PA MAKES JUNE SALARY PAYMENT, BUT WORRIES ABOUT

C O N F I D E N T I A L JERUSALEM 001201 SIPDIS NEA FOR FRONT OFFICE; NEA/IPA FOR GOLDBERGER/SACHAR; NSC FOR PASCUAL; TREASURY FOR DAVIS/ROSE E.O. 12958: DECL: 07/07/2018 TAGS: ECON EFIN IS KWBG PTER KFTN SUBJECT: PA MAKES JUNE SALARY PAYMENT, BUT WORRIES ABOUT THE FUTURE REF: 07 JERUSALEM 2344 Classified By: Consul General Jake Walles, for reasons 1.4 b,d. ¶1. (C) Summary: The Palestinian Authority (PA) paid June salaries on July 7. PM Fayyad told the Consul General that the PA is now out of cash and, absent new donor contributions, would not be able to make next month's salary payment in early August. Fayyad and Palestine Monetary Authority (PMA) Governor Jihad al-Wazir each expressed concern that the GOI is not permitting necessary cash shipments into Gaza. Only by arranging loans between Gaza branches was the PMA able to cover this month's salary disbursements. In a related matter, Bank Hapoalim has notified at least one Palestinian bank that, effective immediately, it will no longer provide correspondent banking cash services. End Summary. ¶2. (C) The PA paid June salaries to West Bank and Gaza employees on July 7, including 1,000 NIS to employees to whom it still owes back payment of salaries. PM Fayyad told the Consul General that, absent new transfers of donor funds, the PA would not be able to make next month's payment. He also expressed frustration at GOI restrictions on cash shipments into Gaza that threatened the ability of Gaza branches to disburse salary payments to account holders. ¶3. (SBU) Bank of Palestine (BoP) and the PMA reiterated to EconOff July 8 that the GOI's refusal to allow the physical shipment of cash to banks in Gaza threatens the liquidity of the Gazan banking system. Al-Wazir said that Fayyad received positive indications from the GOI on this issue, but the GOI did not allow any cash to be moved to Gaza on July 8. The PMA was able to arrange for distribution of this month's salary payments by encouraging loans between bank branches in Gaza, but al-Wazir fears he will not be able to execute salary payments next month without a significant increase in liquidity. ¶4. (SBU) Al-Wazir said Gaza banks need a minimum transfer of NIS 100 million. They require approximately NIS 300 million liquidity, but yesterday held only about NIS 108 million. Al-Wazir is also worried that public comments about the cash flow problem in Gaza -- however accurate -- could worsen the problem and potentially cause a run on the banks. ¶5. (SBU) BoP and the PMA also noted that Israeli correspondent banks are again threatening to restrict services provided to Palestinian banks. BoP received a letter on July 6 from Bank Hapoalim stating that, effective immediately, it will no longer provide the BoP with cash services in Israeli Shekels or any other currency. Wazir also noted he has 60 million old, non-usable shekels which he cannot disburse, but which the Central Bank of Israel has refused to accept and exchange. WALLES