Identifier
Created
Classification
Origin
06JERUSALEM4630
2006-10-27 15:10:00
CONFIDENTIAL
Consulate Jerusalem
Cable title:  

ECONOMIC FREEFALL DAMAGING GAZA INDUSTRY; BANKING

Tags:  ECON EFIN PGOV PREL KWBG IS 
pdf how-to read a cable
VZCZCXYZ0001
OO RUEHWEB

DE RUEHJM #4630/01 3001510
ZNY CCCCC ZZH
O 271510Z OCT 06
FM AMCONSUL JERUSALEM
TO RUEHC/SECSTATE WASHDC IMMEDIATE 5557
INFO RUEHXK/ARAB ISRAELI COLLECTIVE PRIORITY
RHEHNSC/NSC WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUEHBS/USEU BRUSSELS PRIORITY
C O N F I D E N T I A L JERUSALEM 004630 

SIPDIS

SIPDIS

NEA FOR FRONT OFFICE; NEA/IPA FOR
WILLIAMS/SHAMPAINE/STEINGER; NSC FOR ABRAMS/DORAN/WATERS;
TREASURY FOR SZUBIN/LOEFFLER/NUGENT/HIRSON

E.O. 12958: DECL: 10/27/2016
TAGS: ECON EFIN PGOV PREL KWBG IS
SUBJECT: ECONOMIC FREEFALL DAMAGING GAZA INDUSTRY; BANKING
SECTOR STRUGGLING

REF: JERUSALEM 4587

Classified By: Acting Principal Officer Thomas Duffy, Reasons 1.4 (b) a
nd (d).

C O N F I D E N T I A L JERUSALEM 004630

SIPDIS

SIPDIS

NEA FOR FRONT OFFICE; NEA/IPA FOR
WILLIAMS/SHAMPAINE/STEINGER; NSC FOR ABRAMS/DORAN/WATERS;
TREASURY FOR SZUBIN/LOEFFLER/NUGENT/HIRSON

E.O. 12958: DECL: 10/27/2016
TAGS: ECON EFIN PGOV PREL KWBG IS
SUBJECT: ECONOMIC FREEFALL DAMAGING GAZA INDUSTRY; BANKING
SECTOR STRUGGLING

REF: JERUSALEM 4587

Classified By: Acting Principal Officer Thomas Duffy, Reasons 1.4 (b) a
nd (d).


1. (SBU) Summary: Severely restricted throughput at
Karni/al-Mintar crossing, non-payment of PA salaries, and IDF
incursions continue to seriously undermine Gaza's economy,
particularly its industrial base. With arrears mounting and
almost no new lending, banks operating in Gaza are under
increased pressure. The Bank of Palestine has started
calling in PA loans and provisioning the unpaid loans of PA
employees. End Summary.

--------------
Industry Fleeing
--------------


2. (C) In an October 16 Econoffs/USAIDoff meeting with
Hebron businessmen (reftel),Hani Shawa, Chairman of the
Gaza-based Bank of Palestine Ltd., commented on the dire
state of the Gaza economy and the impact on banks operating
there. He asserted that one half of the Gazan business
community's wealth was tied up in goods waiting to enter Gaza
through the Kanri/al-Mintar crossing. Restrictions on the
flow of goods in both directions, he continued, is leading to
the irreparable collapse of Gaza's industrial base. Shawa
stated that a biscuit factory that had once sold 60 percent
of its production to the West Bank had not sent a shipment
there in almost two years. Nafez Hirbawi, Chairman/General
Manager of Hebron-based Paper Industries Company, Ltd.,
interjected that the biscuit company is actually planning to
close and move abroad. Shawa reacted by expressing his
concern over unpaid loans his bank had previously extended to
the company. He added that many Palestinian companies in
Gaza had closed or moved abroad, particularly furniture
manufacturers long-prevented from exporting their products.


--------------
Agriculture Sector Failing
--------------


3. (C) Shawa said that agricultural activity had declined
significantly. The inability to export most of last season's
harvest due to prolonged Karni/al-Mintar crossing closures
has discouraged many farmers from planting this year. In
addition, IDF incursions since June 25 have damaged
agricultural areas. Shawa described cultivated land in Beit
Lahiya as "a battle ground for Israeli tanks." Although
production is expected to decline, fresh produce prices will
continue to be low due to the limited flow of exports allowed
through Karni/al-Mintar. According to Hirbawi, one
15-kilogram box of tomatoes currently sells for NIS 2 in
Gaza, but would normally bring NIS 20-25 per box.

--------------
Pressure on Banks Rising
--------------


4. (C) Shawa described the state of the banking sector in
Gaza as "catastrophic" given the loss of the industrial base.
According to Shawa, with the exception of a few loans to
large businesses, banks operating in Gaza have stopped
lending and issuing letters of credit since many private
sector customers can no longer afford these services. He
said personal loans are "out of the question." The Bank of
Palestine is calling in two PA loans totaling NIS 120 million
-- a NIS 20 million loan from their Ramallah branch and a NIS
100 million loan from their Gaza headquarters -- due to
expire in October. Payments from PA domestic revenues have
reduced the amount due on the loans to NIS 80 million total.
The Bank of Palestine recently provisioned USD 3.5 million in
PA employee loans that had not been serviced for six months.
Shawa estimated that total PA employee debt to the bank stood
at USD 130 million. Starting September 1, the bank began
deducting 20 percent from any allowance payments to any PA
employee with outstanding loan payments.


5. (C) Shawa stated that Israeli banks, which earlier this
year had threatened to sever ties with Palestinian banks,
have agreed to continue providing check clearing and other
services until the end of the year. He said that he believes
a permanent solution may involve greater scrutiny of
transactions valued at NIS 5,000 or more. Shawa said that in

September 2006, the Bank of Palestine installed a "Safe
Watch" software filter containing the OFAC list and produced
by a Belgium company. (Note: The bank notified the Ministry
of Finance in April 2006 that it could not open a Single
Treasury Account for the PA. End Note.)

DUFFY