Israel avoids implementing economic sanctions on PA

Article Summary
Following the Palestinian reconciliation, the Israeli government decided to impose economic sanctions on the Palestinian Authority, however the sanctions have remained on paper only.

On April 24, the Israeli government unanimously decided to impose economic sanctions on the Palestinian Authority (PA) as punishment for the reconciliation with Hamas, along with the suspended negotiations. However, a cursory look at the events that have taken place following that decision raises one question: Were sanctions indeed imposed?

Palestine's debt to the IEC is far from being offset

The most talked about sanction that Israel planned to impose on the Palestinians is the withholding of tax money, transferred by Israel to the [Palestinian] government in Ramallah — a move designed to cover the debts of Palestinians to Israeli bodies. The tax funds under discussion — primarily customs duties and VAT collected on behalf of Palestinians in Israel — add up to some NIS 450 million [nearly $129 million] per month, supposed to be duly transferred by the Israeli Treasury to the Palestinian government on a monthly basis. This monthly amount of tax money makes up more than half of the government revenues in Ramallah, and is used for the payment of its employees’ salaries. If the tax money is not transferred by Israel, the Palestinian government is unable to cover its expenses. Indeed, this has happened before. Thus, during the tenure of former Finance Minister Yuval Steinitz, tax money transfers were suspended from time to time.

The tax money withheld is designed to offset [Palestinian debts], first and foremost, the PA’s debt to the Israel Electric Corp. (IEC), which supplies power to the West Bank and Gaza, but is unable to collect the payment for it. The Palestinian debt to the IEC amounts to more than NIS 1.5 billion [about $430 million], a huge debt that is steadily growing by some NIS 80 million [about $23 million] a month.

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The amount of tax money due to the Palestinians for April was larger than usual — standing at NIS 585 million [close to $168 million]. However, only NIS 465 million [just over $133 million] were actually transferred. That is, NIS 120 million [more than $34 million] were deducted by Israel [from last month's transfer]. But this is nothing new. For years, Israel has been regularly withholding around NIS 100 million [in the region of $29 million] [each month], primarily to offset [the Palestinian] debts to the IEC and the Israeli health care system. In other words, the Israeli sanctions amounted last month to a mere NIS 20 million [about $6 million], a relatively symbolic offset.

Israel is well aware that the East Jerusalem Electric Co., whose debt amounts to about NIS 900 million [approximately $258 million] out of the total Palestinian debt, fails to collect payments from its customers. Hisham Al-Omari, CEO of the East Jerusalem Electric Co., explained in a lengthy interview to the [Palestinian daily] newspaper Al Quds that the PA alone was running a debt of some NIS 250 million [close to $72 million] for power supply by the company to schools, hospitals and all government institutions and ministries. Another debt of NIS 350 million [nearly $100 million] has been accumulated by the refugee camps, and on top of this, the company suffers from widespread theft of electricity.

Yet, despite the huge debt, the Israeli government has so far refrained from stopping the power supply to the Palestinians, for fear that such a move would cause great diplomatic damage.

Another sanction under consideration calls for a ban on the deposit in Israeli banks of the cash amounts in shekels accumulated at Palestinian banks. It is an uneasy sanction, given that hundreds of thousands of shekels — received as wages or in return for services rendered to Israel — are deposited each month by Palestinians in Palestinian bank accounts. In case the Palestinian banks are barred from depositing the money in Israel, they are bound to get stuck with huge amounts of shekels that they can do nothing with. Israel has restricted this month [May] money deposits [by Palestinian banks] to NIS 300 million [just about $86 million]. However, since the amounts deposited in Israel by Palestinian banks each month stand at about NIS 350 million to 400 million [almost $100 million to $ 115 million], in this case too, the punishment is not that bad. Other sanctions [suggested] have to do with the suspension of development projects in the Palestinian territories — in particular, those implemented by international bodies. However, no dramatic events have been reported in this field either.

It seems then that the question whether any sanctions have been imposed may be summarily answered as follows: There have been no sanctions whatsoever.

For Palestinian economists, the explanation is clear

Israeli spokesmen are reluctant to comment on the issue. But as far as the Palestinian economists are concerned, the explanation is quite clear: The Israeli government and its leader have been alarmed.

It thus emerges from the discussion held last week [of May 18] by the Palestinian economy leaders, as reported by the Palestinian newspaper Al Hadath. Among the panelists were Palestinian National Economy Minister Jawad Naji and Jihad Al Wazir, the governor of the Palestine Monetary Authority, among others. The participants labeled the threats of sanctions as “piracy,” “robbery” and “blackmail.” At the same time, they noted that there was no real reason for concern [on the Palestinian side], since “suspending the transfer of tax funds [to the PA] would hurt [Prime Minister Benjamin] Netanyahu more than the Palestinians, causing him damage in the political [diplomatic] arena, because the international community would not put up with it.” And, as further noted, “Economic pressures are liable to bring down the [Palestinian] Authority — a risk that Israel cannot take.”

But what if Israel nevertheless goes ahead and penalizes Palestinians by further cutting monthly tax money transfers to offset [Palestinian] debts? After all, Palestinians already have heavy debts. As mentioned above, their debt to the IEC alone amounts to NIS 1.5 billion. A number of solutions were offered in the discussion reported by Al Hadath. It was noted inter alia that, while the Palestinian government’s debt to the local banks already reached $1.3 billion, there was still room for increasing this debt, as the Palestinian banks were conservative and stable and thus, in a position to lend even more funds to the [Palestinian] government.

According to another spokesman, while the Palestinian government has large debts to suppliers, contractors and employees, it can pay its creditors through the issuance of government bonds, guaranteed by the Arab states.

Maher Al-Masri, a former Palestinian Cabinet minister, called for increasing the pressure on the international community and the Arab countries, which, he said, had pledged to stand by the Palestinians. He even went as far as to suggest the revocation of the Paris agreements (the economic addendum to the Oslo Accord). Naji argued that, with the backing of the Arab states, the Palestinians should consider the option of completely cutting their trade relations with Israel.

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Found in: sanctions, palestinian authority, palestinian-israeli conflict, palestine, israel, hamas, economy, business
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