Treasury Secretary Janet L. Yellen warned Israel against it on Thursday break a relationship between Palestinian and Israeli banks, arguing that such a move would further destabilize the West Bank’s economy at a time when Palestinians are facing dire economic conditions.
Ms. Yellen’s comments came after Israel’s decision on Wednesday to withhold tax revenue from the Palestinian Authority in retaliation for three European countries unilaterally agreeing to recognize a Palestinian state. Ms. Yellen and other top economic officials from the Group of Seven nations are expected to discuss the issue and the humanitarian situation in Gaza during their summit in Stresa, Italy, which begins on Thursday. Year.
“I am particularly concerned by Israel’s threats to take action that would result in Palestinian banks being cut off from Israeli correspondent banks,” Ms. Yellen said in a speech to a news conference.
Ms. Yellen added that banking channels are important in processing transactions that enable $8 billion a year in food, fuel and electricity imports 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 are also planning to discuss Russia’s war in Ukraine and continue to weigh how to use more than $300 billion in frozen Russian central bank assets to provide aid. supplement for Ukraine. Group of 7 officials will also discuss how to tighten sanctions on Russia and how to prevent China from providing military support to the country.
Ms. Yellen said on Thursday that the plight of the Palestinians would be a topic of discussion with her counterparts and that the move to cut the Palestinians off from the international financial system could trigger a “crisis.” humanitarian crisis”.
The Palestinian economy uses shekels, Israel’s national currency, and relies on Israeli banks to process transactions. The Israeli Ministry of Finance typically signs an annual waiver to protect its banks from any legal risks associated with transferring funds to terrorist groups when Israeli banks facilitate the transactions. with the Palestinians.
After extending the exemption by three months earlier this year, Israel’s hard-line finance minister, Bezalel Smotrich, said he may not extend it again when it expires in July.
United Nations official 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 informed Prime Minister Benjamin Netanyahu that He will no longer send taxes to the Palestinian Authority, which administers parts of the Israeli-occupied West Bank in close cooperation with Israel. Israeli and Palestinian leaders earlier this year agreed on a deal agree stipulates that Norway will hold certain revenues in trust until Israel agrees that they can be sent to the Palestinians. On Wednesday, Mr. Smotrich called on the government to immediately abolish that agreement.
The Biden administration also criticized the decision to limit Palestinians’ 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 need to do everything possible to increase humanitarian assistance to Palestinians in Gaza, to limit violence in the West Bank and to stabilize the West Bank’s economy.”
The Finance Minister declined to say what consequences Israel might face if it follows through on its threat to cut off Palestinian banks, suggesting that the United States and other Group of 7 nations would rely on diplomatic pressure.
“I hope other countries will express concern about the impact of such a decision on the West Coast economy,” Ms. Yellen said. “I think this will also have a very detrimental impact on Israel.”
In February, Ms. Yellen wrote to Mr. Netanyahu urged him to increase trade cooperation with the West Bank, saying doing so was important for the economic well-being of both Israelis and Palestinians.
