it for less than a year. Without decisive action, the Palestinian economy is headed for catastrophe, potentially destabilizing the West Bank and the wider region.